A large part of the export business is in more or less incomplete car units due to the specifications of foreign tariff laws. Shipments are made of parts for assembly, semiknockdown cars boxed for export, less tires, inside upholstery, bumpers, or any other parts or equipment, which it may be cheaper for the importer to purchase locally. The pricing policy of the company for these incomplete car units is to compute the cost plus profit up to the stage of completion in which shipment is made. The profit to the company per car would, therefore, be less than that secured on complete car units but the percentage of profit on the dollar volume of sales would be as nearly the same as cost accounting methods can make it. The company does not compute separate profit statements for domestic and export sales as it sees no reason to do so since its entire costing procedure is designed to give the same net return on export sales as on domestic. The same cooperative advertising scheme is used in export markets as in domestic and the ratio of other sales expenses could not be much different.

The only difference between domestic and export pricing policy is that domestic terms are cash while in a few distant export markets open accounts terms are extended up to 90 days. The management states that the majority of export sales are made against letter of credit.

Retail prices in the various export markets are virtually left to the discretion of the foreign distributors since they must cover total landed costs and be adjusted to local market conditions.

Example 15.-This case concerns a manufacturer of automobiles and trucks having many foreign factories, assembly plants, and selling branches. The foreign branches operate independently of the domestic organization-they buy the products of the parent company according to their specifications precisely the same and at the same prices as independent distributors buy them. The purpose of the foreign subsidiaries is to assure the company of an effective distributive agency in all of the larger markets.

The pricing policy is virtually the same as in the previous case. Complete units have a standard price f. o. b. factory from which discounts are given to distributors and dealers. The same discounts are used in exports, as the company has found no difficulty in classifying its foreign buyers.

On incomplete cars the various production departments make the decision as to how much will be allowed for any deletions. If the deletions are small they will usually allow only factory costs, thus leaving their profit unimpaired. But if the deletion is the product of another manufacturer, for example tires or glass, they will deduct the amount which was originally added for these parts and which includes a profit.

The foreign branches of the company determine their own selling prices upon the basis of their total landed costs, assembly costs, sales expenses, and competitive conditions in the market. As all these factors vary considerably from country to country, the profit earned per car by the foreign affiliates varies widely, from about $20 to $200 on a low-priced car (that is, low-priced in the United States-in foreign markets they are usually luxury items). The volume of business that can be done in a particular market is the important consideration in the branch's price policy. For example, a country establishes a

quota of, say, 500 cars for this company when its sales there had been averaging 5,000 cars. The branch may now be able to get a much higher price for the car, and the profit per car may be doubled or more and yet the total profits of the branch operations be smaller than formerly.

The fact that the foreign branches earn a profit on their operations cannot be taken as evidence of a higher export than domestic price, as they perform additional functions. Whether the foreign companies are subsidiaries or independently owned is irrelevant to the price comparison so long as equal treatment be accorded both types of buyers.

Considering the comparative profitability of domestic and export sales the management states that export is more profitable if the operations for the foreign companies are included, since in export business the profits on some of the distributive functions are included. But from the standpoint of the domestic manufacturing and selling organization (which includes the export department), there is no consistent difference in profitability. There is no difference on the manufacturing side because prices are adjusted to differences in costs. And on the distributive side the ratio of expense to sales for the domestic and export departments varies from year to year with the volume of sales and is not consistently larger in one department or the other.

GROUP III. CASES OF LOWER EXPORT THAN DOMESTIC PRICES

All of the remaining cases fall into one or another of the types of price policy under group III, cases having some export prices lower than domestic. The reader will recall that every case in which some export prices were lower than domestic prices for similar goods to a similar type customer, after adjustment for differences in costs, was classified under group III, except where it was definitely a temporary phenomenon. The lower prices may apply to only a few items in a wide and varied line of products or to only a few foreign markets out of a world-wide distribution. Prices of other products of the business organization may be higher than domestic prices and profits on export business as a whole may be substantially greater than profits on domestic business. All these facts will be brought out in the following discussion. But in each of these cases at least some export sales are made at an actual price concession or the equivalent of a price concession in the terms and conditions of sale.

It is worth noting at the outset that in all but one of the cases in group III there is some price variation from market to market in the export business. That is, regardless of the type of export price policy, some markets are being sold at lower prices than other markets for a few or more items that the company manufactures. Price variation among export markets also appeared in the first five cases of group I in which export prices were higher than domestic prices. In those cases export prices were not uniformly higher to all export markets and in the cases in group III (except one) export prices are not uniformly lower to all export markets.

Type 7.

Standard export prices same as domestic but concessions given in some markets.-The first type to be considered is that in which the basic export price policy, and that which applies to the bulk of the

export sales, is the same as type 6. That is, these companies use their domestic prices as standard export prices and consummate a large share of their export sales at those prices. However, in each of the eight cases in this group, there are exceptions-to particular markets or on particular transactions price concessions are granted. In no case was more than 20 percent of the export sales made at prices below the standard prices, so it can be said that the price concessions are exceptions to the general policy of selling domestic and export at the same prices.

The products in these cases are given in the following table. It will be noted that three of these cases show export business to be a little more profitable than domestic despite lower prices on a portion of exports. This is due to the price differential being offset by smaller selling costs for exports as a whole.

Several examples are given below for illustrative purposes:

Example 16.-This company manufactures machine tools, ventilating fans, and air-conditioning equipment. Most of its business is in stock items, but some is contract business which is obtained by submitting bids.

The stock items all have standard prices f. o. b. factory. As the usual practice in export is to quote f. a. s. New York, the company adds a flat 10 percent to the domestic price to cover the costs of export packing, inland freight, document, etc. While these costs vary from shipment to shipment, the average is about 10 percent, so that this percentage is used to avoid numerous small calculations. On occasion however, when the foreign agent reports competition that can be met by a moderate price concession the company will absorb this 10 percent cost for f. a. s. billing. Only a small share of the export business is subject to this price concession.

For the contract business the company has a formula of the usual labor-materials-and-overhead type that is applied to determine the price quotation. But competition does not allow the consistent use of this formula. However, the management states that downward revisions of prices on this type of business are more frequent in domestic quotations than export, because the company in most instances is too far away from the export market and knows too little about the competition there to be able to price specifically for it.

The company does not have separate accounting for export sales, and therefore does not know how the profit on export business compares with domestic. The guess of the executive is, however, that exports are a little more profitable, as there is proportionately less servicing after a sale is made and very little advertising abroad. But

exports would definitely be much less profitable if the 10-percent price concession had to be given on all sales abroad.

Example 17.-This company manufactures an extensive line of paper and stationery specialties. It has two price lists for the domestic market-one for jobbers, the other for direct retailer accounts purchasing $500 or more a year. Freight on domestic sales is absorbed by the company except to a few accounts in the far west, where the billing is f. o. b. its Chicago sales office. Terms are 2 percent 10 days, net e. o. m. Domestic prices are used for over 90 percent of the export sales. On a small percentage, probably not over 2 percent, direct price cuts are given of from 5 to 15 percent of the domestic price. On another small percentage of the business the products are not sold in the same form as in the domestic market. In order to reduce ocean-freight costs or high tariff charges based on gross weight, the products are shipped in bulk, unboxed, or in special light-weight containers, and an allowance given for the cartons or wrappings that must be supplied by the importer. His allowance is generally larger than the cost would be to the company and the net return on these sales consequently lower.

All export sales are f. o. b. factory and terms net 60 days after arrival of the goods. The company does not charge for export packing, but it limits direct accounts to those who can purchase $1,000 or more a year.

Profits on the export business are kept separately, and consistently show a somewhat higher rate of return on sales as a whole than domestic. This is due to lower selling expense, less advertising, and no freight cost on export sales.

Example 18.-The products in this case are heavy industrial chemicals, predominantly bulk materials. All sales, domestic and export, are on a f. o. b. factory basis. In most of the export transactions, prices are identical with domestic prices. In some instances, however, dependent upon market conditions in the particular country involved, and upon the profit margin in the particular product, price concessions are offered to export customers of as much as 8 percent. The management estimates roughly that the average price of export sales is about 3 percent less than for domestic sales for those products which are exported. Profit margins for many products are so small that no concessions can be made and most items in the line cannot be exported. Profit statements are prepared separately for export and domestic business. Domestic business is consistently more profitable than export due entirely to higher average prices. The ratio of selling expenses to sales does not differ materially between export and domestic business.

Example 19.-This case concerns a manufacturer of tobacco products, of which only cigarettes are exported. The net price to most export markets is equal to the domestic price less excise taxes and dealers' discount. On occasion price concessions are made to markets in which the currency has depreciated. The depreciation of a foreign currency might also result in a lower net export price to the company because it has been selling in the foreign currency or because it was under contract to a foreign government monopoly to deliver its products at a price fixed in the foreign currency. A profit statement is not computed separately for export sales, nor could the executive estimate whether export business was more or less profitable than domestic. He did not think that the question was very meaningful in view of the small volume of export sales.

The comparison of profitability of domestic and export sales in these cases represents a combination of two factors. The first is the lower prices received on some part of the export sales which would, if all other things were equal, make export business as a whole less profitable than domestic. The second factor is the relation of selling and distribution costs on domestic and export sales to the difference between the standard domestic and export prices. Of itself, this factor may result in a difference in the profitability of exports either way just as in the cases of group II, type 6.

Type 8.

Export business with different type of customer than domestic; concessions given in some markets-quite a few firms in the sample follow a different method of distribution in export markets than in the domestic market. For example, domestic sales may be only to retailer or directly to the consumer, while export sales are made to wholesalers or exclusive distributors. Since the company performs more distribution functions in the domestic than in export markets, a lower invoice price to export customers need not represent a price concession.

The seven business organizations which have been classified under type 8 all transact a substantial part of their export business with a different type of customer than in the domestic market. Furthermore, they have a relatively standardized price differential between the two types of customers which, if adjusted for the added costs of the functions performed in the domestic market but not in export markets, does not represent a price concession on export sales. If all export sales were consummated at the company's standard export price, one could say that domestic and export prices were equal and these cases would be in group II. But, in each of these cases, some part of the export transactions are made at prices lower than the standard export price, and therefore at lower than domestic prices. The price concessions are to particular countries to meet local market conditions. These seven cases are listed in the following table.

The following examples are of this type.

Example 20.-This company manufactures an extensive line of artificial teeth. In the domestic market its sales are entirely to wholesalers (dental depots) who in turn supply the needs of the profession-dentists and dental laboratories. These wholesalers carry the products of many manufacturers. The promotion function, therefore, rests chiefly upon the manufacturer. It must acquaint the profession with its products and induce the profession to order those products from the wholesaler. In order to do this, the company advertises in professional journals, maintains exhibits at the conventions of the