These prices are f. a. s. New York, in wholesale quantities. Retail prices abroad, after payment of ocean freight and duties are invariably higher than the domestic retail price. For example, on the above product, which retails in the American market at $0.60; the price in England at the current rate of exchange is $1.12; Australia, $0.85; France, $0.86; Union of South Africa, $0.74; the Argentine, $0.621/2.

The export manager explained that his rule-of-thumb method of pricing is to double the price at which the product is charged to him by the factory. He knows from experience that if on the average he gets double the factory cost for each product, at the end of the year his department will show a profit. For example, the factory costs for the above product are $1.02, so that even the price to France of $1.50 covers the factory cost, the out-of-pocket expenses of the export department, and part of the administrative overhead with which the department is charged.

As has been indicated above, the operating expenses of the export department are considerably lower than the operating expenses of the domestic department handling the company's branded line of products. The manager of the domestic department states that his department's expenses, that is, the selling expenses, average approximately 50 percent of receipts from sales, while the export manager states that his departmental expenses vary between 20 and 35 percent of sales per month, depending upon the profitability of the items exported and the market to which the bulk of the shipments happen to go. There is no way of comparing the overall experience of these two departments except by the profitability of their operations. This comparison is a very simple one because of all the departments in this organization, the only one which has consistently lost money in recent years is the domestic sales department which handles the branded line. The export department has continuously shown a substantial profit, as have the other domestic sales departments. But the domestic sales department which services independent jobbers and dealers has for years been faced with higher and higher selling costs as its volume of sales have tended to decrease. In fact, the company was forced to sell to the newer merchandising outlets (chain stores, etc.) because its sales to independent dealers were dwindling and it thus had no outlet, or not sufficient outlet, for its manufacturing capacity. Type 11.

All foreign sales made by company branches; concessions in some markets. There is a similar type of export price procedure which, while followed by several cases in the sample for part of their export business, was employed exclusively by only one case. This method of pricing is one which can be used only by firms with foreign selling branches. The foreign branches are invoiced at factory costs and they fix their prices independently of domestic prices. The invoice prices are only nominal, representing intercompany bookkeeping entries, and they do not include any profit on the transaction. The foreign branch must calculate its landed cost, its local distribution costs, and attempt to get prices and volume large enough to yield a profit.

This system is being used by several cases in the sample, for part of their exports, usually by companies with branch factories abroad. Goods are shipped in a semimanufactured condition and finished

abroad. Either because a large proportion of the final costs are contracted abroad or because it otherwise facilitates the conduct of the business, the foreign branch is billed at factory costs and profits are reported as earned by the branch. But in these cases most of the exports are to independent importers and the price comparison presented in the study made was between those export sales and domestic sales. Branch factory transfers could thus be ignored.

In one case, however, all export sales are made to foreign branchesthe company and its foreign affiliates handle all business. There is no intermediary between it and the consumer, either in domestic or foreign markets.

The approximate measure of price differences in such a case is the net per unit profit market by market. Since each factory branch is billed at factory costs to which it must add all its distribution costs, the net return per unit of sales measures the difference in price above differences in costs.

In this case the net return on sales in several foreign markets is considerably lower than the net return earned by any sales branch in the domestic market. Not only are prices adjusted to the lower purchasing power prevailing in those foreign markets but a cheaper product, not sold in the domestic market, is produced for them upon which a relatively smaller mark-up is included in the price.

Type 12.

All foreign sales made at less than average costs.-All the cases of group III which have been discussed up to this point generally operate their export departments at a profit with all costs considered. Although the export prices on some products or some transactions are often less than long run or full costs of production-i. e., the export price does not cover full overhead or even factory costs-the prices on export business as a whole are high enough to cover all costs and yield a profit. The rate of profit on exports is as has been pointed out, often less than the rate of profit on domestic business but, except during periods of depressed business conditions, the export department is profitable.

The next six cases have been grouped together because in all of them virtually all export sales are consummated at prices which do not cover full or average costs. It is, perhaps, straining a point to speak of this as an export-price policy. Nevertheless, these cases are similar in the results achieved by their export departments. In the products handled by these firms export sales can be obtained only at prices which do not cover full factory and administrative overhead. It might be said that the price policy is to accept export business at any price above out-of-pocket costs or even less on the transaction. An export department which cannot earn a profit after being charged with its full costs is, nevertheless, operated because its sales reduce overhead, cut factory costs, or in some other way assist in the conduct of the business. However, occasional sales in all the cases of group III are probably made at prices equally low. But in the six cases considered here there simply is not any other export business at offsetting higher prices.

It is quite probable that in some of these cases a small volume of export sales would be obtained even if the firm refused to sell at less than domestic prices but the volume would be too small to maintain

an export organization or even an export manager equipped to handle the business. The low export prices are quoted, therefore, in order to get a volume of business sufficiently large to enable the company to maintain a staff equipped to handle export orders. In other of these cases, however, no export sales could be secured at domestic prices. The products of these six firms are:

A few examples will reveal that the circumstances in these cases are not identical except for the fact that export prices are substantially below domestic price. There is a common element of policy in the fact that these firms engage in exporting at all in the fact of quite unfavorable foreign market conditions. Many other firms including some of those in our sample would simply forego exporting under such conditions.

Example 31.-This firm produces certain household textile products of which turkish and hand towels and bed linens are the important items. The domestic market is serviced by various sales departments, each selling to a distinct type of trade-e. g., independent retailers, wholesalers, department stores, chain stores, institutions, etc. Products are manufactured specially for each type of trade according to the price class required and each line of products is sold only to the type of trade for which it was designed. The sales departments usually have a quantity scale of prices and discretionary prices which can be used by the salesmen under special circumstances.

The export department does not have a special line of products but it can sell any of the products of the domestic sales department without regard to the type of customers. It can, furthermore, sell in small quantities at the domestic quantity and discretionary prices. There are very few large orders in its export business and the small orders could not be obtained at the domestic prices for comparably sized orders. In addition the company must pay foreign agents commission of 5 percent, which it considers a net addition to costs as domestic and other export distribution expenses are otherwise about equal. Even with these price concessions there is little foreign demand for its products. The export business is in the specialty goods rather than the staple products of the company.

The management has never been enthusiastic about export business because foreign prices are so much lower than those prevailing in the American market.

Example 32-The product in this case is a specialized chemical commodity. European competition quotes approximately 40 percent under United States prices, delivered in Latin American markets. This firm takes business at approximately 20 percent less than its domestic prices. At such prices it gets a significant volume in only one market, Cuba, where American products receive preferential tariff treatment. While the firm gets occasional orders from other markets these are small in total and of an accommodation character

where fast delivery or some other factor compensates the buyer for the higher than European price. There is no significant export market for this product.

Example 33.-This company manufactures plumbing fixtures and related products. In the domestic market it distributes through its own branches direct to the trade or through independent wholesalers. The company's branches and independent wholesalers are charged at the same prices.

A large part of the export business is done at the domestic wholesale prices but in order to do this the company must give the export department a 10 percent discount from domestic wholesale prices. Of this 10 percent, 5 percent is required for commission to the foreign agent and 5 percent for the expenses of the export department. The net to the company is, therefore, approximately 10 percent less on export than on domestic business.

Moreover, on occasion, an additional 10 percent discount is given in export if it is necessary to get volume business.

Type 13.

Export agents and commission houses.-The remaining three cases are export trading companies which do not manufacture and do not have any domestic business. Most of their business is as commission representatives of the United States manufacturers but two of them buy and sell on their own account. They were included in the sample in an effort to determine the export pricing policies of American manufacturers who export through commission agents. The information presented below came from the export commission house and not from the manufacturers themselves. In all three of these cases a considerable part of the exports are at lower than domestic prices.

Example 34.-This company is an export commission house which is handling the following products in export markets for American

manufacturers:

Men's shoes.

Underwear, men's and women's.

Men's shirts.

Pajamas, men's and women's.
Girdles.

Cosmetics.

Textile finishes.

Dyeing machinery.

Industrial products for hosiery and girdle manufacturers.

Shoes, underwear, shirts, pajamas, and girdles are sold by the exporter for approximately the same prices (on an f. o. b. basis) as they are sold by the domestic manufacturers. The exporter works on a commission that is usual for this type of business. There could not be much difference, if any, between selling costs in the domestic market and the exporter's commission, so the net return to the manufacturer in each case is probably about the same on export as on domestic sales. Export prices on the other products are all lower than domestic prices; 10 to 15 percent lower on cosmetics, 20 percent lower on textile finishes and dyeing machinery, and about 10 percent lower on industrial products. In these cases the producing mills are inclined to look upon exports as windfall business to take up some of their excess capacity. Obviously they consider it more profitable to take it at the price than to forego the business altogether. But (according to the export agent) they would be out of business if domestic prices were as low as export.

Example 35.-This company deals in all types of cotton staples and yarns. It is the export selling agent for many domestic mills and also buys and sells on its own account.

For products of this type domestic prices are very competitive and the margin of profit rather small. There are many producers of each product and price quotations are easily available and well known.

On the general run of export business the export agent merely quotes the market price and receives its selling commission from the mill. Its agents abroad are furnished with price quotations but they continually cable offers at lower prices. Such offers are submitted to a mill manufacturing the particular product and it either accepts, rejects, or makes a counter offer. The agent himself cannot quote under the market price. The price concessions that the mills may accept are always small-less than 5 percent.

The view taken by the mills is much different. Some are more willing to make price concessions than others, and in any case the willingness to make a concession is quite dependent upon how good domestic business is.

The commission paid the exporter is larger than usual domestic selling costs on this type of staple merchandise. The exporter must cover the costs of export packing, foreign agents' commissions, cables, cartage in New York, and his general overhead and profit. Therefore, the net return to the mills must be less on export business in almost all instances even when sales are made at the market price.