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9609 · 6.1.6

International — practice questions

Practice and worked examples for 9609 International. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

UK fashion brand enters India — growing middle class, complex retail regulations, strong local competitors. Recommend entry mode.

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Avoid immediate heavy FDI (expensive stores) without local knowledge.

Option 1 — E-commerce export/partner: Low risk test demand; adapt sizes/styles for local preferences.

Option 2 — Joint venture with Indian retailer: Local regulatory expertise, shared distribution; split profits and control.

Marketing: Adapt pricing to income levels; modest promotion respecting cultural norms; place via established partner malls/online platform.

Worked example 2

A UK-based bicycle manufacturer, 'BritBike', exports a premium model to the EU. The production cost is £800 per bike. Shipping and insurance cost £50 per bike. The company aims for a 30% profit margin on its total cost. The current exchange rate is £1 = €1.15. The EU introduces a 15% tariff on imported bicycles. Calculate the final selling price in Euros (€) before and after the tariff, assuming BritBike passes the full cost on to the consumer.

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This calculation shows how a tariff directly impacts the final price for consumers and the competitiveness of an imported product.

Step 1: Calculate the total cost per bike in GBP before the tariff. This is the cost of production plus the cost to get it to the market border.

  • Calculation: Production Cost + Shipping Cost
  • £800 + £50 = £850

Step 2: Calculate the selling price in GBP before the tariff. This includes the company's desired profit margin.

  • Calculation: Total Cost * (1 + Profit Margin)
  • £850 * (1 + 0.30) = £850 * 1.30 = £1,105

Step 3: Convert the pre-tariff selling price to Euros (€). This is the price the EU customer would pay before the new trade barrier.

  • Calculation: Price in GBP * Exchange Rate
  • £1,105 * 1.15 = €1,270.75

Step 4: Calculate the cost of the tariff. The tariff is applied to the value of the goods as they enter the EU (the landed cost, which is the total cost before profit margin).

  • Calculation: Total Cost in GBP * Tariff Rate
  • £850 * 0.15 = £127.50

Step 5: Calculate the new total cost including the tariff. BritBike must now cover this extra cost.

  • Calculation: Original Total Cost + Tariff Cost
  • £850 + £127.50 = £977.50

Step 6: Calculate the new selling price in GBP. To maintain its 30% profit margin, BritBike applies it to the new, higher total cost.

  • Calculation: New Total Cost * (1 + Profit Margin)
  • £977.50 * 1.30 = £1,270.75

Step 7: Convert the new selling price to Euros (€). This is the final price for the EU consumer after the tariff is imposed.

  • Calculation: New Price in GBP * Exchange Rate
  • £1,270.75 * 1.15 = €1,461.36

Final Answer & Analysis:

  • Price before tariff: €1,270.75
  • Price after tariff: €1,461.36

The 15% tariff increases the final price for the EU consumer by €190.61. This makes BritBike's product significantly less price-competitive against bikes manufactured within the EU, potentially leading to a fall in sales volume.

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