Dumping Of Fmcg

Meaning:

Dumping, generally means sell of goods to another country at less than the cost of production, but technically dumping is not selling of goods at a loss, but it is a strategy in which a corporation sells its goods at cheaper prices in a foreign market than the home country i.e. where goods are produced. Dumping is discrimination between prices of home and foreign market.

FMCG:

FMCG i.e. fast moving consumer goods e.g. ready-made clothes, toys, cutlery items, electronic goods etc.

Reason of the dumping:

American and EU MNCs started establishing their manufacturing units into South East Asian countries when WTO agreement and GATT (General Agreement on Tariffs and Trade) is fully signed (commenced from 2000-01) by the most of the South East Asian countries.

How the Dumping takes place:

The one of the main aspect of Dumping is that the corporation must exploit all of its Fixed Cost from the Domestic market and every subsequent commodity, which is produced at variable cost, should only be sold to the foreign market. Since, MNCs has started selling their goods at higher costs in the domestic market to cover the fixed costs and set cheaper prices for the western market.

The Fixed Cost/Constant Cost:

Fixed cost is incurred for a period. It tends to remain constant for all levels of activities within a certain range of output such as rent, rates, insurance, executive salaries, etc. Fixed Cost is not a function of output and it does not vary up to a certain level of activities. At the same time fixed cost can`t be avoided in the short term. For example the rent and insurance of factory premises of a manufacturing unit are 50,000 p.a. and one shift of eight hours is indulged in the production so far. The rent and premises insurance will not increase even if the Labor shift increases from two or three. Thus the triple amount of production will be achieved in the same amount of Total fixed costs. It means fixed cost of per unit of product will be one third as it is absorbed at a higher rate. Besides this having assumption that there is strike in unit for a week. The rent and Insurance will be steady levied unless the shut down decision is not taken. This is also known as indirect Cost.

The Variable Cost:

The cost, which varies immediately with the volume of production, is termed as a variable cost. It is very sensible and changes with the quantum of production. By further explaining the above illustration when there was no production for a week due to strike, the rent and insurance are still payable. However, the direct wages based on per hour working and consumption of raw material should be almost zero. Variable cost changes with changes in production quantity. In this illustration, where production was initially planned for one shift of workers of eight hours, which produces 50,000 units of the product, the material and labour were required accordingly. However, if double output is planned (to produce 100,000 unites) which will then require two shifts i.e. double labour and double amount of raw material whereas rent and premise insurance remain constant because they are fixed.

Conclusion:

Most of the South East Asian countries are Working on Dumping strategy that is why they producing in bulk and reducing the cost of production. However, this is the only one aspect of the dumping, the whole dumping strategy works by amalgamating different aspects such as Tax matters, Elasticity of Demand economies to scale etc. In the nutshell Dumping is the strategy, that has challenged the most of the Western economies because of the higher wages and higher value of currencies, the western corporations are shifting their production units to South East Asian Countries and selling cheaper into the EU and US market.

China s consumer prices increased at their fastest pace in two years in October 2010, Chinese government is under pressure to decease the domestic prices, which will affect the export adversely.

Keywords: FMCG, MNC, fixed costs, variable costs

JEL Classification: A2, F2, F3, M2, M4