International Marketing

Chapter 4
The Economic Environment

Copyright 1999 by Harcourt Brace & Company

All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the
following address: Permissions Department, Harcourt Brace & Company, 6277 Sea Harbor Drive, Orlando,
Florida 32887-6777.

Group of Five - Seven - Ten

United States
Britain
France
Germany
Japan

United States
Britain
France
Germany
Japan
Italy
Canada

Copyright 1999 by Harcourt Brace &

Company
All rights reserved

United States
Britain
France
Germany
Japan
Italy
Canada

Sweden
Netherlands
Belgium

Market
Characteristics
Population

s
a
r
f
In

c
u
tr

e
r
tu

Income
Consumption Patterns

Foreign Involvement in the

Economy
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Regional Economic Integration

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Company
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Levels of Economic Integration

Free Trade Area

Customs Union
Common Market
Economic Union
Import Substitution

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Company
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Regional Integration

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Company
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International Marketing

Chapter 5
The Financial Environment

Credit Policy

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The Credit Policy Allows the

Exporter To:
Determine the extent of risk they are
willing to absorb.
Explore new ways of financing exports.
Prepare for a changing environment.

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Types of Financial Risk

Commercial risk: Insolvency -Default of Payment

Internal changes in the firm

Loss of a key customer
Cash flow problems
Natural disasters
Slow payment by government buyers

Political risk: war, revolution, license,expropriation,

confiscation, unwanted regulation, etc.

Foreign exchange risk

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Sources of Financing
Commercial Banks
Forfaiting:exporter receives cash at the time of shipment
Factoring: purchase of exporters receivables at a discount Official trade finance

Private sector export trade insurance:

Pre-Export Support : Working capital to build inventory - Loans
Export Credit Insurance: A competitive advantage -Marketing tool Expand Sales

The Export-Import Bank (Ex-Im Bank) :to aid in financing

and facilitating exports
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Financial Risk Management

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Problems in assessing a foreign

buyers creditworthiness:

Credit reports may not be reliable.

Audited reports may not be available.
Financial reports may be in a different format.
Many governments require that assets be reevaluated upward.
Statements are in local currency.
Exchange controls may stop conversion of local currency into dollars.
Countertrade
Debt/equity swap
Debt/product swap

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Foreign Exchange Risk

Exchange Rate Fluctuation

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The Foreign Exchange Market

Exchange rate:
Spot market:

The price of one currency in terms of another.

The price of one currency in terms of another.

Forward market:
60, or 90 days

Hedge:

The currency market on closing contracts for 30,

Protection against exchange risks.

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The Management of Foreign

Exchange Risk
Transaction exposure: Refers to the effect of
outstanding contracts (I.e. receivables).

Translation exposure: Exchange risk

Economic exposure: Long term implications in the
target market

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Options
Gives the holder the right to buy or sell
foreign currency at:
a pre-specified price
on a pre-specified day

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Futures
An obligation:
to buy a pre-specified currency
at some point in the future
at a pre-specified price
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International Marketing

Chapter 6
The International Political and
Legal Environment
Copyright 1999 by Harcourt Brace & Company
All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the
following address: Permissions Department, Harcourt Brace & Company, 6277 Sea Harbor Drive, Orlando,
Florida 32887-6777.

Home Country Political and Legal

Environment

The Environmental Superfund

Intellectual Property Rights
Gray Market
Embargoes and Sanctions : ...government actions
to distort the free flow of trade in goods, services, or
and political purposes

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ideas for adversarial

Export Controls
Export control systems
Critical commodities list
Export license

Determinants for Export Controls

National Security
Foreign Policy
Short Supply
Nuclear Nonproliferation

Critical Commodities List

Products sensitive to national security
Products controlled for other purposes

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Decision Steps in the Export

Licensing Process
S h o u ld a G iv e n P r o d u c t B e E x p o r t e d ?
T o a G iv e n C o u n t r y ?
T o a G iv e n E n d u s e r ?
F o r a P a r t ic u la r E n d u s e ?
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A Changed Environment for

Export Control
Collapse of the Iron Curtain
Export controls have moved from a strategic balance
to a tactical balance approach.
The loosening of mutual bonds among allied nations.
Increased foreign availability of high technology
products.
The speed of change and dissemination of information
and innovation has shifted.
Miniaturization of state-of-the-art technology.
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Export Control Problems and

Conflicts
Dual use products

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Import Controls

The quota system

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Regulation of International
Business Behavior
Boycotts
Antitrust Laws
Corruption
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Boycotts

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Antitrust Laws

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Corruption
The Foreign Corrupt Practices Act in 1977
The 1998 Trade Act
In 1995 the Organization of American States
(OAS) condemned bribery
The World Trade Organization put bribery rules
on its agenda.
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Host Country Political and Legal

Environment

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Political Action and Risk

Political Risk
Ownership Risk
Operating Risk

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 Transfer Risk
Expropriation
Confiscation

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Political Risk

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Ownership Risk

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Operating Risk

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Transfer Risk

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Legal Differences and Restraints

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The Two Major Legal Systems:

Common Law
Code Law

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Common Law

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Code Law

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Antidumping Laws

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The Influencing of Politics and Laws

When in Rome, do as the

Romans do..but according
to their laws!

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The International Environment

The political relations between countries
can have a profound impact on firms
trying to do business internationally!

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International law

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