Transcript The Economic Environment Chapter 4

International Marketing
Chapter 4
The Economic Environment
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Group of Five - Seven - Ten
 United States
 Britain
 France
 Germany
 Japan
 United States
 Britain
 France
 Germany
 Japan
 Italy
 Canada
 United States
 Britain
 France
 Germany
 Japan
 Italy
 Canada
 Sweden
 Netherlands
 Belgium
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Market
Characteristics
Population
Income
Consumption Patterns
Foreign Involvement in the
Economy
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Regional Economic Integration
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Levels of Economic Integration
Free Trade Area
Customs Union
Common Market
Economic Union
Import Substitution
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Regional Integration
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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 exporter’s 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:
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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
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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
Should a Given Product Be Exported?
To a Given Country?
To a Given Enduser?
For a Particular Enduse?
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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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