1. 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.

2. Copyright © 1999 by Harcourt Brace & Company All rights reserved Group of Five - Seven - Ten zUnited States zBritain zFrance zGermany zJapan zUnited States zBritain zFrance zGermany zJapan zItaly zCanada zSweden zNetherlands zBelgium zUnited States zBritain zFrance zGermany zJapan zItaly zCanada

3. Copyright © 1999 by Harcourt Brace & Company All rights reserved Market Characteristics Population Infrastructure Income Consumption Patterns Foreign Involvement in the Economy

4. Copyright © 1999 by Harcourt Brace & Company All rights reserved Regional Economic Integration

5. Copyright © 1999 by Harcourt Brace & Company All rights reserved Levels of Economic Integration zFree Trade Area zCustoms Union zCommon Market zEconomic Union zImport Substitution

6. Copyright © 1999 by Harcourt Brace & Company All rights reserved Regional Integration

7. International Marketing Chapter 5 The Financial Environment

8. Copyright © 1999 by Harcourt Brace & Company All rights reserved Credit Policy

9. Copyright © 1999 by Harcourt Brace & Company All rights reserved The Credit Policy Allows the Exporter To: zDetermine the extent of risk they are willing to absorb. zExplore new ways of financing exports. zPrepare for a changing environment.

10. Copyright © 1999 by Harcourt Brace & Company All rights reserved Types of Financial Risk zCommercial risk: Insolvency -Default of Payment yInternal changes in the firm yLoss of a key customer yCash flow problems yNatural disasters ySlow payment by government buyers zPolitical risk: war, revolution, license,expropriation, confiscation, unwanted regulation, etc. zForeign exchange risk

11. Copyright © 1999 by Harcourt Brace & Company All rights reserved Sources of Financing yCommercial Banks yForfaiting: exporter receives cash at the time of shipment yFactoring: purchase of exporter’s receivables at a discount - Official trade finance yPrivate sector export trade insurance: xPre-Export Support : Working capital to build inventory - Loans xExport Credit Insurance: A competitive advantage -Marketing tool - Expand Sales yThe Export-Import Bank (Ex-Im Bank) :“to aid in financing and facilitating exports ”

12. Copyright © 1999 by Harcourt Brace & Company All rights reserved Financial Risk Management

13. Copyright © 1999 by Harcourt Brace & Company All rights reserved Problems in assessing a foreign buyers creditworthiness: zCredit reports may not be reliable. zAudited reports may not be available. zFinancial reports may be in a different format. zMany governments require that assets be reevaluated upward. zStatements are in local currency. zExchange controls may stop conversion of local currency into dollars. zCountertrade zDebt/equity swap zDebt/product swap

14. Copyright © 1999 by Harcourt Brace & Company All rights reserved Foreign Exchange Risk zExchange Rate Fluctuation

15. Copyright © 1999 by Harcourt Brace & Company All rights reserved The Foreign Exchange Market zExchange rate: The price of one currency in terms of another. zSpot market: The price of one currency in terms of another. zForward market: The currency market on closing contracts for 30, 60, or 90 days. zHedge: Protection against exchange risks.

16. Copyright © 1999 by Harcourt Brace & Company All rights reserved The Management of Foreign Exchange Risk zTransaction exposure: Refers to the effect of outstanding contracts (I.e. receivables). zTranslation exposure: Exchange risk zEconomic exposure: Long term implications in the target market

17. Copyright © 1999 by Harcourt Brace & Company All rights reserved Options zGives the holder the right to buy or sell foreign currency at: ya pre-specified price yon a pre-specified day

18. Copyright © 1999 by Harcourt Brace & Company All rights reserved Futures zAn obligation: yto buy a pre-specified currency yat some point in the future yat a pre-specified price

19. 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.

20. Copyright © 1999 by Harcourt Brace & Company All rights reserved Home Country Political and Legal Environment z The Environmental Superfund z Intellectual Property Rights z Gray Market zEmbargoes and Sanctions :... government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes”

21. Copyright © 1999 by Harcourt Brace & Company All rights reserved Export Controls zExport control systems zCritical commodities list z Export license Determinants for Export Controls z National Security z Foreign Policy zShort Supply z Nuclear Nonproliferation Critical Commodities List z Products sensitive to national security zProducts controlled for other purposes

22. Copyright © 1999 by Harcourt Brace & Company All rights reserved Decision Steps in the Export Licensing Process

23. Copyright © 1999 by Harcourt Brace & Company All rights reserved A Changed Environment for Export Control z Collapse of the Iron Curtain zExport controls have moved from a “strategic balance” to a ‘tactical balance” approach. zThe loosening of mutual bonds among allied nations. zIncreased foreign availability of high technology products. z The speed of change and dissemination of information and innovation has shifted. z Miniaturization of state-of-the-art technology.

24. Copyright © 1999 by Harcourt Brace & Company All rights reserved Export Control Problems and Conflicts zDual use products

25. Copyright © 1999 by Harcourt Brace & Company All rights reserved Import Controls z The quota system

26. Copyright © 1999 by Harcourt Brace & Company All rights reserved Regulation of International Business Behavior z Boycotts z Antitrust Laws z Corruption

27. Copyright © 1999 by Harcourt Brace & Company All rights reserved Boycotts

28. Copyright © 1999 by Harcourt Brace & Company All rights reserved Antitrust Laws

29. Copyright © 1999 by Harcourt Brace & Company All rights reserved Corruption z The Foreign Corrupt Practices Act in 1977 z The 1998 Trade Act z In 1995 the Organization of American States (OAS) condemned bribery z The World Trade Organization put bribery rules on its agenda.

30. Copyright © 1999 by Harcourt Brace & Company All rights reserved Host Country Political and Legal Environment

31. Copyright © 1999 by Harcourt Brace & Company All rights reserved Political Action and Risk z Political Risk z Ownership Risk z Operating Risk

32. Copyright © 1999 by Harcourt Brace & Company All rights reserved z Transfer Risk z Expropriation z Confiscation

33. Copyright © 1999 by Harcourt Brace & Company All rights reserved Political Risk

34. Copyright © 1999 by Harcourt Brace & Company All rights reserved Ownership Risk

35. Copyright © 1999 by Harcourt Brace & Company All rights reserved Operating Risk

36. Copyright © 1999 by Harcourt Brace & Company All rights reserved Transfer Risk

37. Copyright © 1999 by Harcourt Brace & Company All rights reserved Legal Differences and Restraints

38. Copyright © 1999 by Harcourt Brace & Company All rights reserved The Two Major Legal Systems: z Common Law z Code Law

39. Copyright © 1999 by Harcourt Brace & Company All rights reserved Common Law

40. Copyright © 1999 by Harcourt Brace & Company All rights reserved Code Law

41. Copyright © 1999 by Harcourt Brace & Company All rights reserved Antidumping Laws

42. Copyright © 1999 by Harcourt Brace & Company All rights reserved The Influencing of Politics and Laws z “When in Rome, do as the Romans do”……..but according to their laws!

43. Copyright © 1999 by Harcourt Brace & Company All rights reserved The International Environment zThe political relations between countries can have a profound impact on firms trying to do business internationally!

44. Copyright © 1999 by Harcourt Brace & Company All rights reserved International law