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International Financial Management

Notes Over the past few years, several surveys have been conducted on country risk evaluation system
and they have shown that the models employed as multipurpose tools in loan portfolio decision
making are as follows: to anticipate country default; set country exposure limits; improve the
quality of loan portfolios; impose country-by-country loan ceiling.
Countries which experience greater difficulty in debt management usually face a combination
of the following problems: heavy dependence on external borrowings, deterioration in the
balance of payments, relatively high rates of inflation, political instability, etc. Thus,
implementing policies that address the concern of potential creditors is the strategy that the
countries should adopt to rebuild their creditworthiness.

12.1 Foreign Market Entry

When a company makes the commitment to go international, it must choose an entry strategy.
This decision should reflect an analysis of market potential, company capabilities, and the
degree of marketing involvement and commitment management is prepared to make.
A company’s approach to foreign marketing can require minimal investment and be limited to
infrequent exporting with little thought given to market development. Or a company can make
large investments of capital and management effort to capture and maintain a permanent,
specific share of world markets. Both approaches can be profitable.

Exporting

A company might decide to enter the international arena by exporting from the home country.
This means of foreign market development is the easiest and most common approach employed
by companies taking their first international step because the risks of financial loss can be
minimised. Exporting is a common approach for the mature international company as well.
Several companies engage in exporting as their major market entry method. Generally, early
motives are to skim the cream from the market or gain business to absorb overheads. Even
though such motives might appear opportunistic, exporting is a sound and permanent form of
operating in international marketing.

Piggybacking

Piggybacking occurs when a company (supplier) sells its product abroad using another company’s
(carrier) distribution facilities. This is quite common in industrial products, but all types of
product are sold using this method. Normally, piggybacking is used when the companies
involved have complementary but non-competitive products.

Licensing

A means of establishing a foothold in foreign markets without large capital outlays is licensing.
Patent rights, trademark rights and the rights to use technological processes are granted in
foreign licensing. It is a favourite strategy for small and medium-sized companies although by
no means limited to such companies. Not many confine their foreign operations to licensing
alone; it is generally viewed as a supplement to exporting or manufacturing, rather than the
only means of entry into foreign markets. The advantages of licensing are most apparent when
capital is scarce, when import restrictions forbid other means of entry, when a country is sensitive
to foreign ownership, or when it is necessary to protect patents and trademarks against
cancellation for non-use. Although this may be the least profitable way of entering a market,
the risks and headaches are less than for direct investments; it is a legitimate means of capitalising
on intellectual property in a foreign market.

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