Page 216 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

Unit 12: Foreign Market Entry and Country Risk Management

12.7 Summary Notes

Expanding markets around the world have increased competition for all levels of
international marketing. To keep abreast of the competition and maintain a viable position
for increasingly competitive markets, a global perspective is necessary.
Global competition also requires quality products designed to meet ever-changing
customer needs and rapidly advancing technology.
Cost containment, customer satisfaction and a greater number of players mean that every
opportunity to refine international business practices must be examined in the light of
company goals.
Collaborative relationships, strategic international alliances, strategic planning and
alternative market entry strategies are important avenues to global marketing that must
be implemented in the planning of global marketing management.
Country risk and credit worthiness have become important over the years and despite
analytical difficulties there has been a growth in interest in recent years as well as a
growth in various agencies in the systematic valuation of country risk, in fact, country risk
analysis is a difficult task and it may also change over time.
The factors that need to be analysed in a country risk analysis study are political risk and
economic risk indicators. Some of the popular indicators to assess country risk are—debt
related factors, the balance of payments position of a country, economic performance,
political instability and the checklist approach. Important among the debt related factors
are—Debt/GDP, Debt/FE Receipts, Debt service ratio, short-term debt/total exports and
import/GDP.

Country risk analysis at a micro level can be conducted by formulating a model. Various
economic, political and social factors can be identified and then rated on a five point-scale.
Weight can then be designed to each risk category—i.e. economic risk, political risk and
social risk which should add up to 100 per cent.

The rating for each multiplied by the weights assigned to each risk category gives us the
overall score for the country concerned.

12.8 Keywords

Consensus Regarding Priorities: This is a measure of the degree of agreement and unity on the
fundamental objectives of government policy and the extent to which this consensus cuts across
party lines.
Country Risk: Country risk the general level of political and economic uncertainty in a country
affecting the value of loans or investments in that country.
Franchising: Franchising is a rapidly growing form of licensing in which the franchiser provides
a standard package of products, systems and management services, and the franchisee provides
market knowledge, capital and personal involvement in management.
Licensing: A means of establishing a foothold in foreign markets without large capital outlays is
licensing.
Mechanisms for Expression of Discontent: This is related to the ability to effect peaceful change,
provide internal continuity and to alter direction of policy without major changes of the political
system.

Piggybacking: Piggybacking occurs when a company (supplier) sells its product abroad using
another company’s (carrier) distribution facilities.

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