International Credit Policy

International Credit  Policy

w     1. Firm-specific factors such as size, experience in international trade, and capacity for financing transactions

w     2. Market characteristics such as degree of economic development and availability of means of payment

w     3. Factors relating to a particular transaction such as the amount of payment and the need for protection, terms offered by competitors, the relative strength and attractiveness of the trading partner, and the type of goods involved.

–      What insurance does for exporters?

1. The exporter can use extended credit terms as a marketing tool.

2. Insurance provides the exporter with the ability to expand sales with existing customers and support penetration of higher-risk foreign markets.

3. Insurance gives the exporter and his or her bank greater flexibility in handling overseas accounts receivable.

4. Insurance protects the exporter against political and commercial default by its foreign customers.

w    Assessment of a foreign buyer is complicated by some of the following factors:

v  Credit reports may not be reliable.

v  Audited reports may not be available.

v  Financial reports may have been prepared according to a different format.

v  Statements are in local currency.

v  The buyer may have the financial resources in local currency but may be precluded from converting to dollars because of exchange controls and other government actions.

Types of risks

w     Commercial Risks: It can result from deterioration of conditions in the buyer’s market, fluctuations in demand, unanticipated competition either domestically or internationally, or technological changes.

w     Political risks: include war, revolution, or similar hostilities, expropriation, confiscation, or intervention in the buyer’s business by a government authority; and certain other government acts that may prevent of delay payment beyond the control of either the buyer or the seller

w     Foreign exchange risks: refers to the effects of fluctuating exchange rates

Political and Legal Environment

w   Embargoes and sanctions

–   Government actions to distort the free flow of trade in goods, services, or ideas for adversarial and political purposes.

w    Political risk

–    The risk of loss when investing in a given country caused by changes in a country’s political structure or policies.

w    Types of political risk

–    Ownership risk (property and life)

–    Operating risk (ongoing operations interference)

–    Transfer Risk (in shifting funds between countries)

Forms of Host Country Controls

w    Expropriation

–    Taking of private property with compensation.

w    Confiscation

–    Taking of private property without compensation.

w    Domestication

–    To gain control over foreign investment through demanding partial transfer of ownership and imposed regulations.

–    Raise tax rates.

–    Price controls.

Legal Differences and Restraints

w   The two major legal systems

–   Common law

•   Based on tradition and less dependent on statutes and codes than on precedent and custom.

–   Code law

•   Based on a comprehensive set of written statutes that spell out legal rules explicitly.

International Environment

w    International Politics

–    Political relations and conflicts between countries can have a profound impact on firms business internationally.

–    If relations between countries improve, business can benefit.

w    International Law

–    No enforceable body of international law exists. Firms are subject to home and host-country laws.

–    Areas of cooperation among nations

•    bilateral treaties guaranteeing fair treatment

•    patent and trademark protection


Government taxation policies

w    High taxation can lead to growth in a black market

Corporate taxation

w    Companies attempt to limit tax liability by shifting location of income

Bribery and Corruption

Top 7 Ranking

w    Bangladesh

w    Nigeria

w    Pakistan

w    Kenya

w    China

w    Cameroon

w    Venezuela

Bottom 7 Rankings

w    U.S.A

w    Netherlands

w    Switzerland

w    Singapore

w    Norway

w    Canada

w    Finland