The globalization enables companies a rapid expansion of their international businesses. In particular, the former export champion Germany gets higher profits from increased worldwide business activities and sales opportunities. However, while the international expansion reaches daily new records, the risks for international business remain and should be considered seriously. The risks of international business are from different types and include economic, political, manufacturing, currency, and transport risks. For export transactions risk analysis of buyer and buyer's country plays an important role. Based on a thorough risk analysis, terms of payment and terms of delivery in the contract of sale could be developed. Moreover, hedging instruments like advance payment, letter of credit, payment guarantee from a bank, government Euler Hermes coverage, transport insurance and others arrangements could be used for international financing.
The object of this study is to learn and understand about international finance and risk management through evaluation of risks and opportunities for international expansion of a medium sized company. Thereby, country risks of Lebanon, Russia and Turkey are appraised using SWOT analysis. Furthermore, differences between political and commercial risks are studied. Various terms, e.g. INCOTERMS, Payment terms, Collection, and Letter of credit, are explained and compared. In addition, pros and cons of repaying of company's loan in Euro or Swiss Francs are assessed. Finally, the possibilities of money transfer inside Europe and to the US are illustrated. Besides the theoretical reflection concrete recommendations are given for the company.
Table of Contents
1 Introduction
2 Main Part
2.1 Country analysis using SWOT
2.2 Differences between commercial risks and political risks
2.3 INCOTERMS
2.3.1 Definition and application
2.3.2 INCOTERMS groups
2.3.3 Recommendation for the company
2.4 Payment terms
2.5 Collection
2.6 Comparison between Collections and Letter of credits
2.7 Recommendation to favourite payment for the company
2.8 Long-term loan in EURO (EUR) or SWISS FRANCS (CHF)
2.9 Money transfer inside Europe and to the US
3 Conclusion
Objectives and Research Focus
This study aims to provide a comprehensive framework for international finance and risk management to support the global expansion of a medium-sized company. It evaluates specific country risks, explores financial hedging instruments, and provides actionable recommendations for payment security and loan structuring.
- SWOT analysis of expansion opportunities in Lebanon, Russia, and Turkey.
- Comparative analysis of commercial and political risks in international trade.
- Evaluation of INCOTERMS and selection of appropriate delivery terms.
- Strategic comparison of payment methods, focusing on Collections and Letters of Credit.
- Assessment of currency risks regarding long-term loan refinancing in EUR versus CHF.
Excerpt from the Book
2.2 Differences between commercial risks and political risks
Commercial risks of exporters arise when the foreign buyers are unwilling or unable to pay, or they have default of payment or lack of seriousness. The commercial risks could occur in all phases during the execution of an export transaction:
Manufacturing risk: rejection or order cancellation due to appeared circumstances in the importing country or in the importer's enterprise direct after the conclusion of a contract of sale.
Transport risk: Loss of or damage to the merchandise during transport to the final recipient in the delivery phase.
Delcredere risk: Unwillingness, inability to pay, or default of payment of importers in the payment request phase.
Political risks of exporters are risks due to arrangements of government and government agencies, or other political events like civil strife, revolution, war, etc. Normally, political risks are arising from the importer's country, but they could also be caused by government arrangements of the exporter: embargo and moratorium (prohibition of transfer). Additionally, in case of partner country risk, supplier or licensor from a third country is not permitted to export to the importing country due to government prohibitions. Similarly to the commercial risks, the political risks could also appear in all phases during the execution of an export transaction: politically caused manufacturing risks, merchandise related risks (confiscation, damage, and destruction), payment request related risks (interdiction of payment, moratorium, transfer limitations, etc). Moreover, the politically caused exchange rate risk could occur, when the importing country constricts the allocation of currency or transfer of foreign exchange. In general, the political risk can not be avoided and the exporter has no influence on it, so that companies have to protect themselves.
Summary of Chapters
1 Introduction: Outlines the necessity of risk analysis for companies expanding internationally and defines the scope of the study.
2 Main Part: Provides a detailed SWOT analysis of three target countries, classifies risks, and discusses financial instruments for payment and loan management.
3 Conclusion: Summarizes the study’s findings and presents specific strategic recommendations for the company’s expansion and financial operations.
Keywords
International Finance, Risk Management, SWOT Analysis, INCOTERMS, Payment Terms, Letter of Credit, Collection, Foreign Trade, Currency Risk, Loan Refinancing, SWIFT, SEPA, Export Transactions, Political Risk, Commercial Risk.
Frequently Asked Questions
What is the primary purpose of this study?
The study aims to guide a medium-sized German company in its international expansion by evaluating country risks and providing financial recommendations.
Which countries are analyzed in the SWOT section?
The study provides a detailed SWOT analysis for Russia, Turkey, and Lebanon.
What is the core recommendation regarding payment methods?
The study recommends the use of a Confirmed Letter of Credit due to the higher security and payment assurance it offers compared to collections.
Which transport terms are recommended for the company?
The company is advised to use INCOTERMS group C, specifically "CIP – Carriage and Insurance Paid to," to maintain control over transport and insurance.
How should the company handle its long-term loan?
Based on the calculated scenarios, a three-year extension for the 10 million EUR loan at a 5% interest rate is recommended to avoid currency fluctuation risks.
What are the key differences between commercial and political risks?
Commercial risks relate to the buyer's ability or willingness to pay, while political risks are caused by government actions, civil strife, or national embargoes.
How do INCOTERMS function in international contracts?
They act as a set of internationally accepted guidelines for transport obligations and cost transfer, though they are not laws and must be explicitly included in contracts.
What role does the SWIFT system play in this context?
SWIFT serves as the primary network for transmitting secure financial messages to facilitate international money transfers between banks.
What is the significance of the SEPA initiative mentioned in the study?
SEPA is described as a system to standardize euro credit transfers across EU countries to reduce the costs and complexity of cross-border payments.
Why is the "Best Case" vs "Worst Case" analysis important for the loan decision?
It demonstrates that while a CHF loan might offer lower interest rates, currency volatility could lead to significantly higher repayment costs, justifying the recommendation to stick to EUR.
- Citation du texte
- Dr. Khanh Pham-Gia (Auteur), 2009, International Finance and Risk Management, Munich, GRIN Verlag, https://www.grin.com/document/132274
