Critical analysis of export credit agencies in consideration of Euler Hermes

Research Paper (undergraduate), 2006

29 Pages, Grade: B+


List of Contents

List of Figures

List of abbreviations

1 Introduction
1.1 Executive Summary
1.2 Scope of Work

2 Problem and Research
2.1 Problem Definition
2.2 Relevance and Motivation
2.3 Methodology

3 Theories on export credit agencies
3.1 Market entry strategies
3.2 Principal Agent Theory
3.3 Transaction Cost Theory
3.4 Selected elements

4 Export credit agencies
4.1 Financing via export credit agencies
4.2 Financing instruments
4.3 Allocation of loans and OECD
4.4 Commercial debts

5 Critical review

6 Conclusion, critical comments and outlook






ITM Checklist

List of Figures

Figure 1 - Possible classification of foreign market entry strategies

Figure 2 - Loan process from Hermes

Figure 3 –Receivables of Germany against selected non-OECD countries

Figure 4 - Network of international relations (* intergovernmental organizations)

Figure 5 - Commercial receivables of Germany against foreign countries

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

1.1 Executive Summary

The public export finance is one of the most extensive sources of finance. All export credit agencies are subject to internationally valid rules, which are respected with the distribution of warranties. Apart from the promotion of exports, export credit agencies offer their services with public funds but without public control - also foreign direct investments in emerging markets in the south as well as east and southeast European countries like the successor countries of the Soviet Union.

With the allocation of public warranties there are missing controls considering aspects of the environment and the society which enables the promotion of social-, environmental- and cultural-incompatible projects.

Export credit agencies are the most important public financial source still before the World Bank and the public development aid when it comes to private investments, infrastructure buildings and heavy industry.[1]

Successful foreign business transactions need an equally successful financing, qualitatively according to products to be exported. Therefore, a longterm planning is necessary due to the fact that there is a long term frame from the placing of order to the receipt of money. These phases need to be brigded financially because expenses for empoyees and distributors are incurred. Commercial banks and special financing companies therefore offer various finance opportunities.

1.2 Scope of Work

The assignment critical analysis of export credit agencies in consideration of Euler Hermes starts with the introduction which includes the executive summary and the scope of work that is realized in here.

The second chapter deals with a detailed definition of the problem that causes the relevance of this assignment, the determination of the objectives as well as the methodology that describes the assignment’s structured procedure.

Chapter three is focused on the relevant theory of export credit agencies. At this juncture in particular the market entry strategies, the principal agent and the transaction cost theory according to export credit agencies are being analyzed.

Chapter four is about the basics and general functionality of export credit agencies whereas chapter five contains a critical review of managing export credit agencies and reveals their advantages and disadvantages.

Finally, the results of this assignment are summarized; especially whether the set objectives are reached as well as critical comments about the assignment are given in the last chapter. Furthermore, an outlook about possible future effects of applied export credit agency systems is provided.

2 Problem and Research

2.1 Problem Definition

The problem regarding export credit agencies prior results from the confrontation of opposed political interests. Environmental protection and economic efficiency form the direction of the respective positions, so that a neutral statement could not have been expected. Accordingly, it applied to acquire a distant position in order to give consideration to the various requirements.

According to the object for analysis, the objective is therefore to argue the economic and social reality. Which consequences follow from the prevailing conditions of export credit agencies for the entirety?

Which damage does a financial project possibly cause, which first appears reasonable according to economical measures but in terms of a long-term view does bring high subsequent costs?

For this short elaboration, the information selection can be accomplished only strictly selectively, which results in a rather insufficient statistic security.[2]

2.2 Relevance and Motivation

A crucial point for the investigation of the export credit agency proceedings is the often expressed criticism regarding the control of the allocation of financings. At first glance, the support of projects in countries with poor financial backing appears positive due to the fact that the stabilization of the respective economies is desirable. Improvements of infrastructure via creation of diverse transportation routes, construction of places of work in order to decrease unemployment etc., seems reason enough for a fast completion of necessary financial action.

With regard to the accompaniment of some projects which frequently turn out to be damaging the environment, the economy of the projects however come into doubt.

On a long term basis, in some cases side-effects occur which work against a sustainable stabilization of a country and result in a negative future positioning on the world market.

2.3 Methodology

In general, data researches are clustered into two groups:[3]

- Secondary Research
- Primary Research

On the one hand, the secondary research is based on already existing literature. The primary research or the so-called field research raises data and information on the market originally - starting point for the data collection is the origin respectively source of facts and opinions.[4]

Due to time restrictions this assignment is only based on secondary research which is particularly about the arising problems that causes the relevance of that assignment.

Today, the promotion of exports and also foreign direct investments in emerging markets are the main developments which cause the growing importance of well organized and managed export credit agencies.

In addition, the objectives of this assignment are defined: Primary, these are the explanations about the significance of export credit agencies, the critical analysis about the advantages and disadvantages as well as the identification of room for improvement.

3 Theories on export credit agencies

3.1 Market entry strategies

„An international market entry mode is an institutional arrangement that makes possible the entry of a company’s products, technology, human skills, management, or other resources into a foreign country. “[5]

Basically there are a couple of foreign market entry strategies that a business can apply when setting up offshore. Each has differing levels of risk and involvement, legal obligation as well as advantages and disadvantages.

A literature research comprises several classifications of internationalization strategies. Root (1987) suggests the following classification:

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 - Possible classification of foreign market entry strategies[6]

In this context it could be roughly differentiated between three main possibilities.

First of all, the company has the possibility of producing their products in their domestic market and of exporting these products via own or third party distribution channels. In case of using contractual partners in the targeted country there is a huge distance between the company and the country in which the products should be sold. Only the finished products pass the border, all other factors such as control organs, marketing and know-how remain at the place of origin.

By contrast there is the possibility of companies to transport there resources in technology, capital and labour in order to be based in the foreign market. This happens via direct investments (Foreign Direct Investment, FDI), which could be accomplished by a buying up of an already existing enterprise (acquisition), together with a local partner (joint venture) or to go it alone (Greenfield Investment).

A middle course between the above mentioned alternatives are contractual distribution forms, like franchising, licensing and others. At this juncture the exporter is not based in the respective foreign market. But with a closer contractual cooperation, the company is superior to control and has a stronger influence on the company’s activities in the targeted country.

3.2 Principal Agent Theory

In general, the principal agent theory identifies the agency relationship in which one party, the principal (capital provider), delegates tasks to another party, the agent (capital seeker). Within the scope of a corporation the owners are e.g. the principal and the directors are the agent. A capital seeker (agent) stands the chance to behave, deviating from the target agreements, in such a way (relating to the opportunism or self-interest of the agent) that he harms the capital provider (principal). The agency theory is occupied with the existence of control and incentive problems during asymmetrical information distribution between principal and agent. Basically the principal and agent are independently trying to maximize their profit. However for the principal there is thus a risk of disadvantages by the actions taken of the agent. Due to the closeness to the operational business the agent has a knowledge lead over, which is used for his own benefit. In practice the principal is at disadvantage because the agent has more information. This case results in an asymmetrical information distribution.[7]


[1] Cf. as at 01.05.2006.

[2] Cf. Weber, J. (2005), pp. 3.

[3] Cf. Meffert (2000), p. 145.

[4] Ibidem.

[5] Cf. Root, F.R. (1987), pp. 2.

[6] Ibidem.

[7] Cf. Heitzer (2000), p. 139; Keasey/Wright (1997), pp. 2; Valcárcel (2002), pp. 43.

Excerpt out of 29 pages


Critical analysis of export credit agencies in consideration of Euler Hermes
University of Applied Sciences Essen
International Finance
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
576 KB
Critical, Euler, Hermes, International, Finance
Quote paper
Stefanie Welz (Author), 2006, Critical analysis of export credit agencies in consideration of Euler Hermes, Munich, GRIN Verlag,


  • No comments yet.
Read the ebook
Title: Critical analysis of export credit agencies in consideration of Euler Hermes

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free