This document outlines various tools used for international business, including methods for selecting target countries and evaluating their market potential and competitiveness. It discusses indexes that measure market potential, global competitiveness, and political risk. It also covers international payment methods like advance payment, letters of credit, and open accounts. International monetary systems, from the gold standard to floating exchange rates, are overviewed along with the product life cycle theory.

1. Tools for International
Business
Kunal Upadhyay

2. Out Line of UnitOut Line of Unit
 Tools for country SelectionTools for country Selection
 Market Potential IndexMarket Potential Index
 Global Competitive IndexGlobal Competitive Index
 Global Political Risk IndexGlobal Political Risk Index
 International Product Life CycleInternational Product Life Cycle
 International Monetary SystemInternational Monetary System
 Fixed and Floating ExchangeFixed and Floating Exchange
 FDI Confidence IndexFDI Confidence Index
 Modes of Payment in International TradeModes of Payment in International Trade
 Advance PaymentAdvance Payment
 Recoverable & Non recoverable Letter of credit ConsignmentRecoverable & Non recoverable Letter of credit Consignment
SalesSales
 Open AccountOpen Account

3. Tools for country Selection
 International expansion of a firms activities requires
identifying business opportunities across the borders,
evaluating them and selecting one or a few countries
for the firm’s operations.
 Firms that are expanding internationally need to carry
out research on business opportunities, evaluate
different countries and select the potential locations

5. Trade Analysis & Analog Methods
Market size =
Production + Import - Export

6. Opportunity-Risk Analysis
 Choose variables both for opportunities
 Market size, growth, future potential, tax rates,
cost
 Risk factors like
 Political, commercial, economic, operational

7. Products-Country Matrix Strategy
 Under this approach, previous trade statistics are
analyzed to identify the major markets and
major product
 It was observed in mid-nineties India prepared
such matrix. 15 countries and 15 commodities
accounted for around 75-80% on India’s Exports.

8. Market Focus Strategies
 Technique is based market potential, generally on a
regional basis is determined and major group that need
to be focused are identified.
 Textile industries:- ready-made garments, carpets, and
handicrafts
 Engineering product and computer products
 CIS countries was launched on 1st
April,2003
 Programe was based on integrated countries of CIS
regions and Focus on major product group, technology
and services.

9. Growth-Share Matrix
 A strategic planning tool based on the philosophy
that a product’s market growth rate and market
share are important in determining marketing
strategy.

11. Country Attractiveness- Company
Strength Matrix
 Strategy is based on business attractiveness of countries
and competitive strength of the company.
 Country attractiveness are
 Market size, consumer buying, governance structure,
economic & Political Stability
 Competitive strength are
 Market share, 4p, image, position, technology

12. Cont..
 Primary Market
 These countries offer the highest marketing
opportunities and call for a high level of business
commitments.
 Secondary Market
 These countries, perceived political and economic risks
are too high to make long term binding business
commitments.
 Tertiary market
 These countries with high perceived risk, allocation of
firms' resource is minimal.

13. Market Potential IndexMarket Potential Index
 The MPI measures the likelihood of adults or households
in a specified area to exhibit certain consumer behavior
as compared to their country’s national average
income.

14. Cont..
 The index is represent a value of 100 as the overall
demand for the country.
 A value of more than 100 represents a high demand
and a value of less than 100 represents a low demand.
 For example, an index of 120 implies that demand in the
trade area is likely to be 20% higher than the national
average; an index of 85% implies demand is 15% lower
than the national average.

15. Cont..
 Global marketing is becoming more and more
important along the years with the increasing trend in
internationalization.
 Having too many choices, marketers face the challenge
of determining which international markets to enter, and
the appropriate marketing strategies for those countries.

16. Cont..
 Those emerging economies comprise more than half of
the world’s population, account for a large share of
world output, and have very high growth rates; all
indicators of market potential.
 Indexing studies help companies to compare the
emerging markets with each other on several
dimensions.

17. Practices of MPI
 Identify The potential country
 Invest money more effectively
 Develop successful advertising and marketing plan
 Decide which expansions are most profitable

18. Measures of Market PotentialMeasures of Market Potential
 Market Size
 Growth rate
 Market Intensity
 Market consumption capacity
 Commercial infrastructure
 Economic freedom

19. Global Competitive Index
(GCI)

20. Global Competitive Index
(GCI)
 Since,1979 the world economic forum’s annual Global
competitiveness Reports have examined many factors
enabling national economies to achieve sustained
economic growth and long-term prosperity.
 The goal has been to provide benchmarking tools for
business leaders & policymakers to identify obstacles to
improve competitiveness

21. Cont..
 The World Economic Forum provides a complete
overview of factors that are critical to driving
productivity and competitiveness and groups in 12 pillars

22. Cont..
• Basic
Requirement
Key for factor
driven
economies
•Efficiency
Enhancer
Key for
efficiency
driven
economies
•Innovation &
sophistication
factors
Key for
innovation
driven
economies
• Institutions
• Infrastructure
• Macroeconomic stability
• Health and primary
education
• Business sophistication
• Innovation
• Higher education & training
• Goods markets efficiency
• Labor markets efficiency
• Financial markets
sophistication
• Technological readiness
• Market Size

23. Global Political Risk IndexGlobal Political Risk Index
 The GPRI is an index of country stability ratings for 24
emerging market countries.
 Its unique methodology measures a country’s ability to
absorb political shocks.
 The GPRI evaluates political, social, economic, and
security factors, using a combination of quantitative and
qualitative data that is collected on the ground and
also through open source methods.

24. Cont..
 Ratings are expressed on a scale of 0 to 100.
 Clear and short analysis accompanies the index to
illustrate what events impacted each country’s stability
rating, and make forecasts for the coming month.

25. What does GPRI measure?
 The GPRI measures stability and is defined as the
capacity of a country to withstand internal and external
shocks or cries.
 GPRI measures in 24 emerging market countries.
 The GPRI is calculated on a monthly basis. Monthly
analysis places everyday occurrences into a larger
context of comparative state stability.

26. Measures of GPRI
 Efficient state institutions
 Government effectiveness (High degree of political
institutionalization)
 High degree of political legality among the population.
 Sound economic performance and policies
 Absence of significant anti-state opposition
 Rare instance of political violence
 Low level of social, ethnic or religious tensions

27. Countries currently covered on the
GPRI
 The 24 countries include Algeria, Argentina,
Brazil, Bulgaria, China, Colombia, Egypt,
Hungary, India, Indonesia, Iran, Mexico, Nigeria,
Pakistan, Philippines, Poland, Russia, Saudi
Arabia, South Africa, South Korea, Thailand,
Turkey, Ukraine and Venezuela.
 Selection of counties for the index is based upon
economic relevance for the international
markets in equities, debt, or Foreign Direct
Investment.

28. International Product Life-Cycle Theory
 The level of innovation and technology, resources, size
of market and competitive structure influence trace
pattern.
 IPLC recognizable stages that influence demand
structure, production, marketing strategy and
international competition.

30. Introduction Stage
 Companies spends more on R&D activities and need
speedy recovery through price
 Price of new product is relatively higher, targeting high
income countries
 A firm targets domestic market or high income countries
Demand Structure Production Market Strategy International
Competition
 Demand Not
understand
 Consumers
ready pay
premium price
• Rapidly
change
• Requires skill
labour
• Sales mostly to
home country
• Some exported
to high-income
countries
• A few domestic
competitors

31. Growth Stage
 The demand in the international markets exhibits an
increasing trend and the innovating firms get
opportunities for exports.
 Its increased international market competition in target
market.
 A firm establish its production locations in other
developed countries
Demand Structure Production Market Strategy International
Competition
 Price Competition
begins
 Product standard
emerging
• Mass Production • Increased exports
to high-income
countries
• Competitors in
other countries
begin production
for their domestic
market

32. Maturity Stage
 Firms know how of the innovative process become
widely known,
 A firm begins to establish its operations in middle & low
income countries with competitive advantage of price
Demand Structure Production Market Strategy International
Competition
 Competitions
based on price
and product
differentiation
• Long runs with
stable techniques
• Capital intensive
• Innovator firms
protect foreign
market from local
competition
• Firm target market
from high income
countries to
innovating
countries

33. Decline Stage
 At decline stage market strategy shifts to price and cost
competitiveness.
 Firm emphasis on most cost-effective location rather
than on producing themselves.
Demand Structure Production Market Strategy International
Competition
 Mostly price
competition
• Long runs with
stable techniques.
• Lowest cost of
production
needed by
capital intensive
• Innovator
company may
begin production
in developing
countries
• Firm target market
from innovating
countries to high
income countries

34. International Monetary SystemInternational Monetary System
 Money includes anything that is generally accepted in
exchange as payment for goods and services.
 The key function of money is to act as a medium of
exchange, it also serves as a store of value, unit of
account, and standard of deferred payment.
 The development of currencies in various parts of the
world involved great innovations.

35. Cont..
 International monetary systems refers to a set of rules,
regulations, policies, practices, instruments, institutions
and mechanisms that determine exchange rates
between currencies.
 Evolution of monetary systems is explained to help
readers in developing a conceptual understanding of
current monetary arrangements.

36. Gold Standard
 Gold has been used as a medium of exchange primarily
due to its rare availability and desirable properties
 From 1876 to 1913 were generally said by gold standard.
each country backed up its currency with gold, and
currencies were convertible into gold at specified rates.

37. Fixed exchange ratesFixed exchange rates
 In July 1944, representatives of 44 allied nations agreed
to fixed rate monetary system and setting up of
International Monetary Fund in a conference held in
Bretton Woods, New Hampshire.
 Each member country promised to maintain fixed or
attached exchange rate for its currency vis-à-vis gold or
the US dollar.

38. Floating Exchange Rate System
 By March 1973, the fixed exchange rate system was
unrestricted and the world officially moved to a system
of floating exchange rates.
 Under the freely floating exchange rate system, currently
prices are determined by market demand and supply
conditions without the intervention of government.

39. Foreign Direct Investment Confidence
Index
 examines overarching trends and ranks countries on
how changes in their political, economic, and regulatory
systems are likely to affect foreign direct investment (FDI)
inflows in the coming years
 As in the past, this year's index provides valuable insight
into how business leaders regard the medium-term
economic.
 The index provides a unique look at the present and
future prospects for international investment flows.

41. Methods of International TradeMethods of International Trade
 To succeed in today’s global marketplace and win sales
against International trade presents a spectrum of risk,
which causes uncertainty over the timing of payments
exporter (seller) and importer (foreign buyer).
 For exporters, any sale is a gift until payment is received.
 Therefore, exporters want to receive payment as soon as
possible, preferably as soon as an order is placed or
before the goods are sent to the importer.

42. Cont..
 For importers, any payment is a donation until the goods
are received.
 Therefore, importers want to receive the goods as soon
as possible but to delay payment as long as possible,
preferably until after the goods are resold to generate
enough income to pay the exporter.

43. Cont..
 PREPAYMENT
 With cash-in-advance payment terms, the exporter
can avoid credit risk because payment is received
before the ownership of the goods is transferred.
 However, requiring payment in advance is the least
attractive option for the buyer, because it creates
cash- flow problems.
 exporters who insist on this payment method as their
sole manner of doing business may lose to
competitors who offer more attractive payment
terms.

44. Cont..
 LETTERS OF CREDIT
 Letters of credit (LCs) are one of the most secure
instruments available to international traders
 An LC is a commitment by a bank on behalf of the
buyer that payment will be made to the exporter,
provided that the terms and conditions stated in the
LC have been met, as verified through the
presentation of all required documents.
 An LC also protects the buyer because no payment
obligation arises until the goods have been shipped
or delivered as promised.

45. Cont.. OPEN ACCOUNT
 An open account transaction is a sale where the
goods are shipped and delivered before payment is
due, which is usually in 30 to 90 days.
 This option is the most advantageous option to the
importer in terms of cash flow and cost, but it is
consequently the highest risk option for an exporter.
 Because of strong competition in export markets,
foreign buyers frequently press exporters for open
account terms since the extension of credit by the
seller to the buyer is more common abroad.