Foreign Market Entry and Country Risk Management

This chapter introduces several modes of entry into international markets. It then describes sources of country risk and their cash flow consequences for international investors and the multinational corporation. Strategies for reducing exposures to country risk—preferably while maximizing the expected return on investment—are then examined. The chapter describes the alternative entry modes into foreign markets including exporting, international contracting, and investment-based foreign market entry. Many important issues regarding the choice of market entry mode are addressed. These international operations bring additional sources of country risk; that is, the risk that the business environment in a host country will unexpectedly change. Country risk includes political and financial risks. Political risk is the risk of unexpected change in the political environment of a host country, whereas financial risk refers more generally to unexpected change in the financial, economic, or business environment of a host country.