High Foreign Country Debt

High debt, inflation and unemployment in several countries have resulted in highly unstable governments and currencies, which limit trade and expose firms to many risks. Debt-laden and/or currency-starved countries are often not able to pay despite their willingness to purchase. The inability of poorer countries, for example in eastern Europe, to pay by normal (cash) methods becomes a serious obstacle for supplying companies.

Exchange Rate Volatility

The level of a country's exchange rate affects the company's competitiveness in the foreign market. A weak pound will favour exports of British goods. A strong exchange rate intensifies the level of competition the firm faces at home. For European companies whose countries are members of the Exchange Rate Mechanism (ERM), much of Che uncertainty is removed from fluctuating exchange rates. On the one hand, this is favourable for companies doing a great portion of their international business in the EU. On the other, however, the ERM does impose constraints on company decisions, such as productivity levels and government policy (e.g. in its flexibility to reduce interest rates).

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