Many domestic companies are expanding their reach to the international community. As with any major business decision, there are pros and cons.
First, what is a domestic company/corporation?
Investopedia defines domestic corporation as a “company that conducts its affairs in its home country.”
What is an example of a U.S. domestic company?
When it comes to domestic corporations, the company that comes to mind is Ally Financial Inc. This publicly traded internet-based bank is headquartered in Detroit, MI, with approximately 8000 employees in the US. As of September 2018, Ally does not offer any of its financial services to non-US citizens and non-US residents.
Here are four reasons why a domestic company should expand its reach:
- There’s an increase in credibility, because expanding internationally will positively impact consumers’ perception of the business.
- If the products sold internationally are manufactured internationally as well, cost of production and operation may be cheaper, depending on the country and its currency value compared to the Dollar.
- Access to a larger market pool. The farther the reach, the bigger the number of consumers.
- Another benefit of this expansion is Diversification of Assets. When a company diversifies its investment, a negative growth or revenue in one can be offset by a growth and increased revenue in another.
When it comes to going global, one major risk is the impact of fluctuating currency exchange rates on revenue.
So, how does currency exchange rate fluctuations affect companies?
One critical factor that may change is currency value. This changes very often. Fluctuating currency exchange rates can have a negative or positive impact on a business’ revenue.
One example is how EUR/USD exchange rate fluctuations affected Ebay, a U.S. based company, in 2012. Ebay’s revenue was negatively impacted when the Euro gained value over the Dollar.
. . . and it’s marketing efforts?
As we know, a decline in a company’s revenue can affect it’s overall operational budget, which includes marketing expenses.