International expansion
International expansion provides a company with major growth opportunities. Though in many cases the expansion may result in lower margins than before, higher costs and lower profits. In order to avoid that, each company that plans to penetrate to overseas markets needs to be carefully managed and tough decisions have to be made.
Taxation System
One of the most popular reasons for international expansion of a company but simultaneously an issue that has to be over lapsed is the taxation system of the potential markets for expansion. A low corporate tax rate is always a tempting factor, but can also be deceptive. A complete market analysis should should also include the possibility of existence of state based taxes, withholding and consumption taxes, such us VAT (value added tax) before penetrating new markets. Some companies prefer to expand in tax havens and emerging markets where the taxation system is more attractive, but A&F have expanded to mature and developed markets already. Also, many companies “use” the base country’s tax regulation in order to “hide” income and avoid high taxation.
Currency Risk
When a company expands internationally there is also the possibility to be exposed to currency risk due to volatile currency rates or even currency restrictions and limitations. In order to avoid that risk companies usually try to effectively hedge their transactions internally in each country, with no adverse outcomes. Though, the currency risk is increasing when a company has to proceed to international transactions with suppliers and customers and is exposed to currency rate fluctuations which might lead margins of the goods sold to decrease and the cost of production to increase. A&F has expanded in countries with strong and stable currencies against the dollar (Canada, Europe, Japan) but even these economies were impacted by the