Question

When a US domestic producer begins selling rxports, they typically need to worry about the foreign exchange market, since often the revenues an exporter earns are foreign currencies that then need to be traded into dollars. Because the foreign exchange value of the dollar tends to fluctuate, this adds an additional level of tisk to the exporter’s business. What are some factors that would make a domestic producer willing to take on this extra and new type of risk?

Answer 1

Some of the factors that might encourage domestic producers to take the risk and expand to overseas markets are :

1. As the standard of living and many under developed and developing companies are working towards enhancement, the company will experience increased sales from expanding to overseas business and thus effectively decreasing per unit cost with increase in production.

2. By expanding to foreign markets , there is much more scope for company expansion and thus making huge profits and also gaining share in international trade markets .

3. By expansion of business , due to huge diversification among various markets in the world, the company can spread the risk involved and can run successfully among various market places internationally even though the domestic market is not doing well

3. Any product , if in case experiences less sales due to seasonal change and decrease in demand, the company can sell the same products in other countries.

4. It would be a great learning opportunity of marketing strategies and business strategies and can give valuable ideas and also know if the company has any threats or weak areas to strengthen.

5.When the product life cycle in a market ends , the presence of the company in foreign market can be a safety factor and ensure running of the company.