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International Market Expansion: Abercrombie & Fitch into Brazil - Research Paper Example

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International Market Expansion: Abercrombie & Fitch into Brazil

Some foreign markets may appear attractive with good incentives and tax holidays, when the true condition on the ground is poor consumer behavior towards newly arriving products or businesses. Some may also depict law costs of production characterized by cheap power, raw materials, labor and transport, but with very high tax rates and strict laws for involvement in social corporate responsibilities. Since Abercrombie and Fitch is one of the multinational companies forecasting to open and expand new market in the rapidly growing and stabilizing Brazilian economy, it must first consider understanding various risks likely to occur in its foreign mission in Brazil. Risk of Foreign Currency on Operations of Abercrombie & Fitch Foreign currency risks involve risks accruing from the periodical fluctuations in the value of the foreign currencies. One type of financial risk accruing from fluctuation in foreign currencies, and likely faced by Abercrombie and Fitch is the transaction risk (Mullineux, 1987). Exporters and importers are the likely business people to experience such risks, as they need to deal with different currencies to stamp their trading. The risks likely faced by exporters involves fall in the value of the local currency in the foreign market as at the time of product arrival and making of payment by the foreign importer. When this happens, the foreign importer will have to convert the payment in consistence with the prevailing transaction and not with initial value as at the time ordering for the product. This then translates into substantial profit for the importer and loss on the side of the exporter. To the importer, foreign exchange risk may occur when the foreign currency of the exporter gain value over the local currency as at the time of receiving goods and making payment. In this situation, the importer will have to more monetary value of the local currency to pay for the goods received (Mullineux &Murinde, 2003). Under this situation, exporters tend to benefit from the extra payment resulted by flux in the value of currency as importer the individual importer make losses. However, importers may have other avenues to service such losses by passing the loss to the final consumer in the final pricing. This may only be possible if the importer has no competitors who also deal with same product, or when all the importers experienced similar impacts of currency fluctuations as at the time of importation. Another foreign currency risk likely faced by Abercrombie and Fitch in the course of doing business in a foreign country is the translation risks (Mullineux & Murinde, 2003). A foreign company running its operations in another country usually records and recognizes its revenues in terms of its home currency. Challenge occurs during preparation and development of the company’s balance sheet that deliberates liabilities, capital and assets. In this process of balance sheet, the foreign company needs to express its financial values in terms of the local currency and not in its home currency. This result to unreal expressions in the financial report presented to the government of the host country for determination of tax margins. For example, Abercrombie and Fitch is an American multinational company that will denominate its proceeds in US dollars and not in Brazilian currency. When reporting its financial ...Show more

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International Market Expansion: A Case Study of Abercrombie & Fitch Entry into the Brazilian Market Name Institution International Market Expansion International Market Expansion: A Case Study of Abercrombie & Fitch Entry into the Brazilian Market Introduction Getting into the international market or expanding to other markets in the global economic spectrum is never an easy task for businesses…
Author : quincy68
International Market Expansion: Abercrombie & Fitch into Brazil essay example
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The author of the paper states that foreign currency risks involve risks accruing from the periodical fluctuations in the value of the foreign currencies. One type of financial risk accruing from fluctuation in foreign currencies, and likely faced by Abercrombie and Fitch is the transaction risk.

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