How today's weak dollar can help deal-making: exchange ratios are very favorable for U.S. businesses looking to buy overseas, and new tax law will minimize the tax impact of repatriated earnings. Two attorneys outline the pros--and potential cons--of different deal strategies.

• Author: Eley, Lex
• Position: Global business

The case for U.S. companies "going international" is an easy one to make. In fact, most people would contend that a carefully conceived and well-executed international strategy is beneficial for almost any moderate-sized or larger business.

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Of course, there are as many different types of international strategies as there are companies adopting them. Many organizations are operating internationally unwittingly, simply by buying from foreign suppliers, employing overseas labor or selling to distributors with contacts and outlets outside the U.S. Moreover, many U.S. companies whose employees never leave American soil are conducting business abroad simply by doing business through foreign-based computer servers, selling their goods over the Internet or licensing intellectual property for international use by someone else.

Some U.S. companies are fortunate to be able to follow their own good customers in low-risk international expansion. Many corporations find themselves with international operations as they seek to boost the bottom line for shareholders by reducing manufacturing costs through the establishment of facilities in lower-cost regions such as Latin America, Eastern Europe or Asia.

A 2004 report by PricewaterhouseCoopers revealed that 62 percent of product businesses and 49 percent of service companies intended to market internationally in 2004. Product businesses anticipated getting more than 22 percent of revenues from international sales, twice the rate of service companies (11 percent of sales). This represents annual increases in international sales of 19 percent and 36 percent for product businesses and services businesses, respectively.

For those U.S. producers that don't have access to a sophisticated treasury management function that hedges foreign currency exposures, the currently weak dollar is an important driver in a decision to expand overseas. A weak dollar is generally perceived as being advantageous to U.S. producers, and selling into foreign markets can allow these companies to compete favorably with local foreign competitors on price while providing an opportunity to enter new areas.

On the other hand, U.S. companies seeking to acquire operating assets abroad are suffering from sticker shock when they compare the cost to acquire overseas manufacturing operations with that of acquiring similar facilities in the U.S. Of some solace is the fact that at current exchange rates, future foreign currency revenue streams from overseas operations convert to impressive numbers. However, it's difficult...