Beating the Currency Crunch
Thomas Friedman’s The World is Flat explains to readers the concept of “wholesale” and “retail” reformation within economies. As transitioning economies adhere to these reforms globalization’s spread continues to reach the farthest places on the globe. The end results are more businesses, faster production, and fiercer competition in the marketplace. As this phenomenon takes place, the familiarity of the micro multinational company is more and more common as businesses aim to tap the brightest minds for the best price. What happens though, when your country’s currency declines to a thirty year low? What do business owners do to overcome this adversity? These are questions many American business owners are asking as they try to cope and develop strategies to beat the currency crunch.
WineCommune, a California based wine company that does a great deal of business through its e-commerce outlets has noticed a decline in growth compared to its stellar $17 million in sales for 2007.The company decided to mitigate its losses by entering into forward contracts. The idea is to lock in a price early with speculation that U.S. currency may be headed for a downturn. WineCommune locked in an exchange rate when the euro was worth roughly $1.25. When they were ready to purchase in the spring the euro had risen to $1.36, saving the business about eight percent. What’s especially intriguing (and ironic) is that the French consumers are now turning to WineCommune to take advantage of lower prices. What they lose in currency they are making up in higher sales volume.
Other companies are working with international vendors to make flexible payments since rates may be more favorable on different days of the week. This gives businesses a chance to try and pick the best day to pay suppliers. Naomi Novotny, whose company SaltWorks utilizes this practice explained that “when you’re dealing with hundreds of thousands of dollars, every last penny counts.”
Other companies have struggled to beat the crunch and are seeking domestic suppliers. Rainbow Packaging, which primarily handles distribution, made the switch from German machines to ones manufactured in the U.S. “It’s like starting from scratch,” CEO Wes Henriksen said.
Certainly globalization isn’t the culprit of our current problems, but is it guilty by association? While some may be quick to point fingers, they need only to point to themselves. Third Quarter GDP in the United States, driven by exports and fueled by a weakening currency, soared this past year.
Globalization is responsible for our diversified collaboration, global work forces, shifting market places, and new opportunities if we open our eyes to see them. Millions of people in emerging countries like China and India are now able to afford products and services they thought they would never be able to enjoy. Labor costs are lessoning as more people gain the needed skill sets abroad. So while many businesses are struggling to stay afloat with a weak U.S. dollar I have just one question- Why?
With international market places growing, every company’s marketing department should be conducting extensive research on the three billion new capitalists in the first world. What’s the best way to reach these people? What do they prefer? How much does the average household buy online? Take advantage of a weak currency to grow and open new international markets. Your cost of doing business may be higher, but sales volumes will soar which should make up for loss in the short term and build your business’s international presence. Think “business cycle.”