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A weak domestic currency is a tailwind for even the smallest export business because it makes goods and services more affordable.
“We’ve come to find that with the weakened dollar, our products tend to be more affordable,” says Anthony Onwugbenu of BridgePathway, a five-employee, New York-based company that exports spices to Africa.
Those doing business overseas should not depend on low pricing alone to retain and grow sales with existing customers. However, offering lower prices can help a business break into new markets and expand its pool of new customers. According to Onwugbenu, the benefits of offering attractive price points to customers outweigh the benefits of increasing prices.
— Marianne Rowden, president and CEO of the American Association of Exporters and Importers
“Customers now — given the global economy — are looking for value in terms of goods,” he says. “If your goods are positioned or priced accordingly, it definitely improves sales.”
Now may be a good time for an international business to start exporting as a way to take advantage of the weak domestic currency value, says Marianne Rowden, president and CEO of the American Association of Exporters and Importers, a trade association based in Washington, D.C. Rowden says that companies new to exporting goods or services should “start small and start smart.”
She advises companies to start off by picking a single product and a single country and then expand from there after the business owner acquires experience navigating international trade.
Rowden says export newbies and small companies lacking foreign exchange expertise should be cautious when they begin seeking out partners overseas. “Be very careful and do good due diligence on that partner,” she says.
“For small companies, when they do a contract with a partner or distributor in another country, it is very wise for them to put in a provision that deals with exchange rates and currency conversions,” Rowden says. “That’s one of the most volatile aspects of international business transactions, and people who don’t negotiate that upfront are just asking for trouble.”
She says the provision should specify exchange rates and currency conversions, such as the external source consulted for the official exchange rate and who has the responsibility for tracking such information. “Companies really need to confer with an international trade attorney or their banker for a currency variation provision as it must be tailor made for that specific contract — that is, it should not be a generic term of the contract.”
Managing the complexity of foreign exchange isn’t always easy for sole proprietors and very small businesses, many of which barely have enough support to run their day-to-day operations. But regardless of their size, all business owners need to be armed with information about foreign exchange if they want to succeed overseas. For example, using a foreign exchange calculator is a simple step business owners can take to ensure they know whether rates are working in their favor.
Rowden suggests businesses reach out to experts, such as trade lawyers. If a business owner doesn’t have the financial resources to hire experts, he or she should consider taking advantage of government resources, trade shows and online foreign exchange services that offer advice, market updates and exchange rate alerts.
A weak domestic currency is an advantage, but it isn’t a panacea. For example, an exporter with a weak domestic currency value might have a customer whose currency is also weakening.
Brooks Dame, founder and CEO of Proof Eyewear, an eight-person, Boise, Idaho-based company that makes designer wooden-framed sunglasses, is dealing with this predicament as the euro has depreciated. “It’s causing people to pause,” Dame says, “and customers are maybe delaying that purchase because the dollar-to-euro relationship isn’t as strong as it once was.”
In these situations, Dame says he tries to give his customers a little nudge by offering lower prices, structuring the deal as a consignment sale or extending the terms so customers can hang on to their cash for a longer period.
For exporters working in a weak currency, the question isn’t whether there are opportunities to be had, but rather which opportunities will serve their businesses best. By using strategies that grow relationships with customers, exporters can take advantage of the short-term situation while positioning their international businesses for long-term success.
Example: 1USD = xx INR
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