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Importers operating in countries with a weak domestic currency may be feeling pinched now more than any time in recent memory.
For starters, a weak currency value already tends to make imports more expensive because it takes more dollars to meet the same level of pricing. But regardless of the dollar’s exchange rate, customers generally don’t have more money to spend since they’re coping with a weak global economy.
That means importers are forced to either risk losing customers by hiking up the price of their goods or take a hit on their own margins. Neither is an attractive option, but fortunately, these aren’t the only two alternatives on the table.
— Inga Fisher Williams, principal at Coyote Creek LLC
Importers can look to their supply chain to identify any materials that can be sourced at home rather than abroad, says Inga Fisher Williams, principal at Coyote Creek LLC, an export and business finance consultancy in Portland, Ore.
Especially today, says Fisher Williams, more companies are starting to “insource” their production — for economic or quality-control reasons. That means domestic suppliers may be more readily available at competitive pricing than they were a few years ago. “The supply is out there, and you can find it,” she says.
In cases where foreign suppliers are still the best option, businesses should try to reduce the costs associated with submitting international payments. For example, using risk-management tools such as bids and forward contracts can reduce exposure to exchange rate volatility, thereby protecting the business’s margins.
When the U.S. dollar favored imports, it was easier to find customers. But the depreciating dollar means businesses — especially startup businesses that don’t have well-established customer networks — need a solid customer-retention plan in place.
According to Fisher Williams, the biggest question for small importers is: Can buyers afford the extra costs now? And furthermore, can they mark up their product enough to still maintain a competitive price in the marketplace?
She suggests importers take a hard look at the products they sell. A business might be able to charge more, for example, if its goods or services are “something brand new that is in high demand,” Fisher Williams says.
“If the product simply won’t sell at a higher price point, then the importer must consider cutting its own margins,” Fisher Williams says. “So, the next question is, ‘My margin has shrunk — is it still a good business model?’”
An import business can look at its supply chain to see if there’s any room to negotiate a lower price, or at the very least, keep prices from going up. However, it should begin laying the groundwork for these negotiations far in advance by establishing strong working relationships and clear terms with all vendors.
Brooks Dame, founder and CEO of Proof Eyewear — an eight-person, Idaho-based company that makes designer, wooden-framed sunglasses — has learned firsthand the value of approaching supplier relationships from this angle.
Dame frequently travels overseas to buy materials, and he recounted an instance in Asia where he negotiated a final price and sent over the money a couple of months later, only to be told that he owed the supplier more money because the value of currency had changed.
“It caused some tension in relationships,” Dame says. Now, he says he knows to establish ground rules early on and constantly tend to suppliers.
“We’ve managed those relationships,” Dame says, noting that he has made several trips to Asia to strengthen ties with his wood suppliers. “It’s tough to do, and we’ve had some pressure as the exchange rates have moved — but a lot of it is establishing relationships early on.”
By personalizing their relationships with suppliers and keeping up the connection, import businesses can succeed in negotiating favorable price terms and agreements, which can help their businesses’ cash positions, and potentially prompt an increase in customer satisfaction.
“You want to have a supplier that’s going to take care of you,” Dame says.
A weak domestic currency doesn’t have to wipe out business profitability. Armed with a strategic plan, importers can battle the negative effects of a devalued currency without taking a hit to their bottom line.
Example: 1USD = xx INR
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