Strong dollar shouldn’t slow exporting

Those that diversify do best in global economic fluctuations

Posted on Mar 10, 2016 :: Global
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Posted by , Insight on Manufacturing Staff Writer

While a strong dollar is making U.S. consumers happy with lower prices when traveling and on foreign-made goods sold in the United States, it’s not good news for businesses that export their products around the world.

Wisconsin exporters have experienced “varying degrees of pain” during the past 18 months, says Tyler Lynch, director of global fixed income, currencies and commodities for BMO Capital Markets in Milwaukee.

“For some, this has come in the form of margin compression as the U.S. dollar value of foreign currency denominated sales has decreased or they have been forced to reduce U.S. dollar product prices to remain competitive,” he says. “For others, the stronger dollar has decreased competitiveness, stressed relationships with customers and in some cases resulted in decreased or even lost sales.”

Roxanne Baumann, director of global engagement for Wisconsin Manufacturing Extension Partnership, says a strong dollar is something companies — especially manufacturers — need to take into account when exporting.

“The key is you need a solid exporting plan, whether you’ve been doing it for a while or you’re just starting out,” she says. “I keep telling businesses to not export accidentally or reactively.”

And more companies than ever before are exporting.  In 2014, state businesses exported $23.43 billion in goods across the globe. That amount dipped slightly in 2015, but exports still meant $22.5 billion for companies in the state.

The impact of the stronger dollar depends on the industry and product, so while one company may be hit hard, another may not notice much change, Lynch says.

“The demand for products that are commoditized or more homogeneous in nature tend to be more sensitive to currency fluctuations,” he says. “It’s also dependent on the competitive landscape. Exporters that are competing against other U.S. exporters aren’t feeling the same pressures as those that are going head-to-head with foreign competitors.”

Companies with unique competitive advantages — for example, they offer a product not found elsewhere — may also see the demand for their product fall overseas as consumers and businesses tighten their belts, Lynch says.

Baumann says when companies evaluate their exporting choices, currency concerns should be part of the decision process, but not their
only concern.

“We tell companies to diversify and to not put all of their eggs in one basket or just look at exporting in one country,” she says.

To help companies do that, WMEP offers ExporTech, an export acceleration program designed for a company’s top executives and sponsored by the Wisconsin Economic Development Corp., WMEP and the University of Wisconsin-Stout Manufacturing Outreach Center.

ExporTech participants go through an intensive process that identifies the best markets for a company’s products, develops a plan on reaching customers and decides how to deliver the products. Participating companies get specialized help and coaching during three one-day sessions all held a month apart. Program graduates increase their international sales on average between $600,000 and $900,000 within a year of finishing the course, Baumann adds.

Businesses need to look beyond currency issues and evaluate how much their business will grow through exporting. Ninety-six percent of the world’s population lives outside of the United States and 1 billion people are  expected to join the global middle class during the next 10 years, creating a huge market for U.S. products, says Katy Sinnott, WEDC’s vice president of international business development.

“There is a huge demand overseas for products stamped with that Made in the USA label and the Midwest is known worldwide as a place where quality products are made,” she says.

Business leaders need to understand how currency fluctuations may affect exporting, Baumann says. She says, however, that companies shouldn’t let the changes “throw
them off.”

“It’s like the stock market, don’t panic. You’re in this for the long haul,” Baumann says. “You need to look at performance over time.”

Despite the strong dollar, Lynch says companies interested in exporting should still move forward.

“Currency risk shouldn’t deter companies from pursuing the obvious and potentially significant benefits of exporting,” he says. “They should simply be aware of their net exposures and have an understanding of how currency fluctuations will impact their competitive position and margins.”

Lynch adds that exchange rate moves tend to be cyclical and business owners need to be cognizant of that.

“One year they are a headwind but two years later they can be a tailwind and vice versa,” he says. “Companies should also be aware of the tools and strategies available to reduce the impact of currency volatility.”