Exporters – Take advantage of the strong Australian dollar today!
Despite the turmoil of the end of the first week in August there are plenty of signs the Aussie will remain ‘high’ for a while to come.
The impact of the strength of the Aussie dollar for importers and exporters is clearly very different –but in both cases the challenge is to remain ‘strategic’ in response to it.
Exchange rates have not been kind to Aussie SME exporters for the last few years. Many exporters have seen reduced sales, much tighter margins, loss of market share and in some instances loss of markets. Regardless of whether you invoice in AUD or local currencies –the effect of the exchange rate movements will either impact your margin –or it will flow into the end-user price of your products and services.
Nevertheless for companies just starting on the export journey –I do believe all strategic market entry options are still open. If you have a well differentiated product or service idea there are definitely market opportunities –particularly if you look at booming economies of India and China and the other BRIC countries.
For those with established markets often the first reaction is denial “we’ll just ride out this period and hope that it gets better.” Eventually you have to deal with reality and the challenge is to remain strategic.
So can you be strategic in the face of shrinking margins and markets? There are a range of options –some are outlined below:
- Alternate ’entry-strategies.’ Now may also be the time to review your market entry model –is it serving you well, is it the model of the future? Perhaps now is the time to think about manufacturing- assembling or down filling in the local markets to take advantage of reduced freight and perhaps less expensive inputs? Is licensing an opportunity for your business model?
- Are there too many intermediaries in your supply chain –can you eliminate a level –perhaps by investing in your online resources and outsourcing fulfilment? Time to set-up your own sales/distribution office and control the distribution costs? The same ‘convergence’ issue identified above applies equally in export markets – are your distribution partners in embracing selling online? A key business model that is gathering momentum is where a supplier drives the marketing –motivates there target consumer to buy –but delivery of the product or service is completed –locally –often by traditional channel partners. For a local example of this see www.brasseriebread.com.au
- Invoicing currency: If you invoice in AUD now’s the time to think about local currency invoicing –yes your margin will be impacted by the moving exchange rate –but your response to that is then under your control. The importers of your product –distributor-agent-end user –they are already building a ‘hedge’ or a margin on top of the current exchange rate to ‘protect’ them from short term exchange movements. Is it better you control that hedge factor and give them certainty in invoicing in their currency – this gives you greater control over the end-user pricing (even if it does come at the expense of your margin..)
- Strategic relationships: Now’s the time to review your local sales ‘partners’ –distributors-agents–customers. Are you working together to deal with the exchange rate issue –are your local partners the most effective? Now maybe the time to take an objective look at the effectiveness of your in-market support and take a new direction if necessary.
Many exporters unfortunately have already ‘given-up’ taken a short term view and lost their export markets. Of course sustaining export markets in these times maybe challenging –but maybe you just have to think a little differently to hang-on. Fundamentally you have to ask –can I achieve my objectives in a market the size of Australia –and what is the cost to my business ‘holding-on’ versus having to start the export journey again at some future point – how will your customers see your commitment?
Advice for Exporters?
It’s often hard for SME business owners to be objective about their decision making – they don’t typically don’t have the management processes and objective analysis that boards in larger companies can rely-on. So how can you as business owner access advice –easy, the web, Austrade, state based government support, chambers of commerce, industry associations and of course specialist consultants like my organisation are the obvious places to start.