Poll also highlights distribution costs as biggest barrier to growth overseas
Research into the level of optimism among small to medium-sized enterprises (SMEs) has revealed that almost a third are concerned about currency fluctuations. A YouGov poll of 500 exporter/importers, commissioned by Foreign Currency Direct, found that 29 per cent perceived their biggest fear to be losing out on varying currency rates. Seventeen per cent claimed to have benefited from exchange rates working in their favour.
According to Peter Ellis, Chief Executive of Foreign Currency Direct, fluctuations of two per cent a day are no longer uncommon, making it difficult to plan ahead with any certainty. "There are no hard and fast rules about currency at the moment: dealing in US dollars may be the most cost effective method in one market, or cost you thousands in another," he says.
According to Chris Laverty, restructuring partner at KPMG, exporters and importers who fail to hedge against fluctuation are often candidates for insolvency. "Often hedging is very expensive," she explains. But importers, especially retailers, "who buy direct from overseas markets, should have hedging in place." When the dollar "went pear-shaped last year", she adds, that caused "significant problems for some parties" buying goods from China, where the deals are dollar denominated.
Trading with Japan can be just as hazardous, according to Foreign Currency Direct. A company that agreed to buy a shipment of Japanese electronic goods in January for 40 million Yen or 440,000 US dollars would have paid, at the time, between £303,000 and £304,000 in either currency. "If the same agreement needed settling now, it would cost around £245,500 for the Yen payment and over £263,500 for Dollars—a difference of £18,000."
Distribution and transport costs are also major concerns for small businesses, according to the poll, with 23 per cent of companies admitting it hindered growth abroad. Reputation was also highlighted: 20 per cent of respondents said building a brand overseas was a challenge, while 15 per cent said they were frustrated by local red tape. Ten per cent highlighted poor communication channels with local suppliers as their biggest problem.
Posted 21 August 2009 : Director.co.uk
