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Coping with the Dollar: A Real Life Strategy

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We all appreciate the difficulties of the high AUD for Australian exporters but I believe this should not intimidate businesses. Rather, exporters should look to take advantage of marketing and other opportunities that the high AUD may present. I understand that this is not an easy matter to address but if an Australian business wishes to remain in the international marketplace they must look at strategies that will minimise the impact of continual fluctuations of exchange rates. Let’s look at an example of an Exportise client who turned the high AUD to its own advantage with some smart negotiating and a rethink in selling strategy. The client manufactures swimming pool products, with a strong international market. Total sales of over $20 million comprise 40 percent domestic market, 30 percent North America, 25 percent Europe and the balance elsewhere. Most of the company’s products are manufactured in Australia with the remaining 20 percent, primarily low price-point accessories, made in China. This market balance minimises to some extent the impact of exchange rate variations. European and other sales are in currencies that the AUD has not substantially appreciated against while the cost of manufactured products from China has decreased. However, the North American market (which has been the fastest growing market) has obviously been a concern as exports are sold in USD. The Australian manufacturer has good margins that could enable the business to continue in the North American market profitably, but there is concern as to what will happen if the AUD will continue to strengthen over the medium to long term. After negotiations with the main buyers it was agreed that there could be a slight increase in prices, but to offset the price rise the exporter offered a marketing package comprising advertising contribution, point of sale materials and samples. The exporter agreed to supply the point of sale materials which it had manufactured in China so the cost was substantially less than the US buyers had been paying from US suppliers. The cost price of samples was considerably less than the US buyers had been paying from the exporter for samples they used in their retail outlets and the cost of advertising was in USD, so it was a relatively lesser cost to the exporter. The anticipated overall impact to the Australian exporter is that the costs of the marketing package will exceed the price increase by around one third. However, the US buyers and the Australian exporter believe that the increased marketing activity will generate additional sales that will result in greater profits for all parties.  This deal has also enhanced the relationship between the Australian exporter and its North American buyers, with all parties feeling that it will generate mutual increased business and that they can approach each other when one is facing difficult trading conditions. The process was not all plain sailing for the Australian exporter. Four major buyers presented different circumstances and expectations. This meant that there needed to be flexibility in the arrangements with each buyer but overall, the strategy worked for everyone. The Australian exporter is now reviewing relationships with major buyers from other markets with the view to adopting some of the initiatives to minimise currency and other risk. Clearly the situation described above will not suit all exporters. However, some of the key elements such as negotiating a specific package to suit the circumstances, engaging the buyer and looking for flexible solutions, can apply to any business. I suggest that all exporters continually review their relationships with buyers and look for mutually beneficial strategies.

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