Business Cents: Currency Swings Cost British Industry Dear

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New research reveals that the single biggest challenge for small businesses that import or export overseas is losing out on exchange rate fluctuations (29%)

New research reveals that the single biggest challenge for small businesses that import or export overseas is losing out on exchange rate fluctuations (29%).  In contrast, just 17% of smaller companies claim to have benefitted from exchange rates working in their favour.

Currency specialist Foreign Currency Direct questioned 500 decision makers in UK small and medium sized enterprises (SMEs) and discovered that almost one in two  (45%) conduct business overseas. The majority of this trade is carried out in Western Europe (60%) and the USA (35%); and deciding which currency to trade in can make or break a business.

With fluctuations of 2% a day no longer uncommon, according to Foreign Currency Direct, it is difficult to keep tabs on Euro or US Dollar rates.  For SMEs who trade further afield, the currency markets can be a minefield.

For example, a company trading with Japan who agreed to buy a shipment of electronic goods in January for JPY40 million or US$440,000 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.

In contrast, a business deal struck in Sydney requiring AUD$1,000,000 or US$680,000 would have cost around £469,000 back in January, the same deal needing to be paid now would cost over £500,000 for the Australian Dollar deal and only around £407,000 for the Greenback – a potential saving of £93,000 for a company that chose to trade in US$.

Despite this uncertainty, 28% of SMEs expect to grow their overseas activity over the next 12 months, according to the survey, with the potential benefits outweighing the risks.


The benefits

• 32% of SMEs said that the biggest benefit of increasing their overseas business has been opening up a new market and increasing their customer base.
• 17% said that exchange rates worked in their favour.
• 16% reported that it is more profitable to sell their products abroad than in the UK.
• 14% said that a key benefit of expanding the level of business they do abroad is that they can buy goods/services more cheaply overseas and they will turn a greater profit than if they were working with UK suppliers.
  

Perceived challenges

• The single biggest challenge for small businesses was losing out on exchange rate fluctuations 29%.
• Distribution and transport costs are also major concerns for small businesses, with 23% of companies saying that this hindered their growth abroad.
• 20% of small businesses admit that it has been very difficult to establish a reputation overseas with a further 15% frustrated with local regulation or red tape and 10% hindered by poor communication channels with local suppliers.
  

Peter S. Ellis, Chief Executive of Foreign Currency Direct, specialists in foreign currency exchange commented on the findings:

“In the current market, when many SMEs are feeling the full brunt of the recession, opportunities to add directly to your bottom line are hard to come by.  Making the wrong call on currency could cost businesses thousands, if not millions, of pounds of potential revenue.

“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.  A specialist currency broker, such as Foreign Currency Direct, can monitor the markets for business customers and advise them on the right time to make transactions, giving busy businesses one less thing to worry about,” Ellis concludes.

Top countries UK businesses would choose to trade with

• Western Europe (e.g. France, Germany, Spain etc.) 60%
• USA 35%
• Eastern Europe (e.g. Poland, Czech Republic, Hungary etc.) 13%
• Dubai/ Middle East 11%
• Australia/ New Zealand 9%
• Africa 8%
• Asia (excluding China and India) 8%
• Canada 7%
• China 6%
• India 4%
• Brazil/ South America 2%
• Russia 2%