Canadian Manufacturing

Currency trends should drive product mix and design for exporters

Ongoing monitoring is key to well-prepared market development strategies

Successful exporters know how to pass currency exchange gains on to their foreign customers—or at least minimize their losses. Most payments for exports are realized in Canadian dollars—though other methods do exist—so currency exchange risk isn’t really an issue for exporters.

However, Canadian exporters can suffer from a lack of sales directly related to the foreign importer’s currency exchange loss. So the exporter has to understand the foreign buyer’s risk.

The buyer’s currency exchange risk starts when the Canadian exporter makes a decision to produce a product for export or when a purchase order is received from a foreign importer.

The risk continues while the exporter buys supplies on domestic or foreign markets, and coordinates engineering, manufacturing and labour inputs. The buyer’s risk also extends throughout the exporter’s international marketing efforts. The risk ends at the moment the buyer pays the Canadian exporter for the product.

Currency factors have a significant influence on the exporter’s strategic decisions around product offering, mix and depth. In addition to an initial currency assessment—often with the help of a currency specialist—ongoing monitoring helps ensure well-prepared market development and market penetration strategies.

Early into the service provided by a currency specialist, the exporter should also receive warnings and updates on fiscal events that could lead to a foreign buyer’s order cancellation or willingness to renegotiate the order.

Product development strategy

Exporters aiming to maximize currency exchange gain for foreign importers should focus in part on their product development strategy.

New product development takes time. The more time, the higher the risk of a currency exchange loss. New product development absorbs financial, manufacturing and human resources in an attempt to capture new markets, increase market share in existing markets, or move the company in a new direction. New product development increases the total variable cost of the company’s product mix.

From a manufacturing point of view, new products include two categories: technologically-advanced offerings, which stand apart in comparison to the competition’s products; and renewed products that don’t stand apart, but are significantly different.

The technologically-advanced products are usually more costly and require advanced marketing techniques for export. Renewed products, on the other hand, are less expensive and don’t usually require advanced marketing for export.

Currency positioning and the expected future value of one currency against another within the pair plays an important role in new product development.

In simple terms, if the Canadian dollar is on a decline compared to the US dollar, the Canadian exporter should start considering more technologically-advanced products. In this fiscal environment, increased budget for research and development would also be a good idea.

However, if the Canadian dollar is on the rise against the US dollar, a development strategy focusing on renewed products would be more beneficial.

Product mix and product depth

Currency fluctuations also influence product mix. If positioning of the Canadian dollar is positive, a reduced product mix with a shallow depth is appropriate. Therefore, if the Canadian dollar is increasing in value, exporters should offer less variety in each product category.  Focusing on the company’s “cash cow” is always a good idea during these times.

If the Canadian dollar is on the rise, international marketing efforts should focus on products with a maximum currency exchange gain to importers. But if the dollar is declining against the US dollar, a broader product mix should be exposed to foreign buyers and the product’s depth could go deeper.

In this case, the marketing effort should focus on more technologically-advanced products that still provide currency exchange gain to foreign importers.

The long-term positioning of the Canadian dollar against other currencies—but especially the US dollar—influences Canadian exporters’ product development strategy. Canadian exporters considering new products, increasing their budget for research and development, or changing their product mix should take currency positions into account.

Darek Wozniak is president of JW Investrade, a currency exchange consulting firm in London, Ont. He may be reached via email.

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