How successful manufacturers manage global trade: 5 tips from OFX
by Ken Wills, Director of Corporate, North America at OFX
In an increasingly connected global economy, manufacturers are connecting with their global trading partners more often than many other industrial sectors.
With operations disrupted and drastic changes in supply and demand, 2020 presented more than its share of challenges for manufacturers. Will 2021 be much different? OFX recently surveyed 690 US business owners at the end of September to gauge their confidence in overseas markets. The data revealed that overall, business owners estimated that they lost out on $1.4 million annual revenue by not attempting to reach other international markets.
In an increasingly connected global economy, manufacturers are connecting with their global trading partners more often than many other industrial sectors. OFX listed 5 tips to continued success in 2021:
Build a network of suppliers and contacts
When it comes to cross-border trade, businesses told us that their networks were vital, with over two-thirds of manufacturers saying that trusted, international contacts and suppliers were the most important factor for successful cross-border trade. And a limited international network was a barrier to growth for some businesses, with half of manufacturers saying it was the biggest challenge they faced when starting to go international.
Whether you’re looking for new sourcing, or expanding to a new market, when travel restrictions ease, you’ll be due for a business trip. In the meantime, set up video calls with your suppliers. When it is safe to, you’ll want to visit the market and meet face-to-face with your suppliers.
Evaluate what you will be charged for the exchange
Nearly 90% of manufacturer respondents have made a global money transfer to buy or sell goods. Notably, manufacturers are concerned about the fees attached to foreign exchange. The most successful businesses don’t simply rely on the exchange rate they find on the internet. If using a bank, the bank likely adds or embeds a margin into their exchange rate as a cost of doing business. And they may also charge a fee. Other providers may exchange at the inter-bank rate, also known as the mid-market rate, and charge a separate fee on top.
Understand the influences on currency fluctuation
One in five manufacturers said that understanding foreign exchange markets and when to transfer money was the most important factor for cross-border trade. That makes it important to understand what influences exchange rates between different currencies. A country’s inflation rate, interest rate, monetary policy and even tourism impact the demand between two different currencies.
Manage currency volatility
Over half the respondents to the OFX survey scheduled their foreign exchange transfers. By using a mix of on-demand transactions and scheduled payments, the most successful manufacturers limited their exposure to currency volatility. These strategies usually involve contracts that allow companies to lock in an exchange rate for an extended period, often up to a year.
Speak directly to an expert about market volatility
When it comes to costs and profits, small businesses operating overseas are subject to the swings of currency exchange rates. A great exchange rate to pay your supplier today may not be available next month. Half of the survey respondents said that being able to speak to an expert about market volatility alleviated their concerns with currency exchange.