Marla Kott always looks on the bright side. Trouble is, she’s on the bright side of the border, economically speaking.
Her Canadian business, with a majority of its market in the United States, is struggling to weather the effects of the strong Canadian dollar.
Ms. Kott is the chief executive officer of Richmond, B.C.-based Imprint Plus. The company makes custom name badges, selling primarily to hotel, supermarket and retail chains south of the border.
But most of the manufacturing, including product finishing, takes place in Canada. As a result, Canada’s strong dollar has cut into Ms. Kott’s margins.
“A 10-point swing in a year is never what you are hoping for,” she says. “But you have to move forward and adjust.”
The company, which posted 2010 revenues of $8-million, is investigating strategies to deal with the strong-dollar challenge. First, Ms. Kott is considering moving production to the United States to eliminate the currency risk – shuffling a greater portion of her costs to the same currency as her sales.
Second, Imprint Plus already has a sales office in Florida but its staff in Canada currently administer much of the distribution. That’s another segment of the business that could move south.
Ms. Kott recognizes such moves would cost Canadian jobs and carry a big price tag. “But we realize that if you have so much of your opportunities in the U.S., you have to move your cost structure down there. That would give us a natural hedge,” she says.
Another plan is to target a new market. Imprint Plus has traditionally focused on the business-to-business market. Now, it’s planning to partner with a major big-box retailer in the United States, such as Office Depot, Staples or Grand & Toy, and begin selling direct to customers.
“We’re looking to the smaller, mid-sized consumer who needs do-it-yourself name badge kits,” Ms. Kott says.
She has considered raising prices to offset the currency losses, but the potential of scaring away valued customers is risky. It’s a step that would not be taken lightly.
“You have to look at that in comparison to what the market will bear,” she says. “But we’ll be tracking that.”
The challenge: How can Imprint Plus best weather the strong Canadian dollar?
The experts weigh in
Scott McLean, partner and performance improvement consultant with PricewaterhouseCoopers in Toronto
If you’re a Canadian manufacturer selling in the U.S., you’re making less. Do other markets look more lucrative? Maybe they do, but remember it could well be that Asian buyers prefer to buy in U.S. dollars, too. And then you have to focus on costs and sometimes it takes a fluctuation like this to really look hard at things.
Coping with currency fluctuations is really about scenario planning: We’re okay at $1.05 [for a Canadian dollar, in U.S. dollars] at $1.08 we do this, at $1.10 and we’ve done nothing, we are out of business. The harsh reality is that there may be some business models that are not viable at $1.06.
Another thing you could do is hedge the currency. I’m talking about a pure hedge here; you’re not making a bet or gambling here. If you are satisfied with the current exchange rate, lock it in by buying U.S. dollars as way of protecting yourself.
So, if I know next month I’ve got $100,000 in U.S.-denominated payments coming due, I can go to my banker and complete a transaction, locking in that exchange rate. There’s a cost involved but I know I’m protected.
Ian Stuart, associate dean at the University of British Columbia’s Sauder School of Business , who teaches supply-chain management
Canadian manufacturing firms selling internationally will see erosion of their profit margins. Many companies deal with this by producing unique products so they have almost a monopoly – people want to buy them no matter how expensive they get because they’re highly valuable.
But this doesn’t just happen. Companies need to have been working a long-term strategy for product differentiation, and they’ve had to be constantly enhancing productivity of the process they’ve used.
Unfortunately Canadian manufacturers have not been as good at improving productivity in their facilities, compared to the U.S. But if a company is investing in productivity, in the use of IT in their processes, in automation, in flexible manufacturing systems – if their processes are as good as anywhere in the world – and if their products are unique enough, they will be able to withstand a high Canadian dollar.
Three things Imprint Plus should do now:
Hedge your currency risk
But don’t make currency bets.
Source as much of your supplies from the same region into which you sell your products in order to eliminate currency risk
Related to this: Transfer as much of your costs into that region – for example, move production to the U.S. so your labour and raw material costs are priced in U.S. currency.
Expand product lines that are unique
It’s easier to raise your prices if you’re operating in a niche market.
Special to The Globe and Mail
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