Lesley Brown, vice-president of Canada Corporate at Custom House, a Western Union company, says the mantra for business owners these days is “think global.” But in a volatile environment characterized by sudden, sharp currency fluctuations and with once-strong economies struggling, how do you expand into other countries without risking the fate of your business?
Three things on Ms. Brown’s mind for companies looking to expand globally:
1. Recognize that, although foreign exchange risk is quite likely low on your company’s list of priorities, the danger of doing nothing is significant. Erosion of profit margin and the inability to compete are only two of the potential outcomes.
2. The best place to start is a thorough understanding of your foreign exchange exposure. This could include receivables, payables, payroll or operational costs in a foreign currency. Then develop a strategy to manage your foreign exchange risk. Due to the complexity and current volatility in foreign exchange markets, it might be advisable to consult a specialist at this step — allowing you to focus on driving profitable growth in your core business.
3. There are a lot of alternatives when considering a hedging strategy – for example, spot, forward contracts, overnight bids, stop-loss orders, and currency options – so make sure your provider explains all of the features and benefits of each so you can make an informed decision. Depending on your exposure, it might be prudent to implement more than one strategy so that you are further diversifying your overall risk.
At the end of the day, your best approach when growing your business globally in a volatile market is knowledge. Take the time to thoroughly understand your company’s needs and exposures and consult a specialist in order to develop the best possible strategy to protect your hard-earned profits.
Special to The Globe and Mail