Greg Kitzmiller06.01.02
The U.S. economy has clearly not returned to the state that it was two or three years ago. Additionally, the world economy is also in a similar state due to the major problems arising in Asia and rippling around the world over the past couple of years. Most of us have seen worse conditions but many who’ve joined the managerial ranks in the past 10 years are not accustomed to such rocky economies. What is a manager to do?
First, let’s explore the economy. The dollar may be weakening vs. other key currencies and if it weakens dramatically, this could have several consequences. The U.S. dollar may be strong on the domestic front but foreigners holding U.S. stocks start losing value because the value of those stocks is worth less in their own currency. The implication is that some foreign investors are not going to be happy with their U.S. investments regardless of the U.S. firm’s sales trends. Your sales may go up, increasing true value of your firm, but foreign investors still lose as the currency difference erodes share price in their currency.
Often managers think a depressed dollar will attract foreign investors since goods are cheaper for them. However, the reality is dependent on the investor’s view of the future of the dollar. As the dollar weakens, foreign investors may predict sharp erosion, which can cause a stampede of the sale of U.S. investments. Hopefully we are far from that action yet it is wise for managers to be aware of the reactions of foreign investors in today’s global economy. Currently there has been a lot of investment by European and (some) Japanese firms in the U.S. nutraceuticals business, so now may not be a good time for them to recoup that investment.
As mentioned earlier, a weakened dollar can make U.S. goods attractive to foreign customers, so this may be an ideal time to attract foreign customers or to open an overseas market. Of course this depends on the market and the strength of the currency vs. the U.S. dollar. The dollar is not depressed vs. the Canadian dollar, for example, and Canada is the largest purchaser of U.S. products.
You will notice many signs of caution in company statements about the economy. Such language in annual and quarterly reports as “limited visibility” and “challenging economic environment” shows that most firms are being watchful and on top of that, are not showing positive results. However, an even bigger signal is the rise in the unemployment rate—this spring marked the highest in eight years.
However, there is a concern about American business that goes beyond traditional economic measures. One Business Week magazine cover read “The Crisis in Corporate Governance.” The next week’s cover of Business Week read, “Wall Street: How Corrupt Is It?” Following Enron and the much reported issues with Anderson, the whole world wonders if business people really are ethical. Consumer confidence in the economy has slipped and there is a pallor over “big business.” This suggests that not only will government be looking into business ethics, hence the congressional hearings, but consumers will be more wary as well.
What is the nutraceutical executive to do? In our introductory classes we teach that the economy is an external factor of business and one that business can’t control. This is fine for an early business class. Yet the reality is that although we cannot control the economy, we can often react to it. We can also anticipate what will happen. There are several major points from current economic trends that affect nutraceutical producers, suppliers and retailers.
U.S. executives first need to follow the value of currency and be opportunistic. If the dollar slips it is perfect time to open foreign markets. I recently spoke with a business executive juswho had opened up three foreign markets within a week. Not only did they find those in the other countries receptive to their products, but the exchange rate wasmore favorable than it might have been just a month before.
On the other hand, U.S. firms with either European or Japanese ownership or major investors, will find they need to compensate for any currency adjustments. By opening foreign markets the firm can compensate by generating new business.
Productivity was up during the first quarter of 2002, which sounds positive. But if you dig, you realize that this statistic is up because of very limited wage gains and limited new hiring. Combine the jobless rate with low wage gain and we still have fewer consumers willing or able to spend.
There are signs that the economy is in for a steady but slow recovery. Those firms that are poised to take advantage of today’s business signals will likely arise the biggest winners.NW
The U.S. Dollar and Foreign Markets
First, let’s explore the economy. The dollar may be weakening vs. other key currencies and if it weakens dramatically, this could have several consequences. The U.S. dollar may be strong on the domestic front but foreigners holding U.S. stocks start losing value because the value of those stocks is worth less in their own currency. The implication is that some foreign investors are not going to be happy with their U.S. investments regardless of the U.S. firm’s sales trends. Your sales may go up, increasing true value of your firm, but foreign investors still lose as the currency difference erodes share price in their currency.
Often managers think a depressed dollar will attract foreign investors since goods are cheaper for them. However, the reality is dependent on the investor’s view of the future of the dollar. As the dollar weakens, foreign investors may predict sharp erosion, which can cause a stampede of the sale of U.S. investments. Hopefully we are far from that action yet it is wise for managers to be aware of the reactions of foreign investors in today’s global economy. Currently there has been a lot of investment by European and (some) Japanese firms in the U.S. nutraceuticals business, so now may not be a good time for them to recoup that investment.
As mentioned earlier, a weakened dollar can make U.S. goods attractive to foreign customers, so this may be an ideal time to attract foreign customers or to open an overseas market. Of course this depends on the market and the strength of the currency vs. the U.S. dollar. The dollar is not depressed vs. the Canadian dollar, for example, and Canada is the largest purchaser of U.S. products.
A Look at Unemployment and Ethics
You will notice many signs of caution in company statements about the economy. Such language in annual and quarterly reports as “limited visibility” and “challenging economic environment” shows that most firms are being watchful and on top of that, are not showing positive results. However, an even bigger signal is the rise in the unemployment rate—this spring marked the highest in eight years.
However, there is a concern about American business that goes beyond traditional economic measures. One Business Week magazine cover read “The Crisis in Corporate Governance.” The next week’s cover of Business Week read, “Wall Street: How Corrupt Is It?” Following Enron and the much reported issues with Anderson, the whole world wonders if business people really are ethical. Consumer confidence in the economy has slipped and there is a pallor over “big business.” This suggests that not only will government be looking into business ethics, hence the congressional hearings, but consumers will be more wary as well.
The Slow and Steady Climb…
What is the nutraceutical executive to do? In our introductory classes we teach that the economy is an external factor of business and one that business can’t control. This is fine for an early business class. Yet the reality is that although we cannot control the economy, we can often react to it. We can also anticipate what will happen. There are several major points from current economic trends that affect nutraceutical producers, suppliers and retailers.
U.S. executives first need to follow the value of currency and be opportunistic. If the dollar slips it is perfect time to open foreign markets. I recently spoke with a business executive juswho had opened up three foreign markets within a week. Not only did they find those in the other countries receptive to their products, but the exchange rate wasmore favorable than it might have been just a month before.
On the other hand, U.S. firms with either European or Japanese ownership or major investors, will find they need to compensate for any currency adjustments. By opening foreign markets the firm can compensate by generating new business.
Productivity was up during the first quarter of 2002, which sounds positive. But if you dig, you realize that this statistic is up because of very limited wage gains and limited new hiring. Combine the jobless rate with low wage gain and we still have fewer consumers willing or able to spend.
There are signs that the economy is in for a steady but slow recovery. Those firms that are poised to take advantage of today’s business signals will likely arise the biggest winners.NW
