A Cheaper Dollar May Not Help a Lot of U.S. Exporters
With the dollar plunging against the Japanese yen, Hannah Kirschner would love to be shipping her U.S.-made men’s neckties across the Pacific.
The fine silk ties produced by her firm, Los Angeles-based Jacobs & Roberts Ltd., should be more of a bargain than ever for Japanese buyers--and thus more appealing.
But Kirschner has looked into the export business, only to decide that “it’s just too much hassle.” In particular, though the dollar’s slide may give her a price advantage, she has found that “the Japanese look for brand names only”--so price often becomes meaningless if you aren’t selling a well-known name.
Kirschner’s experience illustrates why the dollar’s steep decline isn’t the export panacea that it is frequently touted to be these days. As the dollar reaches near-record lows against the yen and other major currencies, many Bush Administration officials and private economists are practically cheering the slide, arguing that it will spark a new American export boom.
Yet the drop in the dollar so far isn’t translating into immediate new business for many exporters, especially small and mid-sized companies. Many of those firms in Southern California say they expect to benefit over the long term, but they don’t anticipate the easy business that some economists seem to see.
“We’ll see it (the benefit) more in 1991--if the trend keeps up,” says Mark Ryvola, manager of international business for communications equipment maker Emulex Corp. in Costa Mesa.
In theory, the American exporter’s advantage from the dollar’s sinking value should work like this: At the start of the year, it took 1.69 German marks to buy one dollar. Now, it takes only 1.50 marks, as currency traders’ faith in the United States economy--and in our investments--has plummeted.
Say an American firm was selling a product in Germany for a price of 1.69 marks early this year. Each sale thus brought the exporter $1 when the firm exchanged currencies. Today, if the exporter sells the product for 1.69 marks in Germany, it reaps $1.13 when it exchanges currencies, because each mark buys more dollars.
Rather than take the windfall, the firm could cut its product price in Germany to 1.50 marks, and still bring home the same $1 it received early in the year. The advantage in cutting the price, of course, is that it should gain market share over competitors.
But the pricing equation rarely is that simple, experts say. Stanley Epstein, who heads American Export Trading Co. in North Hollywood, says the immediate benefit of a falling dollar goes to “the items that the U.S. has been strongest in--the items not available from other countries.” For example, aerospace companies may gain because a dollar-driven cut in prices could attract buyers who have long wanted certain products but couldn’t afford them.
The majority of U.S. manufacturers, however, face a much tougher time exporting, even with the lower dollar, Epstein says. His firm has been assisting exporters for years, and he says many American businesses still don’t understand the highly competitive nature of world markets. Prices that American companies think are fair won’t fly in many markets, he says.
“We are pretty much of a screwed-up nation when it comes to export,” Epstein says. “We still think in terms of being the sole source for the world,” when that simply isn’t true anymore.
Even savvy exporters face tall hurdles today, despite the dollar advantage:
* Many companies are unsure how frequently they ought to be changing prices, fearful that the dollar could backtrack on them. Personal computer maker AST Research in Irvine has stuck with a quarterly price-change system because “in the short term it’s very difficult to adjust prices to the dollar’s fluctuations,” says Chief Executive Safi Qureshey.
Even then, many companies are at the mercy of overseas middlemen-distributors, who may pad their own pockets by paying less for U.S. products as the dollar falls--without cutting the price to their retail buyers.
“It happens,” says Qureshey. “Sometimes the middlemen say there is no need to cut the price.”
* Consumer-product exporters often face the same aggravation that Jacobs & Roberts experienced with its neckties: Foreign buyers can be extremely brand-conscious, not responding to price. That’s particularly true in Germany and Japan.
* Currencies of some of the most aggressive young exporters--such as Hong Kong and Taiwan--move in concert with the dollar. Thus, those competitors never worry about American firms gaining a price advantage.
What’s more, given the potential for more manufacturing to shift to low-labor-cost markets, such as China and Eastern Europe, Epstein questions whether any currency advantage will be enough to make many U.S. firms competitive. “How cheap can we make the dollar?” he asks.
Still, many Southland companies are eager to sell more of their lines overseas, and more than a few are succeeding. For them, the falling dollar can only be a plus in the long run, they say.
Emulex’s Ryvola expects a boost for the firm’s most competitive computer-communications products in Europe in 1991. The bulk of them are made in Costa Mesa.
Charles Malouf, licensing director of beach clothing maker Sideout Sport in Pasadena, says a big European distributor has decided to have more of his line manufactured here for shipment to Europe, thanks to the cheaper dollar. The merchandise would have been manufactured in the Far East, Malouf said.
And AST Research should benefit directly from the dollar’s slide if one of its new computer systems--which combines Japanese kanji characters and English--takes off in Japan. The system will be made here for sale there.
THE DOLLAR: AN UNEVEN SLIDE WORLDWIDE
The dollar is down more than 10% so far this year against most major currencies. But against currencies of most young U.S. trading partners in the Far East, the dollar is higher or unchanged--a result of those countries’ exchange-rate control strategies.
Currency per dollar: Percent Nation/currency Dec. 31, ’89 Now change Britain/pound 0.62 0.51 -18% Japan/yen 143.75 125.63 -13% France/franc 5.78 5.07 -12% Germany/mark 1.69 1.52 -10% Singapore/dollar 1.90 1.72 -9% Hong Kong/dollar 7.81 7.77 nil China/renmimbi 4.72 4.72 nil Canada/dollar 1.16 1.17 +1% Australia/dollar 1.27 1.29 +2% Taiwan/dollar 26.05 26.79 +3% South Korea/won 677.40 715.05 +6%
