The global recession is real…but that doesn’t mean global activity should be discontinued
While it’s true that we’re in a global recession, there are still several pockets of opportunity that organizations can take advantage of. Here are a few tips and trends we’ve seen that businesses may want to consider.
Some companies have successfully leveraged the United States Department of Commerce to economically represent products in foreign markets. Moreover, there are a number of independent agents in foreign markets looking to increase their representation portfolio because volumes are down on the products they typically represent.
Both the United States and China have cited infrastructure spending as an important component of their respective stimulus packages. This is great news for companies participating in construction/building materials or machinery/off-road equipment providers that operate in those markets.
In addition, there’s been a lot of discussion about India as becoming a competitor of China’s; one thing India is sorely lacking is infrastructure. If/when this happens, it will present all kinds of opportunities for manufacturers.
Some of the hottest markets right now are the BRIC (Brazil, Russia, India, China) countries, which are experiencing decreases in pricing for acquisitions and equity interests. U.S. companies that are well capitalized and able to attract management talent should consider the possibility of expanding via acquisition into foreign markets. It’s important to note that well-capitalized Chinese companies are doing the same thing here in the United States.
Currency fluctuations and the opportunities they present should be top of mind for all globally minded businesses. For example, as of the publishing date of this article, Mexico’s peso has depreciated an unbelievable 35 percent.
Because the peso has depreciated so significantly since July 2008, some organizations may want to consider executing a hedge. For example, let’s say an organization has $100,000 of payroll in 2009. If you convert it to pesos now or execute a hedge with a future contract, you can lock in a 30–35 percent (after transaction costs) savings
compared with the exchange rates as recently as September 2008. Moreover, you don’t have to let the money just sit there; you might consider taking advantage of Mexican government bonds, which typically earn higher interest than you could earn here in the states. Be sure to check with your Plante & Moran advisor to learn more about hedges and the associated tax implications.
As larger economies try to stimulate activity, some — particularly China — may indirectly subsidize certain commodities, complicating things for foreign competitors but providing opportunities for foreign users of those commodities. If you’re manufacturing product in China, you might be able to take advantage of these savings and buy a larger quantity of steel and other materials for use both now and later.
China is experiencing a myriad of layoffs and plant closings; it’s estimated that 35,000–40,000 small businesses have closed in Southern China alone.India is experiencing a similar depression in costs of talent and facilities. This may be an optimal time to consider outsourcing certain business activities and support.
There are a variety of opportu-nities available for global-savvy organizations. The key is to be aware of those opportunities — whether or not you choose to act on them. Feel free to contact us for more information.