A totally uncontrolled area of the business strategy game is exchange rates. They are punishing and extremely beneficial to the whole industry. Understanding exchange rates is the equivalent of taking advantage of the winds at sea in the sense that they are totally uncontrollable, but can be “tamed”. Here’s a fictitious set of exchange rates, remember all BSG companies work in American dollars at the end of the day.
* EA 0.9 per American dollar (-10%)
* Asia 1.10 per American dollar (+10%)
* LA 1 per American dollar (therefore it’s even.)
Taking into account that shipping international simply costs more through tariffs and shipping charges, the fact of the matter is revenues in Europe lose value through the exchange rate by 10%, Asia increases revenue by 10% and LA does nothing either way.
Selling in Europe is comparatively less GCLUB profitable than Asia due to exchange rates so therefore it’s important to have emphasis in selling products in Asia as far as revenues are concerned. But exchange rates also change production costs, so therefore it is 10% cheaper to produce shoes in EA and 10% more expensive to produce shoes in Asia. For companies who have a big Asian plant will be hit hard, and during this year, it actually pays to make shoes cheaply in Europe.
Therefore the big picture is Europe will have less profitable revenues this year, but it will be cheaper to produce shoes there, and Asia will be more profitable to sell shoes this year, but it will be more expensive to produce in that region. Understanding this simple concept and planning accordingly due to the 4 currencies and how they interact with each other, allows you the unique ability to “control the winds” of BSG.