Common sense would dictate that as the value of the United States dollar weakens, local exporters would reap the benefits. However, while most have experienced an uptick in business, most have yet to exploit this currency fluctuation. A key reason for this lag is the tendency of small and mid-sized businesses to operate in a world that’s dollar driven, unwittingly giving their foreign trading partners significant bargains. Additionally, long-term contracts have numerous businesses bound to deals they signed years ago. Ultimately, the true effects of the dollar’s descent may not be felt until the end of the year or even later. Peter Ro, the senior vice president and foreign exchange manager for City National Bank, claims that many of the smaller Valley companies probably are only beginning to feel the effects, even though the dollar has lost nearly 50 percent of its value against the euro since the beginning of 2002. It has also notably plummeted sharply against the Japanese yen and the Canadian dollar. “When it comes to smaller and mid-sized businesses, many of them still operate in a world that’s dollar driven. When the dollar depreciates, they tend to lag behind the market. Many of them have not reaped the advantages of a weaker dollar. I’m sure companies like Coca-Cola are a lot more in tune with market developments than your average Valley company,” Ro said. “These small businesses tend to leave money on the table without even knowing it. The buyers are often paying less and less in their own currency terms, even though the exporter on this side of the Pacific is getting the same value for what they’re selling. Some companies are waking up, but the lag time remains a factor.” George Duncan, president of Burbank-based, Certified Thermoplastics Co., Inc., an export-focused plastics manufacturer has seen signs that business is going to pick up. However, the firm has yet to take full advantage of the dollar depreciation. “The weak dollar has increased our number of inquiries that we’re getting from Europe. However, their interest has yet to result in any business. Then again our business takes a long time, it takes anywhere from four months to four years from request for quotation to order and delivery. It depends on how much engineering it takes. Overall, I would say it has had a modest and beneficial effect for the company thus far.” Beating the competition While some companies have seen increased interest from European buyers, others have become more financially attractive in contrast to their European competition. Van Nuys-based Hirsch Pipe and Supply, a manufacturer and distributor of plumbing, heating and industrial supplies, has seen its business grow in recent months, thanks to its products’ newfound affordability. “One of our biggest markets is the Middle East, specifically Saudi Arabia, Kuwait and the United Arab Emirates. The weak dollar has definitely helped me against the European products. We’re definitely more competitive. Our main competitors in the Middle East are the Europeans, Greg Mariscal, Hirsh’s director of international sales said. “Business has increased in the area as of late. However, the effects will take a while because contracts were signed months ago.” One would expect the weak dollar to adversely impact local travel agencies, as increasingly pricy foreign locales would naturally drive away tourists. Yet Joe McClure, president and CEO of Glendale-based Montrose Travel claims that business has spiked in recent months, with travelers willing to brave Europe’s skyrocketing prices. Hedging against decline “We have actually seen an increase in travelers booking European vacations versus a year ago, in spite of the weak dollar. There is a lot of pent-up demand. Additionally, companies that sell complete travel packages have done a good job of hedging themselves against the dollar’s decline,” McClure said. “But eventually, it can only go so far. There’s only so much travel agencies can do to hedge against weak currency.” Though no one can predict the future, most experts say that it’s a safe bet to expect the dollar to slide through 2005 and at least half of 2006. Furthermore, the unsettled economic picture could get increasingly confusing if China decides to let its currency float. The yuan is currently pegged to the dollar, a development that has kept the prices of Chinese imports artificially low. “The dollar is going to decline in value for at least the next year or so. Export manufacturers are going to find themselves sitting pretty. If you sell raw commodities, it’s going to be good news. If you import high-end goods from Europe you’re probably going to be hit with higher costs. The time lag from when the dollar started sliding hasn’t kicked in. We haven’t felt the full effects yet,” Jack Kyser, the chief economist for the Los Angeles Economic Development Council said.
Dollar’s Decline Yet to Affect Many Valley Companies