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If you think international finance isn't a small-business concern, think again. Small companies now comprise an astonishing 97% of those selling
overseas, according to the Small Business Administration. Yet many entrepreneurs who have rushed bravely into foreign markets seem downright timid when
it comes to using currencies other than the greenback. Some 80% of small companies trade exclusively in dollars, compared with about half of large
businesses, says Keith Cheveralls, general manager of global foreign exchange services for FleetBoston Financial Corp. This is no academic concern. Such
reluctance could have a big impact on the bottom line--especially now, with the U.S. dollar gaining in strength against many of the world's major
currencies.
Take the euro. When the currency launched in 1999, one euro was worth $1.17. Today, it's 96 cents--a decline of about 18% (chart). As a result, if
you're selling a product to a European customer priced in dollars, your customers are facing a de facto price hike. That puts U.S. traders in a bind:
Should you lower prices and sacrifice profits or hold steady and risk alienating clients and losing market share? Sure, you don't want to give away the
windfall that trading in dollars would bring. But many suppliers add charges to cover the hassle of converting them into local currency.
Any bank can do a basic electronic funds transfer, although community banks may lack the experience of large institutions. Whatever the size of your
bank, expect to pay from $7 to $15 for a basic electronic funds transfer. It's worth it. Consider eTranslate, a San Francisco-based Web translation
service that works with 16,000 linguists worldwide. The company was paying in dollars, but found that it was shelling out a premium for making suppliers
do the conversion. eTranslate now pays in local currency and has seen savings of as much as 40% in some markets. Says eTranslate CEO Charles Baxter:
"It has become a competitive advantage to be able to pay locally."
In an uncertain world, at least one thing is certain: "Exchange rates will continue to be volatile," says U.C. Berkeley finance professor Richard
K. Lyons. "The point is to shrink the effects of that volatility." There's only one way to do that: Pay as much attention to the dollar as you do to
your own dollars.
By
Alison Stein Wellner
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