Weak dollar lifts some firms

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A weak dollar can mean strong results for U.S. companies, particularly smaller manufacturers.

"We are seeing anecdotal evidence of small manufacturers going gangbusters in Europe," said Frank Vargo, VP-international economic affairs for the National Association of Manufacturers.

One of those smaller companies is Apex Engineering Corp., which manufactures, among other products, plastic packaging for memory cards that are used in PCs and digital cameras.

The Pittsfield, Mass.-based company has stepped up its marketing efforts to take advantage of opportunities in Europe, where its business last year accounted for 37% of its overall revenue. In 2003, European revenue accounted for 33% of Apex's overall revenue, and the year before it was "in the high 20s," Apex President Don Rochelo said.

Rochelo said he attributes at least part of his company's growth in overseas revenue to the weak dollar. "There's a company that's located in France that keeps wanting us to quote to have stuff built in the United States that's too expensive to build in France," he said. "That's a clear signal that things are less expensive here."

Late last week, the dollar traded at $1.29 against the euro and $1.87 against the British pound, and it has been strengthening lately.

NAM's Vargo said that while the dollar isn't as strong as it was a few years ago, it's not weak. "It's still about 6% higher than when it began its run-up in 1997," he said.

In any case, the dollar's value versus the euro does provide some measure of increased opportunity in Europe, and Apex has ramped up marketing efforts across the Atlantic. Not only is it diverting resources to international communications, it has also begun to manufacture some products overseas.

On the marketing side, Apex employees will visit the CeBit trade show in Hanover, Germany, in March, and the company plans to exhibit at small trade shows later in the year, Rochelo said. It is also looking into placing advertisements in the Thomas Global Register.

"We have no sales staff in Europe right now, but we are considering looking for a way to make that happen in 2005," Rochelo said.

On the manufacturing side, Apex has a partner in Warsaw, Poland, which does injection molding work. Rochelo set up the agreement to reduce shipping costs.

However, not every U.S. manufacturer is benefiting from the dollar's relative weakness against the euro. In fact, While Rochelo said he has no doubt that the weakened U.S. currency has helped his company, he said it may not be the major factor behind his company's growth in Europe. He pointed out there are so many factors roiling U.S. manufacturing-China's rise as a manufacturing power, high petroleum prices and the growing influence of the Internet-it's difficult to determine how each affects the economic performance of U.S. manufacturers.

And not every U.S. manufacturer is finding a surge in new business in Europe. For instance, larger U.S. heavy equipment manufacturers such as Deere & Co. and Caterpillar already have a presence in Europe in terms of both marketing and facilities. They're already doing business in euros, so the advantage is not as beneficial, observers noted, although Caterpillar did say it received in 2004 a "$515 million favorable impact of currency on sales due primarily to the strengthening euro and British pound."

Among smaller manufacturers, new business in Europe is not a given. "We have not seen anybody calling us because the dollar has come down," said Arshard Mumtaz, president of Hillsborough, N.J.-based Thinfilms, which does business in the U.K. and elsewhere with U.S.-based companies.

Overall, it's safe to say that many more manufacturers are gloomy about China's threat than are optimistic about the opportunity in Europe. "Overseas, China is stealing work," said Alan Visingard, president of Marion, N.Y.-based Vern's Machine Co.

How this constellation of factors works together can be seen in the U.S. trade deficit, which was a record $617.7 billion in 2004 due in large part to higher oil prices. Without U.S. manufacturers' increasing trade with Europe, the deficit would be much larger, according to David Mirza, associate professor of economics at Loyola University in Chicago.

Rochelo said the Internet in particular has created the conditions for U.S. manufacturers to sell all over the world-no matter whether the currency situation is an aid or hindrance. He said e-mail has simplified and hastened communication, which makes completing transactions more efficient.

The Internet impact

If the Internet were not in existence, the currency advantage enjoyed by U.S. companies wouldn't have as much of an impact as it is having, Rochelo said. When asked which profited his company more, the Internet or the dollar's value, he answered, "Boy, it's like choosing which kid to a throw a life raft to. I clearly would have to say it's both."

Bill Gilbert, president of Somer-ville, N.J.-based Branch Environmental, which makes pollution control equipment, has no difficulty choosing which element has been more important to his business: the Internet.

"The dollar versus the euro does impact sales to some extent but not a great deal," he said, adding: "It's not necessarily the weak dollar [that attracts business from Europe]; in part, it's the Internet, because it's much easier to reach us."

Ten years ago, he said, about 20% of the company's sales were outside the U.S. Now, that share is 75%. Taking advantage of the Internet's marketing reach, Gilbert has used both Thomas Register and Global Spec to advertise to potential customers overseas. He said that a customer that first found Branch Environmental on Global Spec did a $700,000 project .

Nonetheless, Gilbert does not dismiss the impact of the dollar's relatively low value against the euro and will take what advantage of it he can while it lasts. "It does provide some sort of a fence for U.S. companies," he said. M

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