Online professional resource provider Proformative is known for sponsoring a wide range of informative and actionable talks and seminars geared toward the financial industry. In this article we’ll highlight some of the key points contained in their webinar “Emerging Market Growth Strategies,” hosted by Andy Gage, Vice President of Strategic Market Development at FIREapps, and Corey Edens, COO of FIREapps.
The webinar touches on the Euro-zone debt crisis and its overall negative effect on global markets, while acknowledging that many boards across the globe still expect growth. 60% of companies are blaming poor currency exchange for lack of revenue, and many of those companies are looking to emerging markets for growth.
One of the key issues that growth-focused companies encounter when their growth brings them to other countries is the impact that various currency values have on their bottom line. Since the financial crisis in 2009, certain currencies have become extremely volatile to deal in. As a result, many corporations encounter challenges when acquiring international business.
Growth and Foreign Currency
Gage begins by mentioning one study in which 650 companies were surveyed, and what was found was that with the dollar moving from $1.35 to $1.25, questions of analysts dealing with the impact of various currencies on financial results went up by 50%.
As companies began to make their way out of the recession, one of their main approaches was—and continues to be—to drive growth at the top-end through mergers and acquisitions. CEOs are remaining focused on international growth in sustainable and profit-driving markets, emerging markets in particular.
One issue with this approach is that corporations are so eager to move into these emerging markets that they make quick acquisitions without doing the necessary research, resulting in complicated issues for finance and risk managers within the companies. With the continued threat of the Euro losing its value, there is significant risk involved with being exposed to the European economic factors that have proven to be volatile in the past.
Foreign Exchange Risk
Foreign exchange risk (FX risk) is the inherent risk that comes from completing a transaction in a currency other than the foundational currency of a corporation. This risk stems from the potential for the foreign currency to undergo a negative movement in exchange rate in relation to your company’s currency before the transaction is completed, resulting in lost profit. This is a significant risk with companies that deal internationally, and it should be considered in all international transactions with foreign entities and also in acquisitions or mergers as well.
Increase in Smaller Acquisitions
While large-scale acquisitions seem to have decreased to an extent, incremental acquisitions have become increasingly popular for corporations as a means to finance and push international growth. As businesses expand, their appetite for international markets grows. This can be an effective way to push growth within a corporation, but it must be handled effectively in order to lead to true added value.
The seminar then moves to a talk by Corey Edens, the Chief Operating Officer of a company called FIREapps. As a cofounder of FIREapps, Edens has a deep well of experience regarding currency risk management programs and helping clients implement those programs within their own companies. Before his role at FIREapps, Edens served in countless finance and accounting positions that are the basis of his knowledge during his talk.
Edens’ focus is on readiness—protecting your corporation from unexpected shifts that might occur when expanding into new markets. He discusses many of the pitfalls that corporations should avoid when moving into new markets, including:
Acquiring too quickly—Many corporations become energized by their own growth and move into acquisitions without enough pre-planning and forethought. They move into areas with risky currency volatility with the over-confidence that comes from past success, leading to a less-than-ideal acquisition that ultimately becomes a hindrance to their growth.
Insufficient research—Edens outlines how many companies fail to conduct proper currency risk assessment before making acquisitions and mergers with international entities, resulting in a lack of understanding about exactly the situation they’re jumping into. This can lead to a company-wide case of buyer’s remorse, as these corporations expose themselves to volatile currency situations.
Poor timing—Another mistake some corporations make is jumping into a promising merger or acquisition at the wrong time, when patience would lead to more desirable circumstances down the road. The fact that an M&A might be the right choice at a certain time does not make it the right choice all the time. Conditions must make sense for successful M&A when it comes to your own company’s position, the status of the entity you’re looking to acquire, and the economy of that entity’s origin and the global economy as a whole.