5 reasons to use high exchange rates as a motivator for your internationalization
Only you and I, world travelers, know how high exchange rates hurt your pocket. Remember that trip abroad you did that was so cheap but now is twice the price, all because of the dollar rate? There is a reason for that. The fact is that the Real was the currency that depreciated in the last year, with 28%.
Far from last year's R$4.00 or the so-called “historical average of R$2.7” (I heard this from a financial consultant who worked with us about 3 years ago), the tourism dollar reached over R$6.00 in October 2020. And you, that plans to open a company abroad, see the investment resources in Real that are reserved for internationalization reduce in value.
But calm down. Not everything is lost.
The sectors that work with low value-added products, commodities , break successive export records and the consumer goods market sees an excellent window to direct part of their product portfolio abroad.
In this article, I will show you how to use the high exchange rate in your favor in the internationalization process. See below the 5 reasons to open your company abroad.
EARN IN DOLLARS…
With the high exchange rate, there is an extra motivation to want to earn in Dollars (Euro or Pound). These strong and more stable currencies improve their competitiveness and capacity for international investment.
Here a little more planning is required. With the large exchange variation, your company will need to dedicate a greater number of resources in Real to create a “mattress” at the time of internationalization. In the first months of the international operation, there tends to be a deficit until the bills start to be paid, so you will need a little more financial strength for this period. But when the operation starts to make a profit, you'll do well.
INCREASE PROFIT MARGIN
This is a no-brainer. With the dollar to almost R$ 6, some companies saw their margins in dollars increase 30% to 50% (at least) in comparison to one year ago. If I were your company, I would rush to export internationally. But how? For example:
You have a shirt brand in Brazil that sells your products in physical stores and e-commerce for R$300.00 (on average). In the US, a Lacoste Polo shirt costs USD 95.00 through the website (approx. R$ 570.00). If you sell a similar product to a target market that buys shirts for this amount, you've just doubled your margin amount!
But don't just export. Take advantage of the opportunity to earn in dollars to open your business abroad and leave at least part of your export earnings in an international bank account. We can help you with this part.
TAKE YOUR INTERNATIONAL COMPETITOR TO THE CORNER
If the market in which you operate is price sensitive and works wholesale, your product is probably cheaper in the international market. This is your chance to take advantage of the devaluation to reduce your price a little and eliminate the competition.
This can be your opportunity to gain new customers and retain them. The commodities market is swimming laps now, with super harvests and managing to conquer new markets thanks to the exchange rate.
REDUCTION OF THE "BRAZIL RISK"
Companies that had the opportunity to internationalize before the pandemic and have already managed to create an international revenue stream saw their financial flow create an additional barrier to protect Brazil's exchange rate volatility.
Earning in dollars and keeping the values outside of Brazil makes the company diversify its risk. In certain cases, the international company was even used to finance part of the Brazilian operation during the crisis. This reversal of cash flow protected companies from going bankrupt. But most importantly: they strengthened the global operation and job retention between headquarters and subsidiaries.
ATTRACTING INTERNATIONAL INVESTMENTS
“Brazil is a bargain!”. This is the ideal time for anyone who is looking for international investors, whether in infrastructure or technology. But the ideal scenario, in this strategy, is that you capture the investment and, if possible, leave it abroad in foreign currency (USD or Euro, or another stable currency). This will create an additional layer of protection for your business.
If it is infrastructure, the investment amount will be paid in Brazil due to the operation profile. If the exchange rate remains high, between the time of the investment agreement and the transfer of funds to Brazil, you can still earn a few more reais in this transaction of the exchange rate of the day.
The exchange rate devaluation in the perception of the international market makes Brazil “cheap”. When R$ 100 million reais on a project at the PPI (Partnerships and Investment Program) seems like a fortune in Brazil , for the international investor is almost "seed-money " of $20 million.
In this article, I wanted to show you the “full glass” of the currency devaluation and how you can take advantage of this moment to internationalize your business. The truth is that in any national or international macroeconomic situation, there is a flexible strategy for your company to successfully prosper abroad.
If your company prospered in the pandemic, take this time to drive abroad.
Sterna is the first Internationalization Boutique in Brazil. We can help you open your company abroad. Shall we have coffee? email@example.com