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In a strong dollar economy, the retail price of a product is mostly determined by its production cost and demand. The stronger the dollar, the more expensive it becomes to import goods from other countries. In this article, we explore how businesses can thrive in such an environment as well as what steps you can take to mitigate risks and continue growing your business.
What does a strong dollar economy mean for your import business?
A strong dollar economy is when the value of a country’s currency increases. This is usually the result of low interest rates and large government deficits. The stronger the dollar, the more expensive it becomes to import goods from other countries. In order to find an advantage in a strong dollar economy, importers must start thinking about how to change their business model. In some cases, it might even make sense to consider sourcing locally.
Why is the dollar so strong right now?
The US government has a high debt-to-GDP ratio, which means it has a lot of debt compared to its economic output. With low interest rates and a growing economy, the government can easily borrow money and finance deficit spending. When interest rates are low, investors prefer to lend money to governments with lower risk. The dollar is considered to be a haven currency since a large portion of the global assets are invested in the US.
How to thrive in a strong dollar economy
· Raise your prices - If the production cost or retail price of your product is primarily in a foreign currency, you may need to consider raising your price to account for the increased costs. At the same time, this can also increase your demand as customers seek cheaper alternatives. · Switch to sourcing domestically - This may not make sense for every product category, but it can save your business a lot of money. Swapping to a domestic supplier can significantly reduce your risk of currency fluctuations and import tariffs. · Try new products - If you are having trouble maintaining profit margins, try to diversify your product line. You can experiment with new product categories that aren’t as dependent on foreign currencies — like services instead of products. Alternatively, you can choose products that are easier to source domestically.
Tips to mitigate risks and grow your business
- Consider diversifying your revenue streams - If you rely too heavily on a single product or customer, you are at risk of losing everything if things go wrong. Find ways to diversify your business, so that your risk is spread out over multiple channels. - Incorporate an e-commerce channel - With e-commerce, you no longer depend on customers visiting your brick-and-mortar store or ordering from you via a catalog. This allows you to reach a wider audience, but also opens you up to new risks. Due to this, you should consider incorporating online payments, fraud prevention, and marketplaces into your business model. - Invest in supply chain and logistics technology - When running an import business, the cost of inventory and transportation is often a significant portion of your expenses. You can reduce risk and improve your profit margins by investing in smart supply chain and logistics technologies.
A stronger dollar doesn’t mean the end for an import business, but it does require a change in strategy. If the production cost of your product is primarily in foreign currency, you may need to increase your retail prices. Alternatively, you can switch to domestic suppliers to save money on transportation and risk of currency fluctuations. Finally, you can try new products and incorporate an e-commerce channel to diversify your revenue streams and reach a wider audience. Now that you have a better understanding of the strong dollar economy, you can make adjustments to improve your business’s profitability. Keep these tips in mind, so that you can thrive in a strong dollar economy.