Loans allow you to create a vision
If any of these issues is a stressor for you in forming a partnership, make a list of the objectives you’d like to accomplish for that issue. As you begin to form the partnership, make sure you address these issues with your partner. Develop a plan to ensure that any stressors have a positive outcome.
To help deal with partnership stressors, I use a model to explain the dynamic of change. You can use this model in forming business partnerships as well as in your personal life. The first step is to know where you’re going.You do this by creating a vision of what the change will look like when you’ve arrived. I once asked a marketing manager to think about what would happen if he partnered with the production manager. He responded by saying: “Well, we’d talk to each other regularly, we’d problem-solve issues, and we’d work together to meet production and shipping deadlines.” After thinking about this for a minute, he got very excited and said: “I think I get it! Now all I have to do is put a plan together to accomplish these three items and I’m on my way.” “Close,” I said. Then I mentioned that it would be helpful if he included his production partner in the discussions. “Oh, yeah,” he said, “I forgot about him!” Even the best intentions can go haywire when we forget about our partner.
Loans are particularly exposed to currency movements
Being one of the most global sectors, the automotive sector is particularly exposed to currency movements. Significant changes of major exchange rates therefore may have a material impact on earnings. Yet, some manufacturers are better positioned than others due to a number of factors that do not only relate to natural or derivatives hedging. Awell-filled model pipeline, restructuring plans, cost reduction issues and a high degree of flexibility in the use and sourcing of raw materials and intermediate goods may outweigh negative effects due to currency fluctuations. With regard to transaction risk, those companies that have no foreign exchange exposure or are hedged, either naturally or through derivatives, clearly have the lowest risk. In terms of translation risk, companies whose assets and liabilities are well matched have the lowest risk and will have the lowest volatility of operating profits.
During the 2002/03 US dollar weakness, revenues and to a lesser extent operating profits of most European industrial issuers suffered significantly due to substantial US operations. However, exposure to US markets varies across industries.
Credit and the appreciation of the local currency
The third effect of currency fluctuations refers to the fact that the appreciation of the local currency attracts imports from abroad. Usually, the import competition effect only becomes apparent, when the currency appreciation has been sustained for some time. While companies are quick to cite the impact of exchange rate movements on revenues, profits and liabilities, the longer term effects with regard to market share and prices are hard to quantify.
Ultimately increased competition through cheaper imports can cause earnings erosion in the domestic markets. On the other hand, European car makers benefited from the weak Euro in 2000 and 2001 through increased exports to the United States.
Although in the age of globalization, currency fluctuations may have an impact on most companies earnings, some sectors are more vulnerable to the currency issue than others. In general, the industrial, and here most notably the capital goods sector, and the automotive sector are particularly exposed. Especially from a longer perspective, the impact varies on the company level, when (natural) hedges are taken into account. While the European utilities and telecom sector have a relatively low exposure to the US dollar, they are more impacted by fluctuations of emerging market currencies.