Consider a large multinational consumer product company with operations in all major advanced and emerging economics. Now suppose the value of Indonesian and South African currencies drops dramatically and the value of the Chinese rmb increases dramatically. What kind of strategic changes in marketing and/or location of production facilities do you think this company should take given these new exchange rates?
To determine the strategic changes in marketing and/or location of production facilities required in response to the changes in exchange rates, the company needs to consider the potential impact on its costs and revenues. Here are some steps to consider:
1. Assess the impact on costs: Start by analyzing how the drop in the value of Indonesian and South African currencies will affect the company's production costs in those countries. A weaker currency generally results in higher import costs for raw materials and components, which could lead to increased production expenses.
2. Evaluate pricing and competitiveness: Determine how the change in exchange rates will affect the pricing of the company's products in the affected markets. Higher import costs due to a weaker currency may require a price adjustment, which could impact competitiveness within those markets.
3. Explore market potential: Evaluate the potential impact of the changes in exchange rates on market demand. A significant currency depreciation may render the company's products more expensive for local consumers, potentially leading to a decrease in sales. Assess whether the reduced demand justifies any adjustments to marketing strategies or the allocation of resources to different markets.
4. Consider production relocation: The substantial increase in the value of the Chinese RMB may make it more cost-effective to shift production facilities to China. Conduct a cost-benefit analysis to determine if this relocation would offset any increased costs resulting from the depreciation of other currencies.
5. Review supply chain: Assess the impact on the company's supply chain. If there is a significant disruption due to the exchange rate changes, it might be necessary to evaluate alternative suppliers or diversify the sourcing of raw materials to mitigate risks.
6. Develop marketing strategies: Adjust marketing strategies to account for the changing market dynamics and potential variations in pricing and consumer behavior. This could involve exploring new market segments, emphasizing different product features, or implementing localization strategies to maintain competitiveness.
7. Consider hedging strategies: Evaluate the feasibility of implementing hedging strategies to mitigate the risks associated with fluctuating exchange rates. This may involve utilizing financial instruments or contracts to hedge against currency risk.
It is important for the company to conduct a comprehensive analysis of the exchange rate changes and consider both short-term and long-term implications before making any strategic decisions. Consulting with experts in international finance and market research can also provide valuable insights during this evaluation process.