Is the strong Singapore dollar affecting your bottomline? Here’s what you could do

In SME Exchange on August 25, 2011 by Lock+Store

Yesterday’s Straits Times reported on how the strong Singapore dollar is affecting the bottomline of many Singapore- based businesses with overseas dealings. Some companies which are paid in US$ have experienced a significant reduction in their net profit. When interviewed, CEO of manufacturer PT Technologies Albert Loh said “his net profit would be $350,000 to $400,000 higher now if he used last year’s exchange rate to convert his earnings from US dollar to Singdollar.

He added that the exchange rate is ‘causing a lot of grief – for every $100,000 we earn, we lose about $5,000’.

He noted that although his customer in Britain has agreed to pay PTS Technologies in the Singapore currency, ‘on the US side they’re quite reluctant, because they know that if they switch to paying us in Singdollar, straightaway they will ‘die’.”

Others like Mr Jeremy Fong, managing director of Fong’s Engineering and Manufacturing (a medical device company), said, “‘Since suppliers are paid in Singdollar, on conversion, we’re losing on average close to 10 per cent (of the original sum),’ Mr Fong said, adding that the company had begun cutting costs.

It has been ‘saving electricity, looking for customers in other countries, and looking for business in other sectors with more high-end projects. In the long term, we want to set up our own research and development centre to develop our own products’.”

Yet other companies are considering slashing their Singapore staff strength as Singaporeans have become too expensive to hire.

Hedging against currency appreciation
CIMB economist Song Seng Wun was quoted as saying that “‘Manufacturing and shipping are vulnerable when reporting everything in Singdollar, because we’re talking about foreign income and not local spending.’

He added: ‘But this is not a recent phenomenon. The Singdollar has been slowly gaining, so most companies would have put in place some form of protection like hedging or switching to other currencies, especially the large international players.'”

Hedging against currency risks is one strategy to manage your business costs, but not many companies are willing to embrace such a strategy as they do not fully understand the inherent risks. Some of the smaller players are truly pessimistic about the future, and foresee their companies would not survive if the Singapore dollar continues to strengthen significantly against the US$.

Is your company affected by the strong Singapore dollar?
Is your company affected by the strong Singapore dollar? What are you doing to hedge against currency risks? Feel free to comment here.


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