Talking about currency

Redwood Comment
Published:  31 January, 2018
Dr Mike Redwood

Standing at the edge of a football pitch talking about currency to a well known British tanner on a cold Friday January night is not something you would expect to do as a routine. This was, however, the “Glovers”; a team close to the bottom of English football’s lowest tier, Yeovil, who are affectionately known as ‘the Glovers’ since that has for centuries been the primary business in the town. In recognition of a historically important leather industry, there are other teams in England known as the 'Saddlers' and the 'Cobblers'.

It seemed appropriate to be talking about currency as a quirk of the annual Cup competition meant that the Glovers opponents were Premier League Manchester United, who have 17 different nationalities in their squad all of whom have top notch advisers calculating the implications of currency movements on their different sources of earnings. Their most recent hiring, Alexis Sanchez, is reported to be earning over US$500,000 every week for playing for Manchester United, before adding his other contracts for kit and image rights. Two weeks of his earnings is more than the Glovers total annual playing budget.

We thought that volatile currency movements might be an important aspect of 2017, and certainly for many companies this was the case and remains so for 2018. What was less expected was that, as the year went, on more and more tanners appeared surprised how these changes were impacting them. It was not only a matter of what currency they sold their leather in, and how the proceeds got repatriated, but also where they bought their machines, their chemicals and their raw materials.

This creates a good argument for understanding business networks. Currency changes do not hit the tanner head on, they slide in via a wide range of routes through the business network in which your business sits. All tanners become locked into a set of relationships around the world, directly and indirectly, and to ignore them is risky for many reasons. If you take time to map that network and to understand how it looks, and compare it with competitors, then there will be far fewer surprises.

Dollar movement

Given the unexpected movement of the dollar in the first few weeks of the year, on top of all the other issues going on, we will all need to be extra watchful in 2018. It is easy to forget that we have four current wars going in the world where more than 10,000 were killed in 2017, with too many little conflicts to want to start counting, and an oil price that is getting harder to predict.

Sometimes the leather industry feels like the Yeovil Glovers as we face the giant brands with their much higher leverage in the supply chain.  That position leaves tanners with margins too low to withstand the impact of a mistake with currency. Taking steps to see how unexpected events will impact, and having plans to combat them, is more vital than ever.

By the way, Yeovil lost 4-0 to Manchester United. 

Dr Mike Redwood

January 31, 2018

mike@internationalleathermaker.com

Follow Dr Mike Redwood on twitter: @michaelredwood

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