The global SME community is ‘alive to the challenges and risks’ presented by the volatility of currency and international trade, a recent report concluded.
AFEX, a global payment and risk management solution provider with more than 250,000 clients worldwide, has gathered information from 450 SMEs worldwide for its second annual Currency Risk Outlook report.
The SMEs surveyed named several concerns about international currency risks, with currency volatility, global economic policy, a lack of currency expertise and access to key data were the most prominent.
The report found that SMEs are ‘generally optimistic about their ability to navigate international markets and to grow their business’ in spite of the risks involved, and despite the fact that on average their exposure to currency risk has increased from 34% to 38% this year, although US companies have significantly less exposure with an average of 29% of revenues exposed. 42% of businesses anticipate that currency markets will be more volatile in 2015 than 2014.
The Challenges of International Trade
- 41% said that currency risk was the most significant challenge to their international business, and this was a particular worry to Australian and Canadian businesses due to their commodity based currencies.
- ‘Finding the right customers and/or suppliers’ was also a concern for many – and interestingly UK businesses seem to find this a particular problem, with 31% citing this as their primary challenge compared to only 24% in Australia, 21% in Canada and 17% in the United States.
- Logistics, language barriers, tax, making/receiving payments and regulatory differences were all minor concerns to the majority of businesses.
Managing the Risk
Despite their concerns, 44% of businesses questioned were looking to grow their international commerce. Australia is the only country that is less optimistic on this front than in 2014. Indeed, companies in the United States that are anticipating making greater use of hedging strategies are doing so in response to overseas growth.
29% expect to increase their use of strategies to mitigate the risk of adverse currency movements, and only 7% anticipating a reduction in their use of these strategies.
“Access to international markets has never been easier for small and medium-sized businesses, but clearly currency risk is a huge challenge,” said Jan Vlietstra, CEO for AFEX. “Over the last 12 months, we’ve seen a lot of currency volatility, in particular in the Euro Zone as a result of the Greek crisis. As the key market for the UK, businesses of all sizes need to be alert to the impact currency fluctuations can have on their profitability and take action to mitigate that risk and protect their bottom lines.”