Most domestic companies tend to concentrate on their local market and not pay much attention to what is happening around the world and in the area of international business. But even if you are not selling to foreign clients the state of the world economy may very well impact you, sometimes in a way that is not readily apparent.
Let’s consider just two of many situations. Say that you are serving only your local market and think you are insulated from world events. Perhaps you are providing a service to a local manufacturing company that is not themselves doing international business. But international events may still impact both of them and you. International currency has different exchange rates with the US dollar (although a few are pegged, or linked to ours such as Hong Kong and Panama). The vast majority of countries float with our dollar and over the past few years have been devaluated making our goods more expensive. The Euro has depreciated 24% vs. the dollar which helps the US consumer buy foreign goods more at a discount, but which tend to make our products ¼ more expensive. For those domestic producers using your services, they may be faced with the fact that their products could be that much more expensive if they have to compete with European suppliers. Similarly, they may need less manpower requirements as well. Our GDP has generally dropped from 5% to -0.7% during the last 2 quarters (adverse weather conditions impacted the last quarter).
We are also living with an unstable world given: real damage resulting from state sponsored cyber-terrorism, ISIS destabilization, an accelerated Iran nuclear breakout if talks fail, naval conflict in the South China Sea, the Euro sliding if Greece defaults, a military incident due to Russian aircraft incursions, etc. Any one of these events could lead to a loss of confidence in a fragile world economy and stock market which the US can not isolate itself from. The paper losses just in one’s investment portfolio could result in the liquidity to finance their business or being out of conformance in their bank covenants; neither of which is related to the underlying health of ones business.
These are exogenous events, or wild cards that most all companies can’t really plan for but should at least have some sort of contingencies to fall back on when events not of their making happen. For example, before the advent of cloud computing there were disaster recovery companies that kept companies computer systems running in the event of the loss of ones physical system.
To see all articles in this series please go to http://optimal-mgt.com/blog.
