Cross-border businesses: how to navigate the post-pandemic world
Negativity bias refers to our predisposition to “attend to, learn from, and use negative information far more than positive information”. As the UK faces up to what may be its worst-ever recession, you’d be forgiven for reverting to this default setting. Yes, the Covid-19 pandemic has caused large swathes of the economy to grind to a halt; but now is not the time to roll over and succumb to the economic blow dealt by national lockdown restrictions.
Cross-border businesses must, therefore, adopt a proactive approach to managing the financial challenges that lay ahead in the post-pandemic world.
Industries that might benefit from an economic downturn
If you’re sceptical that it’s possible to ride out a recession unscathed, you might take inspiration from these industries, which all have one thing in common: when economic storm clouds loom overhead, they have built-in mechanisms that leave them well-placed to survive or even thrive.
Healthcare – pharmaceutical products and medical services will always remain a necessity for people who rely on them for their health. For example, with a mind-numbing period of stasis forced upon us by strict instructions to stay at home, concerns over our mental health have seen mindfulness apps like Headspace flourish – in the final week of March, the app experienced a 19-fold increase in users completing a calming exercise and a 14-fold increase in those doing a reframing anxiety session.
Consumer staples – everyday essentials like food, beverages and hygiene products will always remain in high demand, making businesses that sell them resilient to a recession. With lockdown restrictions in full swing, the nation spent an extra £524m on groceries in April, compared to the same period last year. Sainsbury’s has achieved 8.4% jump in sales so far during lockdown – the biggest rise of the big four supermarkets.
Discount retailers – German discounters Lidl and Aldi both outstripped their bigger rivals during the same period, with 14.8% and 8.8% increases respectively. As consumers become more frugal, they tend to flock to discount retailers to purchase essential products at bargain prices.
DIY sector – the tightening of purse strings often forces people to channel their inner handyman or mechanic. For example, thousands of shoppers queued outside B&Q after the DIY and home improvement chain reopened 155 stores nationwide on 23 April.
Utilities – even during the most challenging of times financially, people require utilities such as electricity, water, and gas in order to live their daily lives.
Even businesses that operate within industries that are relatively insulated from the economic freeze a recession brings are unlikely to rest on their laurels; especially if they are exposed to currency market risk. For example, a discount food retailer that imports goods to the UK should mitigate the risk of pound weakness driving up the cost of doing so.
Currency risk strategy
While the economic impact of the pandemic has already sent exchange rate volatility into overdrive – a trend that will be perpetuated if the UK plummets into the deepest recession in living memory – opportunities to capitalise on favourable market movements will arise. After all, the dynamic nature of exchange rates means one currency’s loss is always another currency’s gain.
However, crossing your fingers and hoping the market shifts in your favour will expose your business to currency market risk. Take the great recession for example, when the pound fell over 25% in value between 2007 and July 2009; a sustained period of decline that highlighted the need to protect the cost of your international payments from exchange rate fluctuations, by implementing a currency risk strategy.
A well-planned currency risk strategy will be tailored to your business’s unique international payment requirements and risk appetite. To achieve this, it will combine relevant products that help control the cost of your international payments by securing exchange rates now and in the future.
- Forward Contract – lock in a current exchange rate, so you can secure a price for your international payments for up to two years.
- Limit Order – target a favourable exchange rate that’s not currently available, so you can secure your required level as soon as the market hits it.
- Stop Loss – set a minimum exchange rate that you’re happy for your international payment to be made at. If the rate drops to this level, the transaction will be executed automatically, ensuring you avoid a further decrease in value.
Using our knowledge and experience of the FX market, RationalFX will work in partnership with you to develop a bespoke currency strategy that considers your business’s risks and requirements. From efficient online payment facilities and accurate insight into the changing economic landscape to assistance deploying agile solutions that shield your payments from rate fluctuations, we can instil a proactive approach to managing currency risk in the post-pandemic world.
Why choose RationalFX?
Based in the heart of London’s financial district Canary Wharf, RationalFX has traded over $10billion in currencies across the globe. Take advantage of our competitive exchange rates, market expertise, suite of FX products and online payment platform when you make bank to bank transfers in over 50 currencies worldwide.
Whatever your reason for making overseas payments, we’re confident our currency specialists can save you time and money while providing peace of mind. Call our team now on: +44 20 7220 8181