Battered by currency swings, cos unpick global ‘production’ model

Cos seek local market presence over economy of scale

LONDON, April 6, (RTRS): A dramatic fall in the euro has created an opportunity for European manufacturers to enjoy cheap production costs at the bases from which they can supply world markets.

But after months of sharp shifts in foreign currencies, many of these companies are simultaneously reworking strategy in the hope that by the time of the next sudden tilt they will be operating in more diverse local markets around the world.

Sweden’s Volvo Cars is one such firm embracing regionalisation. Last month it announced plans to build a $500 million plant in the United States, looking past the dollar’s current strength to build in a longer-term protection.

“We’re eliminating short-term currency fluctuations, which are never good for long-term commitment to customers in different regions, and we’re creating a

Continued from Page 42 Mezzan Holding operates 29 subsidiaries and is operationally structured into two primary business lines: the Food Business Line and the Non-Food Business Line. With both business lines combined, the company is manufactures and distributes over 358 leading consumer brands, including consumer favourites such as Kitco chips and snacks, Country Rice, Khazan meat products, Al Wazzan Rice and, Al Wazzan Canned Tuna, Aqua Gulf, Pillsbury, Green Giant, Sara Lee, Betty natural hedge,” explained Volvo Chief Executive Hakan Samuelsson.

“Natural hedges” occur when a business’s structure protects it from exchange rate volatility, such as when suppliers, factories and customers operate in the same currency.

That kind of model is typical for makers of perishable food and drinks that need production bases close to their delivery addresses, but it’s less common for manufacturers of more durable goods like automobiles, electronics or clothing that often prioritise cheap labour and economies of scale — at least until recently.

In recent months their model has been challenged by big moves in the euro and the dollar as the European Union and the United States’ economic outlooks diverged sharply. Last October the US Federal Reserve announced it would halt the massive bond-buying programme launched five years ago to prop up its battered financial system, because an economic recovery was on track. But in January the European Central Bank kicked off its own programme of so-called quantitative easing Crocker, Tabasco. The company is also the exclusive distributor of Starbucks chilled products, Johnson & Johnson, Dettol cleaning products, Kleenex, Listerine, Pif Paf, Huggies, Clearasil, Neutrogena, Zyrtec, Tylenol, Olfen, Misporin, Gaviscon, and hundreds of other products in Kuwait as well as Red Bull in the UAE. Mezzan Holding Highlights:

Operates in seven countries through 29 subsidiaries, and 7,500 employees

In-house products enjoy high brand recognition and positioning including Kitco chips and snacks, Khazan meat products, Al Wazzan and in an attempt to revitalise the zone’s moribund economy.

As a result the dollar and euro currencies sharply diverged too, and in the last nine months the cost of hedging against future volatility between them has roughly tripled. While that means far more players in the $5 trillion a day market have been actively guarding against swings in currencies, it also shows it is three times more expensive to do so.

“When an exchange rate is particularly volatile it can become too expensive to hedge financially,” said Brandon Leigh, chief financial officer of soap manufacturer PZ Cussons. Cussons’ biggest market is Nigeria, where the naira has lost 18 percent of its value over the past nine months as a result of a plunge in crude oil prices that hammered Africa’s biggest oil producer.

Thus, while “natural” hedging has long been popular in some areas of business, “clearly with more volatility in FX markets it makes even more sense now than ever,” said Robert Waldschmidt, a consumer goods equity analyst at Liberum.

British online fashion retailer Asos, which has been hurt by the strong pound, Country rice, Al Wazzan Canned Tuna, Aqua Gulf and Dana water, Dania canned foods and Softy

Active in various segments of the consumer staple industry supported by long-standing relationships with Johnson and Johnson, OlayanKimberly Clark, Reckitt Benckiser, General Mills, Arla Foods, Sara Lee, and many other leading brands and manufacturers

Distributes over 25,000 Stock Keeping Units (SKUs)

Serves over of 100,000 meals a day in Kuwait, Qatar, and the UAE through its catering business

Has a total of 130,000 square meters in food, beverage and FMCG said this month it had decided to start sourcing garments for the euro zone in euros and those for the United States in dollars.

“Our ultimate aim here is to capture the maximum natural hedge available to the business,” said Asos Chief Operating Officer Nick Beighton. “Our panacea would be to match currency receipts, currency outflows, hold product in that currency and price in that currency.”

Sourcing locally has other benefits, especially in emerging markets like Africa, where using local suppliers can fuel economic development — and buying power — of the communities in which manufacturers operate.

Food and drink makers including Nestle, SABMiller and Unilever have all worked to develop local suppliers, which also helps to secure supply and make products more affordable.

Nestle Russia CEO Maurizio Patarnello cited local sourcing as part of the reason his business was only minimally impacted by last year’s ban on imports of many Western goods in retaliation for sanctions over the crisis in Ukraine. manufacturing facilities in Kuwait, Qatar, the UAE, and Afghanistan

Leverages long-standing relationships with private and cooperative supermarkets

Vertically integrated into complementary business operations, including packaging, catering, contract services and logistics

Food Services customers include multinational fast food chains, airline catering services, and large food services companies.

Mezzan Holding is headquartered in Kuwait and operates in Kuwait, Afghanistan, Iraq, Jordan, Qatar, Saudi Arabia, and UAE.