VICTORY MOSAIC Must Carry Out NEW Product Development

Yesterday, the offshore RMB plunged by nearly 440 points. Although the devaluation of RMB can increase certain profit margins, it is not necessarily a good thing for foreign trade enterprises. The positive factors brought by the exchange rate actually have a limited impact on small and medium-sized enterprises. In the long run, the sharp fluctuation of interest rate in a short time may bring uncertainty to future orders.
One reason is that there is a mismatch between the exchange rate advantage period and the accounting period. If the exchange rate depreciation period does not coincide with the settlement remittance period, the impact of exchange rate is not significant. Generally speaking, enterprises do not have a fixed settlement period. Generally, the settlement begins when an order is “out of the box”, which means that the customer has received the goods. Therefore, the exchange rate settlement is actually randomly distributed in various time periods of a year, so it is difficult to predict the actual settlement time.
The buyer also has a payment period. It is impossible to make payment on the day of receipt. Generally, it takes 1 to 2 months. Some super large customers may take 2 to 3 months. At present, the goods in the collection period only account for 5-10% of the annual trade volume, which has little impact on the annual profits.
The second reason is that small and micro foreign trade enterprises are in a weak position in price negotiation, and the rapid fluctuation of exchange rate has forced them to give up profits. Normally, the devaluation of RMB is conducive to exports, but now the exchange rate fluctuates from high to low. Buyers will have expectations of the appreciation of the US dollar and ask to delay the payment period, and sellers can’t help it.
Some foreign customers will ask for product price reduction due to the depreciation of RMB, and require export enterprises to seek profit space from the upstream, negotiate with our factories, and then reduce costs, so that the profits of the whole chain will be reduced.
There are three ways for export enterprises to respond to changes in exchange rates:
• First, try to use RMB for settlement. At present, many orders exported to Southeast Asia and the Middle East are settled in RMB.
• The second is to lock the exchange rate through the bank collection account E-exchange insurance. Simply put, it is to use foreign exchange futures trading to ensure that the value of foreign currency assets or foreign currency liabilities is not or less subject to the loss caused by exchange rate changes.
• Third, shorten the validity period of the price. For example, the validity period of the order price was shortened from one month to 10 days, during which the transaction was conducted at the agreed fixed exchange rate to cope with the rapid fluctuation of the RMB exchange rate.
Compared with the impact of exchange rate changes, small and micro export enterprises are facing two more thorny problems, one is the reduction of orders, the other is the rise of costs.
Last year, foreign customers made panic shopping, so the export business was very hot last year. At the same time, last year’s sea freight also experienced a surge. In March and April of 2020, the freight of American and European routes was basically $2000-3000 per container. Last year, August, September and October were a peak, rising to $18000-20000. It is now stable at $8000-10000.
Price transmission takes time. Last year’s goods may be sold this year, and the product price also rises with the freight. As a result, inflation in the United States is very serious and prices are soaring. In this case, consumers will choose not to buy or buy less, resulting in overstocking of goods, especially large inventory, and a corresponding reduction in the number of orders this year.
The traditional way of contact between foreign trade enterprises and customers is mainly offline exhibitions, such as the Canton Fair. Affected by the epidemic, the opportunities to contact customers are also relatively reduced. Developing customers through email marketing is the most cost-effective way.
In recent years, labor-intensive industries have shifted significantly, mainly to Vietnam, Turkey, India and other countries, and the export pressure of products such as hardware and sanitary ware has doubled. Industrial transfer is very terrible, because this process is irreversible. Customers find alternative suppliers in other countries. As long as there is no problem with cooperation, they will not come back.
There are two cost increases: one is the rise in raw material prices, and the other is the increase in logistics costs.
The rising price of raw materials has led to a reduction in the supply of upstream products, and the epidemic has affected the smooth transportation and logistics, resulting in a significant increase in costs. The indirect interruption of logistics adds a lot of extra costs. The first is the penalty caused by the failure to deliver goods on time, the second is the need to queue up to add additional labor costs for warehousing, and the third is the “lottery fee” for containers.
Is there no way out for small, medium and micro foreign trade enterprises? no There is a shortcut: develop products with independent brands, increase gross profit margin, and reject the price of homogeneous products. Only when we have formed our own advantages, we will not be affected by the fluctuations of external factors. Our company will launch new products every 10 days. This time, the coverings22 exhibition in Las Vegas, the United States, is full of new products, and the response is very good. We insist on pushing new products to our own customers every week, so that customers can know the development direction of new products in real time, better adjust the order model and inventory products, and we also develop more and better when customers sell well. In this virtuous circle, everyone is invincible.

Post time: Jun-17-2022