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Dollar discipline

When Eastman Kodak Co. last week reported a sharp drop in third-quarter revenues, the company pointed a finger at the U.S. dollar.

The decline largely was due to the adverse impact of currency exchange, Kodak said, while also citing lower legacy consumer inkjet printer cartridge sales and a onetime gain a year ago.

“Like many U.S. companies, we are challenged by foreign currency exchange and other macro-economic factors,” Chief Financial Officer John McMullen said.

Indeed, Kodak certainly is not alone. In reporting their latest quarterly results, companies ranging from Microsoft Corp. to 3M Corp. all have cited the negative impact of the strong dollar. So did Xerox Corp. when it reported Monday morning.

Nor is the story really new. The dollar’s general trend has been upward since mid-2011, with a sharp ascent beginning in July 2014 that peaked in March.

For U.S. companies that export or do business abroad, a robust dollar certainly is a headache. It makes American products more expensive in markets abroad.

But with exchange rates, it’s wise to be careful what you wish for. A weak U.S. currency is double-edged: It hurts trading partners, which can undercut demand for U.S. products, and it raises the cost of components U.S. firms buy from overseas suppliers.

Moreover, a currency’s exchange value signals the global markets’ assessment of that nation’s economy. True, as economist Paul Krugman has noted, the currency markets “grade countries on a curve.” So, a strong dollar may mean the U.S. economy looks good only compared to everywhere else. But would we want to trade places?

More than 20 years ago, Jack Welch, then CEO of General Electric Co., said a strong yen had made Japanese companies even more competitive. Why? Because it forced them to excel at what really mattered: innovation, productivity and quality.

For U.S. firms that sell abroad today, a similar strategy might be the best bet. In fact, since no one is predicting a dollar retreat any time soon, it could be the only real option.

10/30/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.


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