One of the challenges of competing in a global economy is managing exchange rate uncertainty. A strong home currency can really hinder a firm’s ability to compete in international markets. This has been true for Canadian firms of late. The Loonie is nearly at parity with the US dollar and that has made it hard for Canadian firms dependent on selling in the larger US market. The Globe and Mail recently had a story of a Canadian firm that has managed to prosper despite the strong Canuck buck (How Captain High Liner beat the dollar odds, Mar 15). The firm in question is High Liner Foods of Lunenburg, Nova Scotia which sells processed seafood. High Liner was once an integrated firm with its own fleet of fishing boats. As the Atlantic fishing grounds fell on hard times, High Liner sold off its fleet and now buys its inputs (i.e., fish) on the world market. The fact that it sources internationally is one of the reasons it has booked strong results despite the high Loonie:
High Liner is protected because it creates branded seafood products out of raw material harvested the world over – in fact, 30 fish species from 20 countries. It does 55 per cent of its business in the United States but, with plants in both the U.S. and Canada, it moves very little of its processed products across the border, thus minimizing the Canada-U.S. currency risk.
The company is, however, exposed to exchange rate risk on the 45 per cent of its business conducted in Canada. But the recent outcome has been largely positive because its raw material of tilapia, haddock or sole is acquired in U.S. dollars while its value-added sales are in Canadian dollars.
This is an interesting example of how a firm’s operating network can buffer it from swings in prices and currency. The ability to serve the US from US plants and Canada from Canadian plats (as well as having much of its cost structure denominated in the currency of its largest biggest market) leaves them sheltered in a way that most Canadian firms are not. Of course, if the Canadian dollar were to fall precipitously relative to the US dollar, High Liner could be high and dry. The firm’s management is aware of this risk:
In addition to natural hedges, High Liner is an active currency hedger for its Canadian markets; these days, those hedges cost money. In any given month, High Liner might have “a few hundred thousand dollars of hedges that are under water because the Canadian dollar is strong,” [CEO Henry] Demone says. …“This is a small price to pay for protection in a volatile world.”