Pharmaceutical exporters need to master skills to avoid exchange rate risk

Since the reform of China’s exchange rate system, the exchange rate fluctuates greatly and it has a great impact on China’s import and export companies. However, the direction and extent of its influence are different according to the business characteristics of each company, and they have different trends. For external payment companies, their impact is mainly positive and favorable; for enterprises with stable import and export business, the impact of exchange rate fluctuations is not obvious; and for enterprises that mainly export and receive US dollar payments, The impact is mainly negative, and the impact of exchange rate losses is large.

In order to facilitate the calculation of the impact of exchange rate fluctuations on companies, we take the pharmaceutical export industry as an example, and analyze the impacts before and after the exchange reform according to the above two points in time.

Based on the current operating characteristics of the pharmaceutical foreign trade industry, one is the serious overcapacity in the domestic pharmaceutical industry. The second is export-oriented, transfer of surplus production capacity, price reduction competition among enterprises is widespread. Therefore, the business indicators such as export delivery value, sales revenue, financial expenses, and profits of enterprises in the industry are most directly affected by exchange rates.

The downward adjustment of foreign exchange rates resulted in a reduction in export delivery value and sales revenue when the number of foreign exchange earned by companies was the same. According to the requirements of accounting, foreign currency revenues from foreign trade enterprises' export goods must be calculated by multiplying the exchange rate with the exchangeable cost currency, ie RMB, to calculate the company's sales revenue and export delivery value. When the number of foreign exchange earned by an enterprise is the same, its export delivery value and sales income will change with the same rate as the fluctuation of the exchange rate.

The downward adjustment of foreign exchange rates has increased the company’s financial expenses. On the one hand, most export companies have US dollar accounts, and there are successive US dollar advances in the accounts. There are often dollar balances in the accounts. For a long time, the exchange rate of the US dollar against the RMB has been at a relatively stable level for a long period of time. The company has not yet established a sense of management of exchange rate risk. Plus, the deposit interest rate of the U.S. dollar is higher than the RMB deposit rate over the same period, so that some corporate accounts have one. Quantitative U.S. dollars do not pay foreign exchange. When the exchange rate adjusts, the U.S. dollar in the corporate account will depreciate or appreciate. The amount of the U.S. dollar account will be hundreds of thousands or even millions of U.S. dollars. This part of the loss is financially called exchange gains and losses. It is part of the financial expense; On the other hand, the downward adjustment of the exchange rate caused the renminbi accounts receivable of export enterprises to shrink. In the current environment of increasingly fierce export competition, corporate export goods often form accounts receivable and are mostly in U.S. dollars. In financial accounting, U.S. accounts receivable should also be converted into RMB accounts receivable, and the The U.S. dollar receivables formed during the month are recalculated at the exchange rate of the current month. Due to changes in exchange rates, the renminbi receivables for each conversion will be different, and will also decrease with the exchange rate adjustment.

The foreign exchange rate will decline, and the profit level will be reduced if the selling price is unchanged. The company's sales revenue is affected by the exchange rate, and the company's financial expenses have increased. If the renminbi purchase costs, operating expenses, and management fees that the company needs to pay remain unchanged in a short period of time, according to the calculation formula of profit, the profits of the enterprise are equal to sales revenue minus costs and expenses (finance fees, operating expenses, management fees). The difference, therefore, can be calculated after the decline in foreign exchange rates, the company's profits have decreased.

At present, reducing exchange rate losses has become a major issue that companies must face. Some well-run companies, in addition to adopting some hedging measures to deal with transaction risks and conversion risks, have also made some positive and effective adjustments to their business strategies to deal with the further appreciation of the RMB exchange rate. These are summarized as follows:

Refine the level of management in the export market. The decline in foreign exchange rates affects the profitability of enterprises, which is contrary to the business objectives of companies seeking to maximize profits. Enterprises can refine the management level of the export market, adjust the profit structure of the product, match the added value of the export product, and expand the market share of high-value-added own products, that is, expand the profitability level to compensate for the decline in foreign exchange rates. Loss. At the same time, it can also increase the sales volume of traditional low-value-added export products, which will result in small profits and more sales, maintain profitability in the market, and make up for the risk of exchange rate losses.

Actively adjust the industrial structure, increase the added value of products, and increase product competitiveness. The first is to increase product added value through technological innovation and differentiation strategy. The second is to reduce production costs through technological innovations, increase the proportion of cheap raw materials or accessories, reduce energy consumption and other measures. In this way, to reduce the impact of exchange rate risk on product prices. The third is to actively open up the import market, expand the import business, use the direct payment of the US dollar to avoid the settlement losses, and reduce the impact of the exchange rate fluctuations.

Raise export prices and benefit from price. The competition in the international market has become increasingly fierce. Enterprises have to cut share price competition to seize the market, so that some companies with no potential for development will switch to market share, and balance market supply and demand. At this time, companies can increase the export prices of their products and increase their profitability to make up for exchange rate losses.

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