PRODUCTION MANAGEMENT OF EXCHANGE RISK

Sometimes, the exchange rate moves so much that pricing or other marketing strategies do not save the product. Product sourcing & Plant location are the principle variable that companies manipulate to manage competitive risks that cannot be managed through marketing changes alone.

· Product Sourcing

Multinational firms with worldwide production systems can allocate their several plants in line with the changing home currency cost of production, increasing production in a nation whose currency has devalued & decreasing production in a country where there has been a revaluation.

A strategy of production shifting presupposes that a company has already created a portfolio of plants worldwide.

The cost of multiple sourcing is especially great where there are economies of scale that would ordinarily dictate the establishment of only one or two plants to service the global market. Despite the higher unit cost associated with the smaller plants, currency risk may provide one more reason for the use of multiple production facilities