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The Declining Dollar

How companies are coping.

For now, the change in the dollar’s value relative to other currencies is forcing many businesses to become truly global. “It’s becoming more and more the standard for corporations to match the location of their expenses to the location of their revenue flow,” says Kane. United Technologies offers one example of how such a strategy provides an effective buffer against foreign-exchange fluctuations and serves as the ultimate hedge. But CFOs stress that while the dollar’s fall may be accelerating such operational changes, foreign-exchange concerns are not the only reason to make a move.

“The business logic is the primary driver for any new initiative, but we have been acutely aware of the impact of currency changes, and we’ve been trying to bring that into our decision process,” says Brandgaard. Given the general uncertainty about where the dollar is headed, that strategy seems wise.

Kate O’Sullivan is a senior writer at CFO. Additional reporting was provided by CFO Europe editor-in-chief Janet Kersnar, CFO Asia managing editor Don Durfee, and CFO Asia editor-in-chief Tom Leander.

Attention, Shoppers!

Discount fashions aren’t the only lure to foreign shoppers seeking bargains in the United States. “The weaker dollar is going to attract a lot of capital as foreign buyers start to see U.S. assets as undervalued,” says Pablo Edelstein, CFO of Dow Latin America.

Indeed, foreign direct investment in the United States was up by 11 percent in 2007. In one recent example, last December, the German airline Deutsche Lufthansa paid $300 million to buy a 19 percent stake in JetBlue Airways Corp., with Lufthansa executives citing the weakness of the dollar as one reason for the deal.

Foreign investors have targeted U.S. financial firms in particular, with Canada’s TD Banknorth Inc. purchasing Commerce Bancorp for $8.5 billion; China Investment Corp., an investment arm of the Chinese government, sinking $5 billion into Morgan Stanley; the Abu Dhabi Investment Authority investing $7.5 billion in Citigroup; and China’s Citic Securities taking a $1 billion stake in Bear Stearns. (The U.S. investment bank put $1 billion into Citic, too.) And in one of last year’s final deals, Singapore’s Temasek Holdings bought a 9.5 percent share of Merrill Lynch.

The subprime-mortgage meltdown has made the financial sector a particular hot spot, but other areas will likely see more foreign interest if the dollar stays soft. In late 2007, international buyers purchased U.S. companies in the health-care and consumer-products sectors as well. — K.O’S.

CFOs in Europe, Asia, and the United States predict the future of the U.S. dollar, January 2008

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