Boosting Overseas Revenues Through Foreign Exchange

Whether the plan is to turn fx into a profit center or simply reduce its cost, companies are applying new approaches that help them meet their currency management goals.

Foreign exchange is big business. Every day, 1.2 trillion U.S. dollars' worth of currency turns over worldwide, according to the Bank for International Settlements. And that amount is expected to grow; the Internet has enabled businesses to sell their products outside their home country's borders without having a physical presence abroad, so more and more companies are tapping overseas markets. U.S.-based companies' Internet sales to overseas customers are growing at a much faster rate than their online sales to customers within the United States, according to Rene Pelegero, president and managing director of Woodinville, Wash.-based Retail Payments Global Consulting Group LLC. "For Amazon, sales to overseas markets are approaching 50 percent," he reports. "For most other merchants selling overseas, the number is probably between 30 percent and 40 percent of total sales."

While plenty of U.S-based companies still transact business overseas only in U.S. dollars, those organizations are leaving money on the table, Pelegero says. "One of the keys to success in overseas sales is the ability to accept local payments in local currencies. Some merchants have identified a significant uptick in sales when they sell in local currencies."

Yuval Tal agrees. He's co-founder and CEO of New York City-based E4X Inc., which provides currency management services to businesses that sell online internationally. "Travelocity lost business because it didn't have a good international solution," he says, "and Victoria's Secret could grow much faster internationally if it would accept foreign currencies."

Outsourcing Currency Conversion

Companies looking to acquire the ability to pay or be paid in foreign currencies face a daunting set of challenges -- multiple banking relationships, unstable projections related to currency fluctuations, and accounting and reconciliation issues, for example -- that many organizations find overwhelming. As a result, businesses are increasingly outsourcing their foreign exchange (fx) processes to third-party service providers that perform currency exchanges online at the time of the sales transaction.

"Foreign exchange is not our core competency, and we didn't want to make it one," says Patrick Smith, vice president of eSellerate, a privately held software provider with an annual gross transaction volume between $25 million and $50 million, 30 percent of which is in foreign currency. The company has only one physical location -- in Lincoln, Neb. -- but by outsourcing its foreign exchange, eSellerate is able to conduct business in 14 currencies via its Web site.

"When any given user procures software or product, the [online system's] logic will default to the currency of choice based on the IP address or country of origin," says Smith. "For example, if the buyer is located in Australia, the system shows all currency amounts in Australian dollars. That's the default. But the customer also has the option to select another currency."