Currency Rates: Weak Dollar Has Silver Lining

By Margo McCall -- Tradeshow Week, 11/22/2004

Whether the greenback's falling value is good or bad depends on where you're sitting.

For American companies selling to the European market, the U.S. dollar's lower value is mostly positive, since their customers are likely to buy more goods and services when the euro's buying power is high. But European companies selling to the American market may find their customers closing their pocketbooks because the dollar currently buys a whole lot less.

The downside is that American companies might get more return from exhibiting at trade fairs in Europe, but will have to pay a premium to get there. And European companies might find exhibiting on this side of the Atlantic a bargain, but have little sales incentive to come here.

Add to that the quandary of representatives trying to put together pavilions of U.S. exhibitors for foreign trade fair organizers, and having to cut costs, raise prices or absorb the cost differences themselves.

"Anyone who says the dollar's slide hasn't affected our business since 2000 and 2001 is not being forthcoming or doesn't bill in U.S. dollars," said Joachim Schafer, president of Hannover Fairs USA, who estimated that the U.S. dollar's purchasing power against the Euro has declined by 35 percent over the past few years.

American companies interested in exhibiting overseas normally pay a going rate of about $1,000 per square meter for space. When the price gets much higher, exhibitors tend to balk. "There's a pain threshold somewhere along the lines of $1,000 per square meter," Schafer said.

Hannover Fairs USA, which organizes company and association pavilions at trade fairs organized by its owner Deutsche Messe, bills in dollars. Its contract contains a "severe damage" clause that allows Hannover Fairs to request more money in instances of catastrophic currency exchange imbalances. But in its two decades operating in the United States, Schafer said, the company hasn't invoked the clause once.

Consequently, the company ends up absorbing some of the disparity. Although it in turn attempts to make up for the losses by reducing costs, there's little wiggle room in venue space rates. And because Hannover Fairs prides itself on the services it offers, Schafer doesn't want to make cuts there. That leaves exhibit construction, where unique custom booths are slowly giving way to bare-bones modular systems in the overseas pavilions.

Tom Kallman, who signs up American exhibitors for the Paris Air Show, said he's feeling the pinch too. "The exhibit space that we're buying is just dreadfully expensive. As a pavilion organizer, we buy space, package it and resell it," said Kallman, president of Kallman Worldwide. "We really get whacked."

The U.S. dollar's weakness is being driven by the government's $413-billion budget deficit, a $51.6-billion trade deficit and the Bush Administration's reluctance to prevent the dollar's further fall.

The greenback in early November slumped to an all-time low of 70 cents per euro. Some currency traders expect the euro to rise to $1.40 per U.S. dollar by year's end. The U.S. dollar is also down against most other world currencies, including the Japanese yen, Chinese yuan, British pound, Brazilian real and the Australian, Canadian and New Zealand dollars.

The situation is causing concern among world banking leaders. As of early November, there were signs that central banks in Europe and Asia would take action to prevent their currencies' rise against the U.S. dollar.

So far, the currency fluctuations haven't apparently resulted in any drastic decline in business for European trade fair organizers. "There is no loss of exhibitors. This year we've had our busiest year, showing the same if not increasing interest," said Frank Thorwirth, president of Messe Duesseldorf North America.

Thorwirth attributes that in part to Messe Duesseldorf's focus on the manufacturing and industrial sectors. Companies in that sector tend to concentrate on the long term. For instance, the upcoming interpack next April will have more square meters occupied by American companies than ever before, Thorwirth said.

Kallman said his company's sales team advises exhibitors that the added sales will make up for exhibiting costs increasing from about $18,000 this year to $20,000 or $23,000 next year.

"From the sales side of it, there is a reality that comes with the weak dollar that helps us. American products have never been cheaper in Europe and they still have the reputation for quality," he said.

But Schafer said the extra costs are sometimes hard to swallow for the small and midsize companies that pavilions tend to attract. That's even truer if they're first-time over-seas exhibitors.

"Some of the companies that have established business dealings overseas know that this weakness of the dollar makes renewed participation more expensive. But it makes the prospects of business hugely brighter," Schafer said. "Whenever there is pain, there is also usually a gain."

Still, there are signs that this isn't just another currency fluctuation. On a recent trip to Russia, E.J. Krause Vice President John Gallagher said, the exhibit hall, for the first time in 12 years, billed for the space in rubles, rather than dollars.

"Everything in the stores that used to be in U.S. dollars is now in euros. For the longest time, the U.S. $100 bill was accepted anywhere. This is the first time I felt that there was a concern about the shrinking dollar," he said.

At E.J. Krause, which has 17 offices worldwide, the falling U.S. dollar affects everything from postage and office space prices to the value of wages paid in dollars to employees in foreign branches.

Still, Gallagher doesn't foresee the weak dollar having a major effect on the company's operations. Besides, he said, "We have survived the crash of the Mexican peso, the crash of the Argentine economy. This is the cost of doing business internationally."