How a Small Firm Rides Foreign-Exchange Waves
THE WALL STREET JOURNAL
February 7, 2003
PLYMOUTH MEETING, Pa. -- The first thing Kim Reynolds does each morning is meet
with his top factory-floor managers to see if all is well on the production line. The second
thing he does is scan the latest intelligence from global currency markets to see if all's well
on his bottom line.
It's a routine born of harsh experience: Two years ago, a skyrocketing dollar was one reason
why Mr. Reynolds, president of family-owned tubing maker Markel Corp. here in suburban
Philadelphia, took a 40% pay cut and had to dip into his savings to cover his two daughters'
school tuition. These days when Mr. Reynolds flips through the daily currency report his
secretary puts on his desk, he sees a weaker dollar -- and stronger euro -- that could add as
much as a half-million dollars to his profit this year.
To traders, currency ups and downs are a way to make a quick buck. To heads of state, they
are referendums on national economies. To corporate giants, they are a fact of life of
international production. But for a small company with global aspirations, swings in the
$1.2 trillion-a-day world-currency markets are very personal. Markel, whose Teflon-like
tubing and insulated lead wire is used in the automotive, appliance and water-purification
industries, got into exporting in the mid-1980s when Mr. Reynolds received a call from a
German parts maker asking about one of his best-selling tubes: "Was ist das AR500?"
Now the shipping department at Markel is crowded with cardboard barrels of AR500
destined for German automotive-parts company W.H. Kuster GmbH, in Ehringhausen,
boxes of automotive tubing for delivery to Fico Triad SA in Rubi, Spain, and wooden
spools of insulated cables for Simco Japan Inc. in Kobe. Once a week the company sends a
40-foot shipping container to warehouses in Britain, Spain or Holland, and it expects 40%
of its $26 million in sales this year will be overseas, mostly in Europe.
"We use a fixed [currency-price] conversion when we quote prices, and we assume the
currency loss or gain," says Cheryl Jolly, Markel's export manager, as she supervises the
weighing of boxes bound for Germany.
To protect himself and his company -- which is
unrelated to the New York Stock Exchange-listed insurance company of the same name --
Markel's Mr. Reynolds has forged a business strategy that allows it to survive, and perhaps
even prosper, when a key element of his profitability is far beyond his control.
Markel's is a four-part approach: charge customers relatively stable prices in their own
currencies to build overseas market share; tap "forward" currency markets to provide
revenue stability over the next few months; improve efficiency to make it through the times
when currency trading turns ugly; and roll the dice and hope things get better. "You can
always change your strategy if it starts to become too painful," says Mr. Reynolds, who is
52 years old and has a Harvard M.B.A. "But I'm not willing to abandon my strategy. We're