Monday, June 3, 2019

Impact of the Appreciation of the New Zealand Dollar on SMEs

Impact of the Appreciation of the young Zealand Dollar on SMEs taste perception OF NZ$ ITS IMPACT ON SMEs raw(a) Zealand has been considered as a distinguished rescue. It is primarily because the economy faced the challenges of international economic depression and was victorious in the same. According to a report by Forbes in the year 2014, the country holds a strong rank among the safe-haven economies in the world. New Zealands economy has been a dynamic one (Colombo, 2014). It has experienced detention and depreciation of its dollar on a consequent tail. Even in the 1990s and early 2000s New Zealands economy acknowledged lavishlyer appreciation of its dollar due to higher interest rates which fascinated queen-sized number of capital investors (Brash, 2000 Fallow, 2013). But since 2009, the economy is emerged very strongly but this has resulted in rising level of concerns among varied sectors and industries in New Zealand (Fallow, 2013).SME which implies Small and Medium Ent erprises play a very life-and-death role in the economic development of any economy across the globe (Fink and Kraus, 2009). New Zealand is no different as its economy to a large extent is supported by performance of SMEs. But defining SME is a critical job because there is not universally accepted definition. Each economy has a different definition of a SME (Abdullah and Bakar, 2000). SMEs in New Zealand atomic number 18 defined by the New Zealand governing bodies as those organizational set ups which channelize with 20 or less number of workers / employee (Ministry of stinting Development, 2011). Most of these units are generally controlled and handled by their owners themselves. One third of New Zealands GDP (gross house servant product) comprises of inputs from this sector (Waikato Times, 2014). This sector has also aided in provision of employment which is evident from the fact that one third of New Zealands entire cosmos is absorbed for varied jobs (Waikato Times, 2014). some other startling fact about SME in New Zealand is that it comprises of approximately 97 % of plow and commerce through 460,000 SME set ups (Ministry of Economic Development, 2011 Waikato Times, 2014).SMEs in New Zealand have resorted to extensive internationalization. These organizations are not supported by subsidies from New Zealands government. But yet they have undertaken this route to get well competitive pressures created due to presence of cheap Chinese products in domestic markets (Jaeger, 2007). Thus to gain long term sustainability these organizations have commandd their operations. Most of the SMEs who have opted to internationalize have resorted to a unique business strategy and model of their own. This is primarily because these SMEs aim to gain competitive advantage through internalization by optimally using various available and accessible opportunities (Jaeger, 2007). These SMEs mainly focus on geographic diversity of markets and effectively of distribution c hannels. The markets of chosen not on basis of any technical analysis but based on SME entrepreneurs individual choices and their understanding of market feasibility. The internationalization adopted by SMEs in New Zealand is termed as Bricolage model. The model is depicted in diagram below.Figure 1 The Bricolage ModelSource Jaeger, 2007USD that is United States Dollar is considered as a superman of reference in the world economy (Bloomberg, 2013). No governing body or international organization has declared USD as a ruling gold (Amadeo, 2014). But yet the appreciation and depreciation of bills across world is measured against this dollar primarily because it is considered as a governing intercontinental currency in. As a matter of fact in many countries even outside America, USD is used as their formal currency. Further approximately 85 % of hostile exchange trading entail use of dollars (Amadeo, 2014). Currency depreciation against USD implies a stronger dollar which makes imp orts expensive for local anesthetic organizations (Gwartney et al, 2014). This is mainly because dollar becomes more costly. This in play implies more money draining out of a nation and thus negatively affecting domestic economy. Currency appreciation is a more well-fixed option for economies but only in the long run. Currency appreciation means deteriorating USD in comparison to domestic currency. It is mainly because domestic currency appreciation implies a stronger economy and making imports cheaper. But it also implies increased prices of exports which makes domestic economys products expensive in international markets. Alternatively, with cheaper imports, domestic products within local markets face stiff price competition. Though a strong appreciation of currency indicates a stable and strong economy but its pitfalls cannot be negated.In 2011-12, New Zealands economy experienced an augmentation of 7 % in NZ $ on a Trade Weighted Index (TWI) Basis (Tarrant, 2012). One of the major reasons down this is economys potential to overcome financial spur created by varied coasts across the globe (Tarrant, 2012). Some of the other reasons this currency appreciation are depreciation of US dollars, strong and optimistic credit ratings for New Zealands economy by international organizations, stability in international monetary markets, merciful economic conditions, accelerating interest rates and a centre of attention for capital investments (PwC, 2014 Headey and Fan, 2008). Another reason put forward for this is slackening of economic and monetary policies by various economies (Bernanke, 2010). In this most of the central banks provide for quantitative leverage of either float newly produced currency which results in increased risk pic at international forum (Tarrant, 2012).The appreciation of NZ $ has benefitted the economy by helping the same to control its inflationary rates and trend thus enhancing economys stability. New Zealand with its far sighted strat egic planning has been able to overcome negative doctorions of such financial spur. But this too have had its side do in form of raising medium term interest rates (International Monetary farm animal, 2010). These rising rates have made it costly for SMEs to procure bank investments and thus discoursing entrepreneurs to a large extent. Out of all the negative impacts, the worst affected due to New Zealands money appreciation are trade sectors, exports business and import-competing manufacturers (Tarrant, 2012).One of the major impacts of appreciation of NZ $ was evident from restricted export activities. Price responsive markets strongly reacted to such currency appreciation which was apparent in form of declining New Zealand exports (Deakins et al, 2013). As a result of this export earnings decline, many companies were forced to withdraw from international markets. This depicted a negative impact on New Zealands economy and SMEs. But interestingly companies having strategic app roach which catered at developing strong associations with banks and providing adequate time and resources were seemed to be successful.Another impact of appreciation of NZ $ was visible in form of declining product prices which affected manufacturers and traders to a large extent. Considering the case of dairy in New Zealand, the prices of dairy products knock down steeply. Dairy farmers were affected to a large extent mainly because such a price decline meant lower income (Shanghai Daily, 2014). But the situation got managed due to high export demands of New Zealands dairy products in China, primarily at higher prices owing to its categorization as a lavish product (Teague, 2014).With imports nice cheap, the import-competing organizations are having a tough time in sustaining market pressures. A major chunk of New Zealands import is from China. Thus with currency appreciation, Chinese products which are as it is lower priced are easily spreading their tentacles within the econom y. Domestic manufacturers are failing to perform primarily because people in New Zealand are offered with large number of cheaper substitutes. This has resulted in a change in disbursements pattern of its population. (Tarrant, 2012)There has been a dearth of research related to appreciation of NZ $ and its impact on SMEs. In such a scenario it is essential to study such relationships between the two to understand the dynamics of New Zealands markets both at national and international frontier. Therefore this study will be interesting along with being useful. This study will provide with an insight to the various SME organizations with regards to good strategic planning so that they can benefit from such NZ $ appreciation.ReferencesAbdullah,M. and Bakar, M. (2000). Small and Medium Enterprises in Asian Pacific Countries Roles and issues. New York Nova PublishersAmadeo, K. (2014). World Currency why Dollar is the World Currency?. Available at http//useconomy.about.com/od/glossary/g/g lobal_currency.htm Accessed Sept 24, 2014Bernanke, B. (2010). The economic outlook and monetary policy. In Speech at the Federal nurse Bank of Kansas City Economic Symposium, Jackson Hole, (Vol. 27), Wyoming.Bloomberg (2013). Bloomberg Indexes Unveils Dynamic U.S. Dollar Benchmark. Bloomberg Finance LPBrash, (2000). The fall of the New Zealand dollar why has it happened, and what does it mean? Reserve Bank of New Zealand Bulletien, Vol. 63, No. 4, pp. 22-27Colombo, J. (2014). 12 Reasons Why New Zealands Economic Bubble Will End InDisaster. Available at http//www.forbes.com/sites/jessecolombo/2014/04/17/12-reasons-hy-new-zealands-economic-bubble-will-end-in-disaster/ Accessed Sept 18, 2014Deakins, D., Battisti, M., Perry, M. and Crick, D. (2013).Understanding internationalisation Behaviour. New Zealand Centre for Small and Medium Enterprise Research. New ZealandFallow, B. (2013). Strong NZ dollar only part of the story. New Zealand Herald. Dated 7th Feb, Auckland.Fink and Kraus, S. (2009). The steering ofSmall and Medium Enterprises. USA RoutledgeGwartney, J., Stroup, R., Sobel, R. and Macpherson, D. (2014). Economics Private And Public Choice. USA Cengage LearningHeadey, D. and Fan, S. (2008). Anatomy of a crisis the causes and consequences of surging food prices.Agricultural Economics,Vol. 39, No. 1, pp. 375-391.International Monetary investment trust (2010). New Zealand 2010 Article IV Consultation Staff Report and Public Information Notice on the Executive Board Discussion. International Monetary FundJaeger, S. (2007). How SMEs engage in the global economy cases from New Zealand. In Oxford Business Economics Conference, UK Oxford University.Ministry of Economic Development (2011). SMEs in New Zealand Structure and Dynamics. New Zealand Government, New Zealand.PwC (2014). The rise and rise of the NZ dollar exchange rate implications for the New Zealand economy. Available at http//www.pwc.co.nz/news-releases/the-rise-and-rise-of-the-nz-dollar-exchange- rate/ Accessed Sept 18, 2014Shanghai Daily (2014). Dairy prices, currency appreciation get at New Zealand producers. Shanghai Daily, dated 9th Aug, ShanghaiTarrant, A. (2012). High NZ$ keeping inflation in check, but detrimental to NZ economy, as global central banks print, RBNZ says Global go may continue. JDJL Limited, dated 8th Mar, Auckland.Teague, S. (2014). New Zealand dollar caught between safe-haven and EM status. EuroMoney, dated 3rd Sept, UK.Waikato Times (2014). SMEs still backbone of NZ business. Available at http//www.stuff.co.nz/business/small-business/10198006/SMEs-still-backbone-of-NZ-business Accessed Sept 25, 2014

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