Avon Financial Crisis

Essay by msbonnielaneUniversity, Master's July 2006

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Avon, also known as the Company for Women, has been in business since 1886 and honored as one of Fortune's "50 Best Companies for Minorities" and operates in over 100 countries. Their products range from perfume, makeup, jewelry and even clothes. In 2003, 63 percent of its $6.8 billion revenue was generated from markets outside of the United States. The multinational U.S. Company, which boasted $7.7 billion in annual revenues last year, is just one of many international companies whose profits have suffered due to the weak currency exchange.

The Asian financial crisis was a financial crisis that started in July 1997 in Thailand, and affected currencies, stock markets, and other asset prices of several Asian countries. It is also commonly referred to as the Asian currency crisis or as the IMF crisis. Indonesia, South Korea and Thailand were the countries most affected by the crisis. So, how prepared is Avon now for another currency crisis? Since 1996, executives have taken numerous steps to protect itself from the effects of the fragile currency exchange system.

One major step Avon took was having all 10 country operating units to remit their earnings on a weekly basis instead of a monthly basis. This helps in that they are exchanging the currency into U.S. dollars more often (at the rate of purchase) as opposed to taking the risk of the value dropping and traded at much lower rates weeks after the original transaction took place. The flip side to this is that there is a risk the company could lose potential profits if the rates rise.

Another money saving step Avon chose to take was to purchase the majority of their raw materials locally, saving the high import costs that their competitors must pay. But in a market that has a fascination...