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Economic Impact on TrendyThreads Ltd

TrendyThreads Ltd is a clothing manufacturer in Bangladesh known for its premium craftsmanship and stylish designs, with 50% of sales coming from exports. The company faces potential economic changes, with currency appreciation posing the greatest threat to its operations by making exports more expensive for foreign buyers. To mitigate risks, TrendyThreads should consider fixed-price contracts and currency risk management strategies.

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2 views2 pages

Economic Impact on TrendyThreads Ltd

TrendyThreads Ltd is a clothing manufacturer in Bangladesh known for its premium craftsmanship and stylish designs, with 50% of sales coming from exports. The company faces potential economic changes, with currency appreciation posing the greatest threat to its operations by making exports more expensive for foreign buyers. To mitigate risks, TrendyThreads should consider fixed-price contracts and currency risk management strategies.

Uploaded by

muinsiddique098
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

TrendyThreads Ltd is a medium-sized clothing manufacturer based in Bangladesh.

It imports high-quality fabrics from Italy and


Japan, designs fashionable apparel locally, and sells to retail stores and online customers both in Bangladesh and overseas.

The company has become well known for its premium craftsmanship and stylish designs. It employs 120 workers and has
recently opened an export division that now accounts for 50% of total sales, shipping mainly to Europe and the Middle East.

To meet rising demand, TrendyThreads has invested in advanced sewing and printing machinery, financed through a bank
loan. The company’s competitive edge lies in its unique designs and premium fabric quality.

Economic forecasts suggest that Bangladesh is likely to face one of three major economic changes next year.
• High unemployment
• Inflation
• Currency appreciation
Management must decide which change would have the greatest overall impact on the business.

Evaluate which of the three economic changes — high unemployment, inflation, or currency appreciation — is likely to have
the greatest overall impact on TrendyThreads Ltd’s operations and profitability. (12)
High Unemployment

(+) Lower wage rates could reduce production costs.


(+) Easier to find skilled workers.
(–) Lower domestic spending on premium clothing.
(–) Risk of losing part of the 50% domestic market revenue.

Inflation

(+) Could increase selling prices if customers accept higher prices.


(+) Export customers less affected as they buy in foreign currency.
(–) Higher costs for utilities, transport, and services in Bangladesh.
(–) Some domestic customers may switch to cheaper brands.

Currency Appreciation

(+) Cheaper imported fabrics, reducing major input costs.


(+) Ability to keep domestic prices stable despite other cost pressures.
(–) Makes exports (50% of sales) more expensive for foreign buyers.
(–) Risk of losing overseas contracts and long-term market share.

From the above analysis it seems, currency appreciation is the biggest threat because it could make exports ( half of
TrendyThreads’ sales) less competitive, and those overseas customers may switch elsewhere and may not return. High
unemployment is less serious as premium local buyers are less affected and wage costs could fall. Inflation is also less
damaging because while it raises local costs, export buyers pay in their own currencies and are less sensitive to these
increases. TrendyThreads should focus on protecting exports through fixed-price contracts and currency risk management.

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