Case 6 Billabong

Case 6 - Billabong
Billabong is a quintessential Australian company. The maker of “surf wear” from wet suits and
board shorts to T-shirts and watches has a powerful brand name that is recognized by surfing
enthusiasts around the globe. The company is a major exporter. Some 80 percent of its sales are
generated outside of Australia through a network of 11,000 outlets in more than 100 countries.
Not surprisingly, given the history of surfing, the largest foreign market for Billabong is the
United States, which accounts for about 50 percent of the company's $1.7 billion in annual sales.
As a result, Billabong's fortunes are closely linked to the value of the Australian dollar against
the U.S. dollar. When the Australian dollar falls against the U.S. dollar, Billabong's products
become less expensive in U.S. dollars, and this can drive sales forward. Conversely, if the
Australian dollar rises in value, this can raise the price of Billabong's products in terms of U.S.
dollars, which affects sales negatively. Billabong's CEO has stated that every 1 cent movement in
the U.S. dollar/Australian dollar exchange rate means a 0.6 percent change in profit for
Billabong.
Billabong got its start selling apparel for surfers.
During the second half of 2008, it looked as if things were going Billabong's way. The
Australian dollar fell rapidly in value against the U.S. dollar. In June 2008, one Australian dollar
was worth $0.97. By October 2008, it was worth only $0.60. The fall in the value of the
Australian dollar was in part due to a fear among currency traders that as the world slipped into a
recession, caused by the 2008–2009 global financial crisis, global demand for many of the raw
materials produced in Australia would decline, exports would slump, and Australia's trade
balance would deteriorate. In anticipation of this, institutions sold Australian dollars, driving
down their value on foreign exchange markets. For Billabong, however, this was something of a
blessing. The cheaper Australian dollar would give it a pricing advantage and help to promote
sales in the United States and elsewhere. Also, when sales in U.S. dollars were translated back
into Australian dollars, their value increased as the Australian dollar fell. Anticipating this, in
February 2009, Billabong's CEO affirmed that he expected the company to increase its profits by
as much as 10 percent in 2009, despite the weak global retail environment.
Currency markets, however, can be difficult to predict, and sharp reversals do occur. Between
March and November 2009, the Australian dollar surged in value, rising all the way back to
$0.94 to one Australian dollar. The cause was twofold. First, there was a global sell-off of the
American dollar as the full impact of the global financial crisis became apparent and as the scale
of debt in the United States became clearer. Second, despite a recession in the United States and
Europe, the emerging economies of China and India continued to grow, and this helped support
demand for many of the basic commodities that Australia exports, which led to a strengthening
of the Australian dollar. For Billabong, the sharp reversal was an embarrassment. The strong
Australian dollar eradicated any pricing advantage Billabong might have enjoyed. Now the
amount of Australian dollars that the company received for every sale made in U.S. dollars was
declining. In February 2009, every $1 earned in U.S. currency could be exchanged for $1.66 in
Australian dollars. By October 2009, every $1 earned in U.S. currency could only be exchanged
for $1.06 in Australian dollars. In May 2009, with the Australian dollar rising rapidly, the CEO
was forced to revise his previously bullish forecast for sales and earnings. Now, he said, a
combination of weaker than expected demand in the United States, plus a strengthening
Australian dollar, would lead to a 10 percent decline in profits for 2009. Billabong's troubles
continued in 2010 as the company experienced further problems related to exchange rates.
Requirement 1: Answer the following Case Discussion Questions:
1. Why does a fall in the value of the Australian dollar against the U.S. dollar benefit
Billabong?
2. Could the rise in the value of the Australian dollar that occurred in 2009 have been
predicted?
3. What might Billabong had done in order to better protect itself against the unanticipated rise
in the value of the Australian dollar that occurred in 2009?
4. The Australian dollar continued to rise by another 20 percent against the U.S. dollar in
between 2010 and 2012. How would this have affected Billabong? Is there anything that
Billabong might have done to limit its long-term economic exposure to changes in the value
of the currency in its largest export market?
Requirement 2: Analyze the above-case by following the format

below:
I - Point of View- Identify who shall be responsible for the solution of the
problem among persons or characters mentioned in the case.
II - Statement of the Problem - Identification of the problem – Identify the
main problem of the case.
III - Objective- What do you intend to achieve in order to solve the problem?
IV - Areas of Consideration by way of SWOT Analysis- Identify the
internal and external factors to consider in your analysis.
V - Alternative Course of Action- Provide at least three (3) alternative
courses of action that will eliminate or minimize the problem(s). Consider the
significance of each course of action by indicating advantages and
disadvantages.
VI - Conclusion- reflects the summary of your finding on the case.
VII - Recommendation- Select the best from the alternatives and explain
why you have opted to choose that solution.

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Case 6 - Billabong

Billabong got its start selling apparel for surfers.

Requirement 1: Answer the following Case Discussion Questions:

Requirement 2: Analyze the above-case by following the format

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