A tough recipe for 6% growth

In its 2011 half-year update, Lonza shared some good news—strong operating performance in custom manufacturing, particularly for biologics, with 300 active projects in the pipeline, asset utilization approaching 80% and groundbreaking on a new manufacturing hub in Singapore. The company's sales and earnings grew nearly 5% at constant exchange rates, despite significant levels of infl ation in raw materials.

Here's the bad news: Exchange rates were far from constant. The strength of the Swiss franc, relative to the U.S. dollar and the euro especially, led to a CHF 44 million dent in earnings, dragging that 5% growth to a net decline of 21%. According to Lonza: "In the short term, the disadvantage of the strong Swiss franc is being mitigated in Visp and Basel by instituting longer working hours in cooperation with social partners." The short term grows ever longer, however, as CEO Stefan Borgas spoke of the same challenges—"the strong Swiss franc and higher raw material costs"—in October's Q3 update.

Executives interviewed for this story put currency at or near the very top of their list of global industry concerns. "The decline in the U.S. dollar has made it very challenging—and expensive—to source product offshore," says George Pontiakos of BI Nutraceuticals. "The industry likes to point fingers at regulation, but the No. 1 issue for me right now is currency. Monetary policy in this country has killed our ability to buy product at a market-competitive rate."

Depending on comparative currencies, the U.S. dollar has lost as much as 35% of its relative value (Australian dollar) and as little as 10% (euro) from recent highs in early 2009. A growing chorus of leading economists and politicians now point more emphatically to the weak dollar as a primary cause of the infl ationary pressures facing domestic pricing as well as key imports ranging from fuel to agricultural commodities.