International inventory can be used by the international corporation as a strategic tool to dealing with currency valuation changes or hedging against inflation. By increasing inventories before an imminent devaluation of a currency, instead of holding cash, the corporation may reduce its exposure to devaluation losses. Similarly, in the case of high inflation, large inventories can provide an important inflation hedge. In such circumstances, the international inventory manager must balance the cost of maintaining high levels of inventories with the benefits accruing to the firm from hedging against inflation or devaluation. Many countries, for example, charge a property tax on stored goods. If the increase in tax payments outweighs the hedging benefits to the corporation, it would be unwise to increase inventories before a devaluation.
Despite the benefits of reducing the firm’s financial risk, inventory management must still fall in line with the overall corporate market strategy. Only by recognizing the trade-offs, which may result in less than optimal inventory policies, can the corporation maximize the overall benefits.