Application Fresco Group Is Squeezed by Dollarization 
It is 2005, and while the rest of the world tries to cope with a weak dollar, Fresco Group, a clothing manufacturer in El Salvador, is worried that the dollar is too strong. Fresco’s concerns stem from El Salvadors decision in 2001 to adopt the U.S. dollar as its official currency Although dollarization has brought price stability to El Salvador, it has also made El Salvador’s clothing manufacturing industry less competitive. The reason is that its Central American neighbors, Honduras and Nicaragua, regularly devalue their currencies against the U.S. dollar to gain a competitive edge over U.S. manufacturers. As a result, labor costs for Fresco Group are more than twice as much as those in Nicaragua and about 40% higher than those in Honduras. Transportation costs in El Salvador are also higher.
Fresco Group has responded to its high labor costs by transforming its business. In 2001, Fresco simply sewed together orders of jeans, underwear, and T-shirts for U.S. customers who transported the finished goods to the United States. Now, Fresco creates designs, procures materials, and manufactures higher-priced garments based on a single sketch. Its logistics team includes shipping and customs specialists who can speed delivery of finished goods directly to U.S. warehouses and retail stores in half the time it takes Asian rivals. By significantly improving both its ability to produce finished products and its customer response time, Fresco Group has managed to move into higher-end niche markets where currency problems matter less and to increase its revenue by an average of 30% for every piece of clothing it sells.