It cannot have escaped your notice that, after years of planning, the euro came into being, on time, on Jan. 1, 1999. Francs, marks, pesetas — all are now merely subdenominations of the euro and no longer traded in the financial markets. Nevertheless, the old currencies will continue to be used in the retail sector for three more years, until euro notes and coins are introduced.

Trading in the financial markets opened cautiously on the first working day. Volume built up swiftly once confidence was established that the systems were running smoothly. Reality soon dawned amongst the skeptics — who had previously invented all sorts of reasons why the venture might fail — when they started seeing the tickers quoting prices in euro, not only in the foreign exchange market against the dollar and the yen, but also for European bonds and equities.

Launching the euro was a huge logistical exercise. It involved the cooperation on a scale never before seen between central, commercial and investment banks, and the operators of international payments systems. This meant that large numbers of staff around the globe had to forsake their end-of-year holiday to oversee the rapid and safe conversion of their systems during an all-too-short weekend.

There were some teething troubles, but nothing has come to light to suggest that there is any fundamental weakness in the new regime. The euro has already challenged the status of the yen and the Swiss franc and has established itself as one of the world's Reserve Currencies — as was the intention.


What's the Impact on Industry?

It's huge.

And yet the evidence is overwhelming that most businesses still do not understand. The most recent survey of companies operating in Europe by KPMG makes it clear that even those most directly affected are simply not thinking hard enough about the issues.

Assuming they are doing anything at all at this stage, they are still focusing on internal matters, and generally missing the strategic opportunities. They fail to understand that the forward-looking companies — and that includes some of the best of the smaller ones — are already able to trade in euro. Their long-term plans were laid some time ago, and they are determined to take full advantage.

However, it seems that the quality of thinking in the average company is below par.

Here's a short list of some of the ways in which the arrival of the euro will hit you:

• If you operate through European subsidiaries the impact is obvious — in part through legal compulsion — so you will have to spend money on systems conversion in any case, just to stand still. For an understanding of the IT implications, see the sidebar.
  
  
• If you export to Europe, or trade with a customer who does, you must expect to offer pricing in euro. You can wait to be asked, or take the initiative. In either case, the response must be immediate.
  
  
• Your European-based competitors may be well ahead of you — and, with exchange risks removed, they will be able to work out their cost structures more quickly and with greater certainty.
  
  
• The whole basis of procurement and distribution may change rapidly as these effects work their way through the rest of the European economy.
  
  
• You must review your price lists (and all your marketing materials). Think about margins — and the effects of rounding on unit pricing (discussed previously in Evolving Enterprise).
  
  
• You will have to make changes to your management reporting systems; you may have to throw out or certainly upgrade your accounting system.
  
  
• There are human resource issues: If Europe is becoming more united, maybe you will need a new breed of representatives and thinkers? Back home, you will have to retrain staff to be euro-friendly.

• Sudden loss of market share
  
  
• Unwelcome takeover bid
  
  
• Loss of key staff
  
  
• Increased costs due to starting too late

• Raise new funds in the deepening euro-denominated capital markets
  
  
• Save money in treasury management functions
  
  
• Rationalize supply chains
  
  
• Capitalize on strengths and penetrate deeper into markets, or enter new ones

A large Swedish multinational (SCA) announced in 1997 that it would be adopting the euro as its base accounting currency as soon as practicable. It promptly started investing considerable sums in making the necessary preparations. At least 30 large UK companies have applied to make corporation tax returns in euro: They will switch base currency and are already looking to their suppliers to offer prices in euro.

Neither the UK nor Sweden has joined EMU — and yet these companies have worked out the implications, and have put in place a strategy to ensure their survival and prosperity. These are sure signs of striving for a competitive edge.


How Do We Go About It?

Since there is a transition period during which the old currencies are allowed to exist alongside the euro, and since there ultimately has to be a complete shift to the euro — the systems issues are enough to cause serious problems for business.

The initial winners likely will be those who are cash rich, and who can readily tap the emerging euro denominated debt and equity markets — and raise the additional funds required to execute bold strategies.

Those who are potentially weaker should consider amalgamating with rivals or consider vertical integration as a defensive strategy.

Such is the challenge presented by the Single Currency that the unthinkable must be contemplated.

The Euro and Its IT Implications Most accounting systems are single currency. Five EMU member countries have no decimals in their domestic currency (but the euro has cents): The technical conversion issues are huge. The impact on personnel, training and customers can be overwhelming. Since there is a transition period during which the old currencies are allowed to exist alongside the euro, and since there ultimately has to be a complete shift to the euro — the systems issues are enough to cause serious problems for business.

Roderick Jones is a freelance management consultant specializing in Y2K and the euro. He can be contacted by e-mail at [email protected]