Although the euro is now a commercial reality, the indications are that many Irish companies are failing to come to terms with its ramifications and have a relaxed attitude to the necessary preparations. Fundamentally, the euro poses a series of commercial threats and opportunities, and is going to seriously influence competitiveness, pricing, market share and profit. Given the openness of the Irish economy, this will have serious medium to long term consequences for most Irish companies.
Many businesses can undoubtedly point to the appointment of a euro manager to deal with the transition process. However, many of these individuals are finding it difficult to compete with the Y2K bug and are failing to convince their organisations that the euro is more than a mechanical problem and that it should not be put off until sometime in 2001 or 2002. But what about the fundamental strategic and commercial implications of the euro? Will Irish companies - and this includes our multinational sector - be able to cope with cross-boundary price differentials of up to as much as 400 per cent for some products in different euro zone states? It is not unusual for large corporations - car, electronic and white goods manufacturers - to operate differential pricing policies in different country markets that vary by 1040 per cent. In the euro regime, with price transparency reaching across eleven countries, this will have profound implications for those companies at the wrong end of such price comparisons
Naturally this development is of immense interest to the consumer, but how well are businesses - not only in Ireland but right across the euro zone - prepared for this new commercial reality. Critical issues to do with maintaining market share and withstanding competition come readily to mind.
From an Irish perspective, the indications are that many fundamental commercial realities have not yet been grasped, and that even now, after the formal arrival of the euro, many Irish corporations are simply sleepwalking into the single currency regime.
In January PA undertook a euro survey of 83 companies in Ireland. While a majority of participants were in the food sector, and just over half of those had a turnover greater than £50 million, we are satisfied that the sample is broadly representative of Irish industry.
The outstanding findings suggest inadequate attention to the euro, and an underlying belief that the really challenging deadline will be the 2002 introduction of euro notes and coin. This is borne out by the fact that only 28 per cent of the companies surveyed have to date completed a strategic assessment (to do with competitive positioning) of the impact of the euro on their business, and slightly less (36 per cent) had completed an operational assessment (functional issues like IT conformity). The survey also points to some contradictions in Irish business preparation. Whereas 52 per cent of respondents proclaimed themselves "proactive" in preparing for the euro, as against 31 per cent who would "follow the competition", and 17 per cent who would "wait and see", this statistic is not borne out by the findings relating to when they plan to invoice and purchase in euros.
Indeed, the findings confirm that the prevailing business expectation within Ireland is that the real euro changeover deadline was not January this year, but rather the year 2001. This confirms the lack of real understanding of some fundamental commercial and strategic issues that will have to be tackled.
Nor is this true merely of Ireland. It is the same across the euro zone. However, that is cold comfort for a state so dependent on international trade and being competitive.
The reality is that for business across the euro zone, fundamental strategic issues arise in such areas as financing, price transparency, competitiveness, exposure to small suppliers, product design and distribution - to name but a few. Whether these issues are properly addressed can be the difference between growing one's market share or simply going out of business.
The more obvious issues are competitive pricing implications - "Will new market entrants undercut me/Can I outpoint them on price?" - and costs- "Can we save through better purchasing arrangements with different suppliers across the euro zone?" However, there are more far-reaching issues. What will the euro do to the overall investment climate? Will it make it easier to raise funds, and what are the new opportunities that will arise? The threat of increased competition will be everywhere, and the single currency will massively increase mergers and acquisitions threats and opportunities across the eleven participating countries.
The euro will also accelerate global e-commerce developments, which, in turn, are redefining trade worldwide. Traditional distribution arrangements, with multi-national companies having subsidiaries or local agents in national markets, could disappear as these organisations develop their e-commerce capability.
For some companies there will be product redefinition requirements. If the price waterfall implications for their products leaves them at a severe price disadvantage, can markets be retained, or new ones carved out, by reconfiguring their products to do new things or do the same things more efficiently?
We have developed a euro partnership programme, enabling companies to work together on noncompetitive aspects of EMU transition, and to share the costs and reduce the risks. To date, over 30 multinational companies are involved and participants share and benefit from their collective insights and experiences.
Through such collaboration and partnership programmes, companies can begin to tackle the commercial and strategic deficits that still surround the euro.
Ray Nulty is head of practice, PA Consulting Group-Ireland
