Euro preparations still of priority concern

The primary focus of euro preparations to date has been on successfully coping with euro transactions after January 1st, 1999. However, there is a danger that preparations have now taken a back seat.

The transition phase of EMU - from January 1st, 1999, to December 31st, 2001 - is a vital one for industry. Focussing on January 1st, 2002 - the date when euro notes and coins are due to be introduced - is misleading. For example, the IBEC code of practice for changeover to the euro recommends that retailers and suppliers convert to euro on January 1st, 2001. Furthermore, many multinationals intend to switch to the euro in early 2000.

Indeed, one major Irish exporter made a complete changeover in March this year and since then has been operating in euros with the Irish pound relegated to foreign currency status. This trend is expected to accelerate in the coming months for companies dealing with multi-currency transactions.

EMU will inevitably claim victims among companies which just limp to the starting blocks of the new competitive race. Thus, during the remaining transition phase it is vital that companies devote sufficient time, energy and priority to strategic thinking.

For those who have not considered the matter yet, the following is a glimpse of the future, circa 2003:

"Back in 1999 the main strategic objective occupying management was Y2K. However, the fundamental change awaiting business from economic and monetary union was largely brushed aside. "The current difficulties of National Finance have largely resulted from the entry of continental competitors to the Irish mortgage market.

"The potential for foreign entrants to gain Irish market share on the back of euro induced price transparency and electronic commerce was recognised back in 1999. However, as was the case with National Finance, few players addressed these issues seriously and fewer still designed strategies to deal with them.

"Only the most visionary companies considered the potential speed at which EMU could alter their traditional markets, and these have prospered."

"Many companies currently experiencing difficulties admit that during the transitional phase they remained too internally focused. "Indeed, Blinkered Biscuits' current problems can be partly traced back to the impact of its core customers (Siopai Group & Grocery Giants) changing over early to the euro and demanding all invoices and payments be carried out in euro. This unforeseen demand placed tremendous pressure on Blinkered and resulted in the rapid implementation of an insufficiently thought out pricing system.

"For example, Blinkered's best selling biscuit packets with sales of 200 million units per annum - originally priced at 79p, this converted to €1.00309308, and using the official rounding rules, the converted price became €1.00. Blinkered wished to retain a psychological price point and thus rounded the price down to €0.99, the upshot being a decrease in profits of over €2 million per annum.

"While some reduction in revenues had been foreseen, the full extent of seemingly minor price adjustments was not accounted for, nor were compensating strategies designed.

"Price transparency has had far reaching consequences. The introduction of the same price in all euro markets was not always the optimum choice.

"Back in 1999, Fashion House International began to examine the implications of price transparency for its cotton clothing products and assess the business case for moving to pan-euro zone pricing.

"The ensuing analysis, in fact, recommended the maintaining of certain price differentials between specific euro zone regions in order to retain high profit margins in some countries. This was achieved through use of price corridors for generally homogenous regions i.e. Benelux and France.

"However, the key outcome of the analysis was the recognition of problems inherent in Fashion Houses's distribution system, which was fundamentally overhauled, leading to success on export markets.

"In contrast, those companies currently experiencing difficulties from price transparency are in the uncomfortable position of reacting to pressure for price harmonisation in order to retain custom and match moves by their competitors, rather than pro-actively shaping the market." Stephen Gill & Marion Kelly are EMU consultants with PriceWaterhouseCoopers. All company names are fictitious.