Pressure builds for Euro

Electronic News, March 16, 1998 by Carol Haber

High hopes for Europe driving swift shift to new currency; clearer pricing may mean market share changes

New money may give Europe a whole new look. With the euro ready to take effect on the first day of January--perhaps representing 11 European nations in the first round--companies in the U.S. and overseas are girding their systems for the new currency. They should be. European customers will be pushing for the euro from the start. The new single currency promises stronger economic and political clout for European nations, many plagued by economic problems, labor unrest, and high unemployment for years. More countries there are expected to join in subsequent rounds.

The official launch of the euro is Jan. 1, 1999; a transition period during which a dual-currency plan will be in effect lasts until the final changeover in 2002, when local currencies will disappear.

It's important to be ready, say top officials of firms operating in Europe. European customers have much to gain from the new single currency in terms of a more stable local economic environment; they will push for it. Inevitably there will be pressure on companies doing business there to increase the number of euro transactions as the transition accelerates, they said.

Also expected: A clearer pricing structure across Europe as the euro takes hold. No more will customers have to compare lira to francs to pesetas. Belgian francs to French francs. This could result in more visibility for--and a move to--lower-end products, eroding margins in some products--like computers--even further, it was suggested.

Better choices may be possible, with the best product for the money coming to the fore.

Market shares could change.

In addition, the economics of the various countries and regions may shift, triggering different decisions for production sites, noted Lawrence Chimerine, managing director/chief economist, Economic Strategy Institute, Washington.

"Don't assume that it is just a European problem," said Sallie Crenshaw, European Program Manager, Year 2000 and EMU/Currency, Digital Equipment, Brussels. "Don't assume that it is simply an information technology (IT) problem. It is a fundamental question of how you want to do business and how you want to deal with customers and suppliers. I believe market forces will push companies to do business in the euro sooner rather than later. And if you are not ready, you will lose competitive advantage, market share and maybe even your business.

"If Siemens demands you do business on Jan. 1, 1999 and you aren't ready, and they cross you off their preferred vendor list, where are you?" she asked.

Economy Of Scale

Ms. Crenshaw noted that a number of large multinationals with headquarters in Europe are asking that transactions change over sooner than the final date. "There's an economy of scale for them, a cost efficiency," she noted.

"What we hear from customers like Siemens, Daimler-Benz, Natwest, for instance, is that they will begin to do business in euro with their suppliers on Jan. 1, 1999. Its use will be driven by market forces. We are looking at what our important users are saying. The European Commission is very much instigating the euro's use."

DEC has 40 percent of its business in Europe.

At California-based Siemens Microelectronics, CFO Joe Kaeser, speaking for Siemens corporate, headquartered in Germany, had this to say: "Frankly, I think the customers make the decisions (on what currency to use). If you don't want to follow the customer, the customer can decide what to do. Companies need to follow what the market expects them to do."

At Milpitas, Calif.-based Adaptec, Andy Brown, VP/corporate controller, said: "I am sure there will be quite a few companies pushing for the euro. Clearly, we will listen to our customers."

At Microsoft Europe in Paris, Richard Lindh, director, partner strategy, said: "You can already see how companies in Europe are publically trying to educate their customer base; they are doing it as fast as they can. Siemens has said they will transfer to euro as fast as they possibly can...If you look at general retailers in France, you see their catalogs have started to quote prices both in local currency and euro. That's just to make the general consumer comfortable with the notion of euro."

It's a good thing, most agree.

Mr. Kaeser of Siemens said: "I would assume that besides all the short-term mess for the conversion of the MIS systems, companies will face a much better environment for business in Europe than before. There used to be 20 different countries with 20 different exchange rates and currencies. The challenge is in the MIS systems, especially for smaller companies. But it will reduce the complexity of doing business, so companies can concentrate on business challenges--not currency challenges."

The better products will survive the new pricing transparency, Mr. Kaeser predicted. "Services and perhaps some products which were so far kept captive in different regions certainly will provide more competitive advantages to customers, because now they go across Europe and are much more easily compared."