With less than a month to go before the introduction of the euro, it might seem a little late to be thinking about planning for the arrival of the new currency. Hopefully, not too many businesses are in the position of having done little or no planning.
Surveys indicate a high level of preparedness or at least an understanding of the key events and issues that will confront companies over the next few months. For many smaller domestically focused businesses, the task of planning for the euro will be undertaken over the three-year changeover period.
For all businesses, however, whether large or small, the key challenge will be to focus on their customers and suppliers. The introduction of the euro will inevitably cause some confusion and uncertainty. Businesses will benefit from being customer focused throughout the transition to the changeover to euro notes and coins in 2002.
The euro is being launched within the context of the principle of "no compulsion and no prohibition" in its use until the new currency becomes legal tender in 2002. This approach may suggest that companies can dictate the pace at which they change over to the euro. However, as many companies have already discovered in their preparations for the new currency, the market will dictate the speed of changeover. One of the key messages coming from the euro awareness campaign undertaken by private and public bodies over the past year or more is that the euro will be a "catalyst for change". This means that the euro is more than a decimalisation issue or an exercise of overprinting euro values on Irish pounds, deutschmarks etc. The message coming from Irish and European companies is that the introduction of the euro will provide an opportunity for a radical rethink of their competitive strategies and that the euro will open new avenues for business in the years ahead. The advice to Irish businesses, therefore, has been to focus primarily on the strategic issues and then to deal with the operational dimensions of the euro.
At this stage, there are a large number of publications offering advice on the euro. The following checklist provides a quick reminder as to the issues which ought to be considered before the year's end.
Strategic Overview: The introduction of the euro is part of a process of creating a more integrated single market in Europe. Competition is increasing and pressure is mounting from global problems such as deflation. Companies, therefore, must address market related issues such as communications with customers, purchasing patterns, pricing as both a price-point issue and a dual display issue and the exploitation of the euro zone as a single domestic market.
The impact of new technology, the increasing power of the consumer, the importance of economies of scale and new lifestyle patterns all need to be considered in developing a business strategy for the new euro market. Most companies in Europe will benefit from reduced cross-border trading risks and transaction costs and from a lower and more stable inflation and interest rate environment. By themselves, therefore, these benefits to Irish companies may not provide sufficient competitiveness gains if competitors are also benefiting. Planning for the euro, therefore, requires a more radical rethink of business strategies.
The UK Issue: The UK is not expected to become a member of the euro before 2003. Popular support for the euro remains weak despite the government's obvious enthusiasm. However, it is expected that the euro will become a parallel currency alongside sterling.
Sterling may weaken over time against the euro which will affect the competitiveness of Irish exports. Irish companies should actively pursue the question of euro invoicing with their UK trading partners in order to reduce exchange rate risk.
Treasury Issues: This is a key operational issue which will remain so after Ireland joins the euro. With sterling outside the euro, Irish companies will continue to face considerable exchange rate risks. Euro invoicing with UK counterparts will reduce this but a comprehensive policy of foreign currency risk management, together with interest rate risk management and the management and planning of cash flow and funding must be a top priority for the corporate treasurer.
Accounting, Taxation and Legal Issues: These issues have now been settled at a national level but companies may need to satisfy themselves in relation to any specific issues. EU Council Regulations and domestic legislation such as the Economic and Monetary Union Act, 1998 have cleared the way for the introduction of the euro. Revenue guidelines have also been issued.
Information Systems: Information technology is becoming more important in influencing a company's competitive position. Euro compliance should be achieved in conjunction with the Y2K problem. Both require a technical as well as a business solution and companies will be judged on how well they handle both issues.
Human Resources: In an environment of growing labour shortages, it is vital that companies address the internal communications issues surrounding the competitive challenge of the euro and the relationship with their customer base. Employee education for the euro must be a process of ongoing communications particularly if we are to experience an increasing level of turnover in the labour market. Payroll issues should be addressed at an early stage so that employees understand their own company's strategy of changing over to the euro.
Information: Businesses should continue to monitor the flow of information coming from domestic and European sources on the changeover to the euro. In particular, they should discuss specific industry issues with their respective trade and professional associations. Banking issues, particularly in relation to euro accounts, should be addressed to their financial service providers before the end of the year.
John Beggs is chief economist at AIB Bank
