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Friday, January 1, 1999 Published at 10:21 GMT

Is your business ready for the euro?

Europe's business currency of choice - the euro

The euro has landed. Europe's Economic and Monetary Union (EMU) and the new single currency are a reality.

The conversion rates of the eleven participating countries have been fixed, and companies and governments can buy and sell goods using euros.

But is your company ready for this brave new world?

And are you aware that your business may have to deal with euros, even if your firm is safely tucked away in the British countryside, far away from euro land?

In a two-part report, BBC News Online looks at the new currency's impact on companies both in the eurozone and in Britain.

Deep impact

Officially, there is "no compulsion" to use the euro, and anyway, euro coins and bank notes will not be introduced before January 2002.

But the reality will look different - even for companies in the UK, Sweden, Denmark and Greece, countries which will not join the euro zone with the first wave.

Companies failing to prepare themselves for the euro's impact are bound to lose suppliers and customers, if not whole markets.

Eunice Lau, senior economist with the Confederation of British Industry (CBI), says that the euro "will change the scene of business dramatically."

Euro creep

Most experts agree that the euro will soon become the eurozone's currency of commerce. But its reach will be far wider than that.

Grant Phillips, director of Barclays Bank's Euro Programme, predicts a "euro creep."

More and more British multi-nationals and foreign-owned companies based in the UK will begin to trade in euros, and they will expect their suppliers in Birmingham, Cardiff and Glasgow, (and Malmö and Athens for that matter), to do the same.

Mr Phillips warns: "If you are not ready to transact in euros, you have a problem."

And Mrs Lau confirms that "businesses which are not prepared for the euro will lose out to competitors."

Awareness gap

Too many firms are not aware of the issue, especially in the UK.

[ image: Small companies will not be able to escape the euro]
Small companies will not be able to escape the euro
According to a recent survey by Barclays, less than half of all UK companies have made any preparations for the advent of the euro. And only one in ten are really ready for the single currency.

Mrs Lau says that too many companies - especially small and medium-sized ones with less than 500 employees - do not think hard enough about how the euro will affect their business.

For them, monetary union may hold a few surprises in store:

  • Both customers and suppliers may want to settle their accounts in euros.
  • Old finance software may not be able to cope with bills in euro.
  • A company may suddenly receive a euro cheque, but has no account to put it in.
  • Competitors on the continent may suddenly have the edge, because they will not have to bear the extra costs of converting currencies.
  • Catalogues, promotional literature and product labels may be out of date.
  • As prices across the euro zone become more transparent, companies will not be able to maintain price differentials between different countries and profit margins may be cut.

Strategic planning

The CBI's Mrs Lau says that many business people have realised that the euro is not only an operational issue. Rather, they will have to make a strategic decision: will their customers and suppliers switch to the euro and if so, should they follow suit?

Many small and medium-sized companies will not have much choice. Grant Phillips of Barclays reports that multinationals like Unilever, ICI and British Steel have already "asked" their suppliers to switch to the euro.

Of course, nobody will be forced to change, but which company director would want to upset his of her main customer?

Therefore, by next year, tens of thousands of UK companies will start using the euro.

Siemens, for example, has said that it will ask its UK suppliers to switch from sterling to euro invoicing. 14,000 companies will be affected.

The pressure to use euros is likely to spread throughout the supply chain.

Case studies

Pal International, a company with 155 employees, will start book-keeping in the euro in January 1999. The Leicestershire firm exports 44% of its hygiene products, like chefs' hats and disinfectant wipes, to Europe.

Chairman Richard Brucciani says his company is getting ready to produce euro price lists and cope with customer pressure to harmonise prices across the euro zone.

[ image: Made in the UK, paid for in euros]
Made in the UK, paid for in euros
Goodyear GB, leading manufacturer and distributor of tyres, is already gearing up. Jim McKinnon, the company's treasurer, reports that several large car companies have indicated that from next year they would like to pay in euro.

Small companies have to get ready too. Alexander Ceramics, based in Ystradgynlais in Wales, employs only 14 people, but exports 30% of its production. Managing director Alison Knight says that her Italian competitors will have the edge if she turns up at the Frankfurt trade fair and is not prepared for the euro.

Swapping sterling for euro

Grant Phillips predicts that many British companies may end up trading with each other in euros - irrespective of whether the UK joins the European Monetary Union or not.

Once a company has decided that it is cheaper and easier to switch to euros, it will do so for all of its financial dealings, whether inside or outside the UK.

It is a domino effect, which will happen all over Britain.

Companies who thought the introduction of the euro would be at least five years away will suddenly find themselves having to deal with the new currency.

So how can a company get ready to deal with the euro?

Click here to find out how a business should prepare itself for EMU.

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