Firms are slow to hatch plans for EMU’s birth

Firms are slow to hatch plans for EMU's birth

A recent report shows that many firms are sitting on their hands onEuropean Monetary Union. But, says Cosima Duggal, whether the UK joins ornot, EMU will have a dramatic effect on the way all business is done inEurope.

Privatisation and globalisation have loaded firms with new responsibilities towards their staff and customers, in terms of international and European standards.

But firms are more often than not unaware of the impact and costs of these new standards and requirements. Such is the case with European Monetary Union (EMU) and the single market. Firms across Europe, its seems, have inadvertently caught the UK Government’s “wait and see” bug.

But they are in for a rude shock, according to a new survey by KPMG Management Consulting, Europe’s Preparedness for EMU Research Report. Alan Reid, European head of KPMG Management Consulting says: “The British tend to feel that without EMU they will have greater benefits: unemployment will be less and the UK will experience lower interest rates.”

Overall, however, the 301 firms surveyed across Europe believed that the benefits of entering EMU were greater than the drawbacks.

“EMU will facilitate the process towards becoming a single market, which hasn’t been finalised yet,” says Vicky Pryce, chief economist and strategy partner at KPMG. “There is scope for selling finance and insurance products more easily across Europe.”

But only a small minority of the firms surveyed have made a detailed plan for EMU, because of their “wait and see” attitude. But, whether the UK joins EMU or not, firms throughout Europe will have to adapt to new working practices.

“The UK will still be affected by EMU, even if we’re not in it because 50 per cent of our exports go to the European Community,” says Pryce.

Despite the fact that 93 per cent of respondents expect entry to EMU, only 35 per cent said they had an EMU strategy plan. UK firms came lowest on the list with 19 per cent, while 52 per cent of German respondents had a strategy in place.

Most worrying was that 81 per cent of UK firms surveyed did not think that EMU would influence their organisation’s international management structure.

“Strategy is the name of the game and if firms get on the bandwagon now they could plan with some idea of being covered for every eventuality,” says Pryce. “Firms will also have to decide whether a particular industry sector is competitive or not and that all depends on if it’s a weak or strong Euro and who is in the first round.”

EMU will affect just about everything to do with a firm’s competitive edge, including: financial accounting & treasury systems; IT systems; billing procedures; contractual procedures; costs of importing; costs of exporting; and other internal accounts and payroll procedures.

Two other major areas, where firms across Europe showed lack of awareness of the impact of the Euro, are supply chain management and pricing. Until now, product prices throughout Europe have been veiled by variance in exchange rates, border controls and supplier costs. But with the introduction of EMU, the harmonisation of currency and the top IT systems available there will be transparency in pricing.

But the survey shows that respondents were completely unaware that they would have to review pricing policy across EU member states.

“Firms will have to rethink the way they deliver products and where suppliers come from,” Pryce says. “They will be looking for the cheapest possible supply source in order to remain competitive.”

This will also mean that firms will be looking to cut costs. EMU will mean consolidation and a concentration of central distribution hubs.

The other implication is that firms will be looking to relocate their businesses where skills are high and labour costs and manufacturing costs are low.

“Quite a lot of manufacturing companies are already moving to the Czech Republic and Hungary,” says Pryce.

The report highlighted firms’ lack of understanding as regards the costs of implementing new financial Euro systems, and attributed this to their “unpreparedness”, lack of assessment, lack of plans, and focus on Year 2000 work.

Of the 21 per cent of respondents which had estimated the cost of adapting to EMU, only 8 per cent could quote a figure and only 8 per cent had an EMU budget in place.

When prompted, the areas where firms expected to incur the most costs from EMU were: IT & systems, 56 per cent of respondents; treasury restructuring, 32 per cent; and financial structuring, 25 per cent. External consultancy was not even considered. Only when prompted by researchers did 11 per cent say they believed they would incur any costs at all from consultancy.

“If consultants implement a SAP package, then the costs of implementation are 200 per cent more than the costs of the package itself,” says Reid.

“There won’t be a downturn in management consultancy until the year 2001.”

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