Three out of four of Europe's largest companies believe that EMU is forcing them to reduce the prices they charge for products and services sold across the EU, according to a report by KPMG Consulting.
The total costs of EMU adoption are estimated at an average of £34.2 million per company, according to the report released today.
Its main findings are:
Four in ten respondents have reduced their prices in the last year, against just one in ten who have been able to increase prices, 39% think prices will continue to fall;
European companies also believe they face a rising wage bill: 60% of respondents believe pay levels for their employees will rise, against 30 percent in last year’s research
Despite this, 82% declare themselves confident that their current structure is optimal for future market conditions in Europe; Almost two thirds of companies (60%) think EMU will have a positive effect in the long term on their profitability. Just 9% think its long term effects will be negative;
A minority (16%) believe spending on IT systems for EMU will jeopardise investment in new technologies, with one in ten specifically citing e-business as an area that might suffer.
Michael Littlechild, partner with KPMG Consulting, commented: ‘A year after the start of Economic and Monetary Union, our research shows that companies are now beginning to take the issue of price transparency seriously.
‘Our findings confirm that EMU is likely to have an almost immediate beneficial effect for consumers in the form of lower prices. But companies throughout the supply chain will have to think hard and take positive action to avoid seeing their profits drained through the price and wage pincers.’
According to KPMG Consulting, however, there is little sign that the majority of European companies are now taking action to tackle this potential problem.
Vicky Pryce, chief economist with the firm, said: ‘In all our past surveys, companies have consistently been positive about the effects of EMU in the long term, and the first year of monetary union has not altered this view. But achieving greater profitability against a background of falling prices and rising wages, along with the other threats that EMU poses – such as rising international competition and increasing consolidation, will take dramatic action. ‘
‘It is astonishing, therefore, that the companies we surveyed have little sense of urgency or direction in combating these threats. A huge majority declare themselves ‘very’ or ‘fairly’ confident that their current structure is optimal for the expected trading conditions in Europe. And it is clear that their priorities have been in the changes needed to IT systems instead of the structural changes – to distribution, sales and marketing for example – vital for adjustment to a totally new business environment. Companies both inside and outside the eurozone should take action now to ensure that their structures across Europe take advantage of all the opportunities, and minimise the risks that EMU brings.’
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