'Euro' Will Change Much for Suppliers in Europe

While most North American suppliers are quite comfortable in Europe, the move to a single currency called Euro among many European nations promises to make some things more complicated in the short term.

On Jan. 1, 1999, the countries participating in Euro will fix irrevocably their conversion rate of currencies against each other and the Euro. The European Central Bank starts operating and the dollar and yen will be quoted against the Euro. On Jan. 1, 2002, the member states will put Euro notes and coins into circulation alongside national currencies, and on July 1, 2002, only Euro notes will be accepted.

Which countries will be eligible to join the single currency were to be decided this month.

A majority of European Union countries is expected to join, including France and Germany. The U.K. is among a group of at least four countries that have chosen to stay out during the first round. The U.K. government has taken a wait-and-see approach but is expected to join during a later round. Sweden has said it will not join the first round because of public opinion, but will watch the stability of the currency and may join later.

Denmark wrote in the Maastricht Treaty that it would have nothing to do with the Euro. Denmark's entrance would come only after the government holds a public referendum on membership. Greece's monetary policy and economic position is not expected to qualify for the Euro until Jan. 1, 2001.

The whole automotive industry will be affected by the Euro, suppliers included. Scania AB, Nissan Motor Co. Ltd., the Rover Group and Daimler-Benz AG are among those who have said they will use the Euro from the start.

The change to the Euro is expected to be costly to suppliers, perhaps even more expensive than coping with the year-2000 computer crisis. And it's further complicated by a lack of major accounting software developed to address the changeover.

But unlike coping with the year-2000 problem, adapting to the Euro promises to help businesses compete in new markets.

The good outweighs the bad, and the significant cost is canceled by the long-term benefits, says Leslie Gunde, head of the European Monetary Unit at KPMG management consultants in the U.K.

Automakers and suppliers soon will be able to source across Europe using only cost issues and not be influenced by currency fluctuations.

"The impact is likely to be positive," Mr. Gunde says.

Suppliers will be in a better position to expand their business throughout Europe.

Unlike automakers, suppliers won't likely see profits affected as much by price margins in different countries, says Dana-Europe President Karl Nitsch.

The Euro for Tier 1 suppliers such as Dana actually will make business easier. Instead of using 12 different price lists, they will use one. Most are already operating on a pan-European level and often follow manufacturers to new plants. Their issues are similar to the automakers. They operate in a supply chain and can take advantage of economies of scale.

All of Dana's 54 operations in Europe will be prepared to quote automakers in Euro prices by Jan. 1, 1999, officials say. Even the company's plants in non-Euro Sweden and the U.K. will quote in Euro. Dana's suppliers also are expected to quote Dana in Euro starting next year. "You don't have to be converting exchange rates every day of your life," Mr. Nitsch says.

For Tier 2 suppliers, the Euro will help companies expand their business. These suppliers often are nationalistic, supplying companies in only one market. The Euro will give them greater access to the rest of Europe by removing exchange-rate barriers. But it may also bring an exchange rate risk the companies have never seen, and it may force the smaller, less-global companies to do more restructuring.