A Venture

European single currency project can be portrayed as a venture which can go either way:

Best possible scenario
Economically and politically all goes well

Worst possible scenario
Countries withdraw, confidence in union plummets and the subsequent bickering
brings about the total collapse of the European community

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Appreciating the business impact :

The overall impact of single currency is as :

— 40% in business (in particular in sales and
    marketing)
— 40% in Information technology
— 20% in functions (e.g. finance)

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Strategic Moves Possible

With the incoming of single currency, there will be a cut throat competition. Prices will
go down hence profitability can reduce. So to improve profitability strategic moves
possible are :

Defensive strategic move

Reduce cost but first one should know where the major chunk of the actual cost lies
i.e. which are the major cost driving activities

Aggressive Strategic Move

— Service improvement
— New distribution channels (e-commerce)
— Shifting from operation services to consulting
— Geographical expansion
— Merger strategic alliances

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Risks

With one single currency :

Foreign exchange risk, Interest rate risk, Liquidity risk go down. Legal and operational
risks go up

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Mergers and Acquisitions Trend

Consolidations or M&A is due to hard economical conditions which prevents one from
increasing the prices, though inflation increases & so eroding profit margins. In order
to keep abreast with these conditions, companies have to cut costs. Consolidation will
spread fixed administrative costs over a larger sales base, and SG&A as a % of sales
will be less. Moreover customers are reducing their vendors list forcing suppliers to tie
up.

Wheeling & dealing in Europe :

Value rises from 1,30,000 million $ to 6,00,000 million $ from 1988 to 1998.

Volume rises from 2,800 to 8,300 from 1988 to 1998 

Source : Securities Data Company

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