Small and medium sized companies (SMES) worried about the impending changeover to the euro would do well to avail of the services on offer from the EMU Business Awareness Campaign, run by Forfas. That's what Mr Oliver McAdam did. He is managing director of the Wexford-based Medentech, which specialises in healthcare - producing effervescent tablets for the sterilisation of babies' bottles.
Forfas have issued 19 documents to date on difference aspects of the campaign, along with a plethora of survey information and updates that chart the course well. Document Number 10, Business Impact Analysis, for example, is a particularly useful guide for SMEs.
A simple reference framework is provided which allows firms to decide how much their operations will be affected by EMU and the currency changeover. Among the factors which would increase a company's exposure would be a high level of imports and exports, suppliers and customers who are charging over early to the euro, a high level of cash handling or a high reliance on information technology.
Some 98 per cent of Medentech's output is exported to around 40 countries, worldwide. Six of these are within the EU and account for just over a third of total turnover.
"We have two dominant customers, both of which we invoice in US dollars," said the managing director. "We do not see this situation changing in the immediate future." In terms of turnover, 57 per cent of Medentech's currency movements are denominated in US dollars, 21 per cent in Irish pounds, 19 per cent sterling and 3 per cent in French francs. The company currently employs 48 workers.
The MD opted not to delegate when it came to the euro: "I have taken overall responsibility myself for EMU planning. In preparing the business impact analysis, I did not consult with my managers. The vast majority of SMEs in Ireland employ less than 10 people and it will be owner-managers of these companies who will take on the responsibility for preparing for EMU."
He had no quarrel with the general prescription for action outlined by the Forfas awareness campaign:
Identify all areas of impact on the company
Initiate and co-ordinate examination of each area.
Estimate the costs involved.
Develop changeover strategy.
Co-ordinate implementation of the project.
Ensure that all necessary communication takes place.
Medentech views the onset of competition as a result of EMU participation as a major opportunity for expansion within the EU.
"We do not see the Irish market for our products as being of such significance as to attract new competitors to Ireland," said Mr McAdam. "The company's main competitor, incidentally, is British."
"There is the possibility that the euro may appreciate against sterling over time and that Medentech may be at a disadvantage, not only in Ireland and the UK, but in other overseas markets. If and when the UK joins the EMU, it will be important to ensure that the entry level exchange rate for sterling does not give the British an advantage over other EMU members."
Medentech does not sell directly to the public. It sells to distributors in all its markets, including Ireland This does not obviate the need to know what the impact of euro changeover will mean for consumer prices.
"Currently we build into our pricing structure a margin for currency exposure," said Mr McAdam. "With the introduction of the euro we will be able to eliminate this margin in our French and Spanish markets." Many of the company's markets outside the EU currently require it to invoice either in dollars or sterling: "We will encourage our customers to change over to the euro to reduce our exposure."
Overall, he believes that the EMU will have a relatively low impact on Medentech's relations with its customers: "We will have a training requirement to see that our staff are able to deal with customer queries regarding the EMU and the euro." The Forfas pamphlet, Is Your Business Ready for the Euro? provides a reader-friendly summary of the key issues that should encourage SMEs to think strategically about how EMU participation may affect their business.
As an example, it features the experience of Killarney-based Kerry Die Products, which specialises in the production of dies for animal, sugar beet and bio-energy pellets.
Kerry Die's managing director, Mr Liam O'Connor, is in no doubt of the benefits in store for his company from Ireland's membership of the EMU: "The difficulties caused by exchange rates and the risk of continuing currency fluctuations leaves a company such as Kerry Die in a very vulnerable position."
The company which employs 30, is to switch over fully to the euro from January 1st, 1999 - its preparations began in earnest about 12 months ago. Following the initial business impact analysis, they took a close look at the changes required for the day to day running of the business. The company exports 90 per cent of its output to European markets (40 per cent to the UK) and are accustomed to dealing in different currencies. It was crucial to ensure, at the outset, that the IT capability could handle the changeover: "This would allow us to invoice, prepare accounts and so on, both in euros as well as the currency of the customer."
Appropriate software was designed specifically for this purpose. Kerry Die has been testing the programme for several months, using the ECU exchange rate as a hypothetical guide. Britain's decision to stay outside the EMU presents a challenge, of course, because of the risk of currency fluctuations.
The Forfas campaign has identified a range of business actions available to companies aimed at reducing the competitive impact of possible sterling depreciation relative to parity. A checklist of actions companies may take is included in the recently published Document Number 19, What About Sterling? Actions for Companies. Five key areas for company action are outlined:
Financial/treasury
Marketing
Production
Distribution
Corporate strategies
These initiatives vary from low cost, immediate impact actions, such as invoicing in euros and currency hedging, to strategies involving higher investment costs due to impact in the longer term.
Copies of the relevant documents may be obtained free, by contacting Yvonne Cullen at the EMU Business Awareness Campaign, 01-6073299. Website: www.emuaware.forfas.ie.
