The Eurozone: What’s Your Plan B?

Focus on the world’s fastest growing economies – that’s the message from business leaders on how to deal with Europe’s currency calamity. With Greece remaining mired in debt, and Spain, Italy and Portugal relying on the positive signals coming from the European Central Bank to buy sovereign bonds, the fact is that businesses simply cannot afford to adopt the equivalent of austerity measures if they want to prosper.

Jim Wilkinson, Group Finance Director at online gaming company Sportingbet, has needed to act quickly as Spain and Greece accounted for about 50 per cent of the European business. “We have withdrawn any cash balances out of those countries on a frequent basis and have reorganised our European business to match costs to revenue in local terms.”

Part of the solution, for Jim, has been to develop a standalone business in Australia: “It is well away from what may be happening in Spain and Greece and completely separate and immune to the currency troubles in Europe, to the extent that other currencies ever can be immune.”

Stephen Dury, Strategy & Market Development Director at Santander Corporate, Commercial & Business Banking, says: “Many of the SMEs that we have been working with are looking at the fast growth markets in China, India and Latin America to diversify outside the eurozone [and]… deliver more stable and sustainable income growth.”

The crisis reaches across all sectors. In British farming, for instance, there is a particular threat through the weakened currency. Tom Taylor, Chief Executive of the Agriculture and Horticulture Development Board, says: “The weak euro is giving imported pig meat a price advantage when compared to the UK product, and European pork is 12 per cent cheaper, just because of the euro, than it was a year ago, so the ability to sell UK products is being affected.”

In response to this, British farmers have also been looking to Asia. Tom says: “We’re actually now exporting to 50 countries where the currency isn’t having as big an impact… The first contract for pig meat to go to China was signed only a month ago for a £50 million deal and the first shipment went last fortnight.”

With there being so many variables to the crisis, each leadership team will need to devise their own solutions. Mary Jo Jacobi, NED at Mulvaney Capital Management and a Criticaleye Associate, says: “This macroeconomic uncertainty forces businesses to reconsider their plans yet makes developing new ones nearly impossible.

“Leaders need to remain focused on their primary objectives, factor in what has changed and what is changing and be confident that their strategy is sufficiently flexible; snap decisions based on today’s headlines are unlikely to yield positive results.”

Crystal ball gazing

Naturally, international expansion won’t necessarily be right for every business, but it does make sense to factor in and reduce exposure to particular eurozone risks. Nigel Burbidge, Risk Advisory partner at professional services firm BDO, says: “We have worked with economists to provide tailored workshops and economic forecasting for specific businesses, looking at the key risks for them and possible ways to mitigate those and gone from there. The problem is there is no one-size fits all answers for this – you have to form judgments for your case.”

Fortunately, leaders are recognising the scale of the risks, especially around areas like supply chains, and are taking the initiative to combat them. Paul Staples, Head of Corporate Finance at BNP Paribas, says: “The level of contingency planning being implemented by corporate clients with existing operations or exposure to the eurozone has accelerated markedly during the last six months.

“[From] how companies achieve access to funding, to reviewing the local banks who are deemed to be suitable counterparties, [and] how they seek to protect their own infrastructure and investments in a volatile market environment… this level of preparedness is no longer seen as overly conservative, which is testament to increasing concern over weakening economic data across both the European periphery and major Northern European economies.”

Mark Spelman, Global Head of Strategy at Accenture, notes: “While a combination of the European Central Bank’s action on liquidity and the European Union’s rescue funds have bolstered the fiscal system, the key structural problems of competitiveness [in the Union] remain unanswered… Business leaders must look into the abyss and have a base case for how they manage continued uncertainty.”

As ever, the best defence will remain a calm and confident leadership team equipped with a sound understanding of their business, its risks, and agility when it comes to strategy.

David Garman, Chairman of commercial laundry suppliers JLA, takes a pragmatic approach amid the endless speculation: “I don’t know what’s going to happen in the future and neither does anybody else… Decide what you want to do about any particular scenario when it becomes a reality, rather than wasting time that you could be spending on improving the fundamentals of your own business.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

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