OBJECTIVES
As a person with knowledge of international finance, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this topic and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how the euro was thought up, formulated and then imparted down into the European continent. The author hopes to have an in-depth understanding as to how the introduction of the euro enabled European countries to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focused upon i.e. innovation and diversity. Innovation was discussed with regard to the introduction of euro where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
EXECUTIVE BRIEF
This essay utilized the euro as the model currency to review its present impacts and how it dealt with critical situations. From the analysis, key trends in the introduction of the euro were then identified, how it worked and its effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess the euro with regard to its suitability to critical situations, during which the internal capabilities of the euro in relation to the strategy being followed by most European countries was determined also. An overall analysis of the performance and effectiveness of the euro was also conducted to assess and compare the capabilities of this currency with those of others. Gaps in the capabilities of the euro were then identified.
Finally, several choices of strategies to strengthen the euro as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
INTRODUCTION
The euro is the official currency of the European Union member nations. It was introduced in 1999 in order to contribute to the efficient and effective implementation of the policies and tasks necessary to satisfy the European citizens, workers and government officials. The introduction of the euro focused on the careful management of the processes involved in the production and distribution of products and services within the Eurozone (2002).
More often than not, countries outside the Eurozone don’t really have the capabilities to compete against the strength of the euro. Instead, these countries engage in activities that various schools of management typically associate with trading with the strength of the euro. These activities include the manufacturing of products, product development, production and distribution.
However, the euro deals with all operations done within member countries of the European Union. Activities such as the management of purchases, the control of inventories, logistics and evaluations are often the introduction of the euro. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, the introduction of the euro includes the analysis and management of internal processes.
The Euro and its Objectives
The euro’s introduction has four main objectives:
A) Remain one of the top currencies in the world. Being one of the top currencies enables the euro and the Eurozone countries to command the respect and confidence of other nations. Thus, the Eurozone countries are able to expand their operations through the continued strengthening of the euro.
B) For the European Union countries to gain more profit than other non-member nations. The euro currency that is being used in the trading process used all over the world is able to meet high quality standards. As a result, the European Union member nations which use the euro are able to earn more profit as against other non-member nations ( 2000).
C) Build the best currency portfolio, with the euro as the international currency of flagship; and
D) Maintaining its independence. Being an independent currency allows the euro to continue its tradition of excellence in both its ability to purchase products and services by setting new trends and standards.
In order to achieve these objectives, the European Union implements a strategy of selling a combination of local brands and international brands, but maintaining the euro as the flagship currency. The European Union also aims for broader positions as well as either the top or secondary positions in any market. Any of these positions would be enough for European Union member nations to deliver a high level in terms of production, marketing and distribution using the euro. Moreover, these positions create a platform from which the European Union member nations can sell or trade their premium and other specialty products. With a continued focus on the structures of the costs, the above mentioned objectives should undoubtedly be reached.
The Euro and its Impact on the US Dollar
After the introduction of the euro, its exchange rate against the U.S. dollar was not very impressive at all. At the onset of 1999, the euro’s exchange rate against the U.S. dollar was at US.18, and even went to the lowest exchange rate of .8228 the following year. The year 2001 brought some optimism for European Union member nations because the exchange rate rose to a respectable .96 (1994). On the contrary, it was the US dollar that suffered a huge decline that year as the U.S. trade deficits increased tremendously. Modern economists and experts hypothesize that a significant decline in the value of the US dollar and a significant increase in the value of the euro would eventually result to a significant gain in U.S. exports and a significant loss in U.S. imports, as the US exports becomes less costly and the US imports becomes more expensive. Therefore, a significant decrease in the value of the US dollar makes foreign investment in the U.S. a lot less expensive.
In the year 2001, in an effort to contend with the growing strength of the Euro, the US based its pricing strategies on several key trends that continuously shaped the global marketplace. One particular trend was labeled as “premium-tization” (1981). This phenomenon caused the polarization of different markets. This then triggered the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices was also simultaneously taking place, therefore squeezing out the middle range. More often than not, the US business sector underwent internationalization which led to a tighter squeeze for shelf space. This in turn left the US as a winner. It is for this reason why the US valued the “premise sector” so much because this allowed consumers to try their products and services at low risk and price.
In terms of growth rate, the US dollar had a disproportionate share of growth at an estimated 4-5% per year since 2001, as against the 2-3% overall growth rate for the euro. These rates come up as a result of both the rise in GDP among developing markets and consumer demands for higher value propositions, which is obviously dominated by international brands. Therefore, the US has to increase its portfolio and operate globally to become competitive against the euro. The euro practically operates on a relatively fragmented market, with the top four Eurozone nations accounting for 22% of global growth five years ago and only about 28% today.
RECOMMENDATIONS
The euro has been able to remain one of the world’s leading currencies since its introduction in 1999 primarily because of the execution of the European Union’s strategies to perfection. Add to the mix the euro’s mark of dedication to high quality of service and the formula for success is at hand.
However, I am not totally convinced that the strategies that the European Union implements currently would be as effective as before. For one, consolidation and globalization are taking place across most countries and their currencies, and the euro is not excluded. The European Union has implemented various strategies to fully adapt for the need of the euro to become competitive globally.
I suggest that the European Union should implement a more sober approach to maintain consumer loyalty with their member nations. There is nothing wrong with building new loyalties with the other global consumers. But there are instances, for example, in the Netherlands, where the local market is often neglected. As a result, local consumers will tend to develop a bad impression about the European Union and its roles. While it is good to make moves to strengthen the euro, it is even better to keep and maintain the older and more established markets within the member nations. This way, the European Union will remain unscathed amidst the advent of consolidation and globalization.
CONCLUSION
The results of the analysis carried out on the introduction of the euro indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the value of the euro could still be expected to increase faster than average.
The review of the euro’s capabilities and objectives revealed very little inconsistencies regarding the European Union’s strategies in strengthening it. This is coherent with its traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the member nations of the European Union.
The analysis of the euro’s impacts on the US dollar revealed certain gaps, most of which are biased towards the US environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the competitiveness of both currencies.
Also, the European Union has to find a balance between adherence to internal forces within their member nations and to the changing forces of the environment in order to implement such strategic options.
Credit:ivythesis.typepad.com
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