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 (Bhattacharya, 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 the European Union
The European Union (EU) member nations experienced electoral and political transitions and crises following the introduction of the euro. There have been at least four political trends that have emanated from these events. These are: (a) the cry for democracy and reforms in most industries; (b) increased popular and local-level assertiveness; (c) greater public accountability; (d) re-definition of the concepts of power and politics. Also, the forms of political economies have slowly shifted from a bipolar (big government-big business) to a tri-polar structure (authorities – private sector – civil society).
The implementation of the Free Trade Area, or FTA, which laid out a comprehensive program of regional tariff reduction in the European Union, will be continuously implemented in phases through the year 2008 ( 2003). Over the course of the next several years, the programs in tariff reductions were made broader. Efforts to eliminate non-tariff barriers and develop common real estate market standards were initiated. In addition, the European Union also was able to formulate framework agreements for the intra-regional liberalization of trade using the euro in markets. Industrial complementation schemes meant to encourage intra-regional investment were also approved.
Long-term Trends
Despite the adverse economic trends in the first half of the year because of the introduction of the euro, European member nations as a whole still experienced a relatively robust economic growth. It is estimated that the European Union, taken together, posted a better-than-expected GDP growth of 4.5% last year, slightly higher than the 4.1% growth that they achieved in 2002 (2004).
It is a common knowledge that the euro is still a relatively new currency and is still in its early stages of development. However, it has shown signs of rapid growth and it is being estimated that there will be more entrepreneurs that will invest in various industries using the euro within the year. And it is further being expected that within the next years the tremendous growth and technological advancements will continue to help the prosperity of the euro. E-commerce and multimedia terminals are just some of the technological advancements already being expected. Therefore, the continued growth and development will also make it imperative for localization to occur in the process of the introduction of the euro in the years to come.
Short-term Trends
There have also been social and cultural trends that have been evident over the last 12 months after the introduction of the euro. These include: (a) the irreversible rise of civil society against the restrictions; (b) the rise of civil society blends perfectly with a tri-polar structure of political economy; (c) the increase in the roles of intellectuals; and (d) the beginning of a period of introspection (2004).
The creation of restrictive policies, commercialization, and protection has been a significant source of comparative advantage of most enterprises and economies and a major driver of their competitive strategies. Indeed, the European Union is fully aware of the pressing need for a long-term policy commitment to collectively transform the euro into a currency which is largely based on knowledge, driven by innovation and sustained by the active participation of all major sectors.
The European Union has pledged to work together to help accelerate the pace and scope of euro policy formulation, euro commercialization and protection; to improve the regional framework of policies and institutions relating to the development of euro, including the development and harmonization of enabling monitoring and evaluation systems; to promote cooperation and dialogues within the European Union member nations; to strengthen euro-related human and institutional capabilities in the region, including fostering greater public awareness of issues and implications relating to the euro’s development.
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
There is definitely a need to reconcile both the inside-out and outside-in capabilities of the euro. While most of the European Union’s practices regarding the introduction of the euro involve focusing on the euro’s core competencies with market position following its resource base, the European Union and its member nations will be put into a disadvantageous position should they choose to neglect both the macro as well as industry environment. Therefore, the European Union has to be aware of the latest technological changes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as market sensing, customer linking, channel bonding and technology monitoring.
The advantages enjoyed by the European Union member nations through the use of the euro currency may come in the form of increased revenues. Knowing what the market demands and the latest trends could help the European Union fully exploit its research and development capabilities to come out with economic strategies meant for the prosperity of the euro which are not only cost-effective but also high in quality and performance. This is how marketing communication can significantly contribute to the strategic management of the euro. The strategic option can even be used as marketing tool where the focus is on staying close to the European citizens and listening to their feedbacks. On the flip side of the coin, there will be huge mobilization of resources involved, and the associated risks bestowed on the European Union.
Nevertheless, the mentioned strategic option seems the most practical in the wake of globalization, since there is a sudden shift towards a more integrated and independent world economy. The key stakeholders too should not have any objections so long as the euro’ core strengths are not threatened. By virtue of the European Union’s centralized control of its member nations, it is being expected that major barriers should not exist in carrying out such an option except additional time may be required given the scope and span of these operations.
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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