Digital Transformation » Systems & Software » MANAGEMENT – Emu may be lowering trade barriers, but beware the cultural banana skins.

MANAGEMENT - Emu may be lowering trade barriers, but beware the cultural banana skins.

The single European currency will make it easier to trade across borders in Europe, says Roger Trapp. Just don't treat the single European market as a single market in Europe.

It is often quipped that there is one reason why not every business leader shares Unilever chairman Niall FitzGerald’s enthusiasm for Emu.

To a large extent, it will prevent them from blaming poor financial results on currency fluctuations.

But, as ever, behind the joke lies a serious point. As Vernon Ellis, European managing partner of Andersen Consulting, pointed out recently, the initial stages of the single currency are going to create “a lot of pain” for companies throughout the EU.

There are two clear reasons for this. On the one hand, the pressure to consolidate that is afflicting just about every business sector will not only continue but probably intensify as companies seek to acquire the scale that will genuinely enable them to operate across borders. On the other, consumers – who have already become a bit restive about such matters as the wide variation in the amounts charged for cars in member states – will be seeking much greater consistency of prices across the Union for a range of products. And, since this new economic entity will be on a par in terms of size with the US, they are likely to go further and press for the sort of lower prices they know are enjoyed by their cousins across the Atlantic.

And, of course, the probable result of the second factor is still greater pressure to merge – on the simple grounds that that is supposedly the easiest way of producing the cost savings that will enable price cuts to be passed on to the customer.

But this is not the only type of restructuring likely in the first years of the single currency. In mainland Europe, deregulation of such industries as telecommunications and energy is still some way behind that in Britain, but the desire for reform is gaining pace, with many institutions set to follow the example of Deutsche Telecom.

Given all this potential for chaos, it is little wonder that Andersen Consulting and other firms plying its trade see huge potential for earnings. But the situation is also likely to spur many British organisations to wave aside their government’s reservations about joining the first wave of Emu. After all, many of them will have experience to bring to bear, not just on privatisations, but also on mergers and acqusitions, which are still much more alien in France and Germany than they are in Britain and the US.

Just as City of London officials are predicting that the Square Mile’s money markets will help change British political attitudes by using the capital’s traditional strength in this area to dominate euro trading, so could FitzGerald suddenly find himself with more allies than he would have expected once his counterparts sense for themselves the opportunities that Unilever has always felt were there for the taking.

Not that it will necessarily all be plain sailing. Unilever makes much of how its long Anglo-Dutch history helped make it a properly international organisation long before its US competitors started to see much merit in acknowledging local cultures. But Reed-Elsevier, a much more recent blending of British and Dutch business cultures, saw how potent a brew this could be when Peter Davis left the top job almost as soon as he had taken it on, with the usual “personality and culture clashes” generally reckoned to have been responsible. This highlights the problems that lie in store for other, less well-established, companies that seek to take advantage of this latest stage in breaking down the barriers within Europe without thinking deeply enough about the cultural issues.

The Social Chapter, debate on which has illustrated the contrasting attitudes in Britain and certain continental countries in relation to hours of work and employee relations, is just one – albeit obvious – potential cause of friction.

Far riskier for a business are the much more subtle societal differences. Companies such as Unilever and Marks & Spencer, which has let it be known that it is going to be an early adopter of the euro, might see the advantages in terms of economic stability of having a single currency, but they are going to make the mistake of companies a few years ago which thought that increasing globalisation of such brands as Coca-Cola and Disney meant that any kind of product could be marketed in the same way throughout the world.

For them the current catchphrase “think global, act local” holds true within the EU as much as in the Far East or Latin America. And that message is even getting through to much smaller organisations, such as the recently floated European Telecom, a mobile phones distribution company, which is supporting its push into more and more overseas territories through seeking to hire sales people who do not just speak the language. It wants as many as possible of them to be natives of the countries concerned, so that, in the words of chief executive Warren Hardy, “they understand the culture”.

Business leaders who see benefits in the single currency for both consumers (through greater price transparency and thus increased competition) and for industry (through greater certainty and fewer boundaries) are right to leave the politicians in their wake. But, as they rush forward into the new Europe that opens its doors next January, they would do well to remember that knowing about culture has not prevented UK companies suffering all kinds of debacles in the US, which they assumed was not only pretty similar to Britain but also much the same all over. They should also recall that the record of industry as a whole in bringing together corporate cultures in mergers and acquisitions has not been all that great.

With all kinds of cross-border mergers beckoning in what is likely to be a topsy-turvy world for some time, the enthusiasm to be in at the beginning should perhaps be tempered with a little caution.

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