New Zealand exporters face an imminent threat of losing European market share with the advent of European Economic and Monetary Union.
This will be a direct result of the European community turning its focus inward as it dealt with the market and operational changes engulfing Europe, said Graham Lloyd, a consultant with PA Consulting Group. Based in Sydney, Mr Lloyd was in Auckland to address the Export Institute of New Zealand (Auckland Chapter).
Mr Lloyd told the Business Herald he did not expect an instant drop or rise in the Euro as it would not be reasonable for the European Central Bank to import inflation by setting a low value, nor cause exports to suffer with a high Euro.
While New Zealand exporters should be concerned about the value of the kiwi relative to the Euro, Mr Lloyd said, that should not be the focus.
Beyond managing the currency value via traditional hedging methods, it was as yet unclear how the exchange rate issue should be managed, he said. 'My recommendation is not to focus too much on that at this stage but to concentrate much more on winning the business or retaining the business. Once you've gone through the Euro door, you're into a much, much bigger market than you were into previously.'
From January, 1999, 11 European countries will lock their exchange rates into a single currency called the Euro.
It is not to be confused with the Euro dollar which refers to a currency traded outside its domestic market.
It is estimated that the cost to European industry in adjusting to the change is $US100 billion ($188 billion).
Mr Lloyd estimated that compliance cost for big companies or producer boards in New Zealand could total $7 million to $10 million.
The critical issues facing New Zealand were strategic in nature. Citing an example of how New Zealand would be affected, Mr Lloyd said an Italian buyer of New Zealand Merino wool could be anticipating the impact of the Euro on his product pricing as the same item could be compared across Europe in the same currency.
He would be looking down his supply chain, figuring ways to tackle the impact this had on his price and profit. This could affect the New Zealand wool supplier in many ways, including product requirement, price issues, and supply points, among others.
'He may even question the need to deal with New Zealand. Don't take it as an anti-New Zealand sentiment. It would be simply because the customer is consolidating his position and focusing on opportunities in front. It would be his interpretation of how to survive in Euroland,' Mr Lloyd said. The response had to be a strategic view, he said.
The other thing to remember, he said, was not to think of Euroland as being sorted out and ready to roll.
'Far from that, it is a group of individuals trying to understand how to swim in a big pond full of sharks now. They may have been the biggest fish in the market for a while but suddenly there are 10 others,' he said.
