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Mumbai, Nov 14: The introduction of the euro from January 1, 1999, is likely to put pressure on the prices of Indian exports to Europe, especially in sectors like textiles.
According to a presentation made by Deutsche Bank, the largest German bank, to Indian corporates on Saturday, the introduction of the euro will force corporates to rethink on their pricing, distribution and packaging in the European market.
"There will be a downward pressure on prices as the existing price variation within different European countries becomes apparent and obvious. This would require Indian corporates to rethink on their distribution and pricing strategy," said Deutsche Bank's regional EMU project co-ordinator Ashok Kumar.
Apart from textiles and garments, India has large European regional exposure in leather, machinery, bulk drugs etc. The conversion to a single currency will throw open new avenues of competition and countries in East Europe are already gearing up to take advantage of the transformation to the singlecurrency mode, said Deutsche Bank officials. "The introduction of the single currency will enhance price transparency and boost competition. This will lead to opportunities for companies that recognise the need to realign their business strategies to reflect this new environment. It will also create significant challenges for those that are not fully prepared," he said.
Since the European Monetary Union (EMU) will create a single economic region, companies will have to shift from a national to a regional approach to pricing. In addition, because products will be priced in the euro rather than the legacy European currencies, pricing strategies as well as product design and marketing will have to be reviewed and adjusted to ensure products can be sold competitively in all markets of the euro zone. The sectors that are going to benefit most from the single currency transformation are software and engineering, which will not require significant changes in products or pricing strategies. "It will have thegreatest impact on the retail and financial industries, but will also create significant new opportunities for these sectors since EMU will create the world's second largest economy," Kumar said.
Though the euro will come into existence as a new currency from January 1, 1999, it will be restricted to book entries, ie, no real euro currency will be changing hands in transactions. The new physical euro currency, replacing the 11 currencies of the signatory countries, will come into existence only on January 1, 2002. During the intervening period, trade and finances will have the option of being denominated in the euro or the existing currencies of the participating countries.
Other factors that Indian corporates will have to take note of with the introduction of the euro include adaptation of their accounting systems by including euro as a new unit of account. "The EMU will result in significant cost savings since companies will only have to hedge against one currency rather than 11 currencies," said JoeNorena, head of foreign exchange, Deutsche Bank, London. "Companies will also benefit from the elimination of inter-country transaction costs. The disappearance of exchange rate fluctuations will make it considerably easy for companies to plan their European business operations and investments," he said.
There will also be huge new business opportunities thrown open with the introduction of the euro, especially for Indian software companies. The budget for Deutsche Bank's euro conversion programme is $700 million.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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