International -- European Business: INFORMATION TECHNOLOGY
GETTING READY FOR THE EURO BUG (int'l edition)
Programming computers for the new currency may cost $175 billion
The sparkling new FNAC store on Paris' Champs Elysees looks like the model for commerce in the Information Age. With its racks of software, CD listening booths, and scores of TV screens showing videos, this branch of Francois Pinault's empire draws in French youth--and plenty of tourists. At the check-out counters and in the Columbus Espresso Bar, customers pay in French francs--for now. Within 10 months, they'll have the choice to also pay with credit cards or checks in the new European currency, the euro. But like many companies across Europe, FNAC is not yet hurrying to ready its computer system and cash registers for the new money. "We're going to test first and see what happens," says a spokesman.
That could be a big mistake. True, Europe's companies have three full years to phase in the new currency. But now a number of them are waking up to a scary fact: That transition period, designed to coddle consumers, poses all sorts of frightening conundrums for computer systems. The challenges range from the mundane, such as coming up with a computer key for the euro symbol, to inserting the most abstruse mathematics into software.
DOUBLE TROUBLE. It's an enormous job that could cost companies doing business in Europe $175 billion, IBM estimates. And the fact that it occurs while companies are scrambling to adapt their systems so that they don't go berserk on Jan. 1, 2000, adds to the squeeze. Companies realize that every system that touches money--from payroll and inventory to accounts payable--must be revamped. "Everyone knew it was coming, and everyone's still surprised," says Pierre-Yves Le Bihan, director of CIGREF, a Paris-based industry group that helps French companies prepare their systems for the euro.
Reprogramming their computers to cope with the euro is a crucial competitive issue for European companies. The businesses that get their systems up and running first with the euro will likely win market share in traditional sales outlets and Internet ones. Industrial companies that adapt quickly will likely buy more from suppliers dealing in the new currency, analysts say. And consumers may comparison shop more among retailers pricing goods in euros. Indeed, France's Carrefour now produces receipts in ECUs to prepare consumers for the euro. "You want to be ready for this new market with new products," says Eric Coursin, a Paris-based consultant for Sema Group. "If your computers cannot handle it, others will get there first."
This coming battle for market share favors the large international companies over regional ones. The big players can count on their hefty tech budgets. Some are already flexing their muscles, forcing the small fry to adapt. Philips Electronics and Siemens, for example, plan to start operating in euros at the birth of the new currency on Jan. 1. They're sure to drag legions of suppliers and customers down the same road. Companies doing business with them might start out manually processing the first few checks and invoices in euros. "But if that trickle turns into a flood," says John Downe, IBM's euro customer executive, "you've got a problem."
These kinds of problems spell gold for software and consulting firms. Companies such as Cap Gemini and Sema Group are touring European capitals, hammering out euro strategies for customers. Germany's SAP and Holland's Baan, along with U.S.-based Oracle and PeopleSoft, are racing to produce euro-compatible software. And scores of outsourcers such as Manpower Inc. and Mastech Corp. are dispatching info techies to work on euro accounts like so many soldiers into a collapsing breach. "The euro is going to become our driving business," says Mastech's Europe director, Guil Hastings, whose regional staff has grown from 50 to 300 in the past nine months.
So far, the leading converters to the euro are, naturally, the banks. Many began the process two years ago, opening up new columns on their spreadsheets and contracting software for their ATMs. The cost for big banks, bankers say privately, often tops $100 million. Credit Commercial de France, for one, is modifying 25,000 programs, from foreign exchange software in the Paris headquarters to ATMs on the Cite d'Azur. "For us, the euro is three times more costly than the year 2000," says Guy Lappassat, chief information officer.
This investment by the powerful leaves smaller, unprepared banks facing torturous decisions. Not only will larger banks soon be storming across national borders to snatch customers, but they'll also be offering a wealth of new financial products in euros and will have computer systems ready to digest any currency thrown their way. A number of small banks, say consultants, are likely to throw in the towel, merging with bigger banks that are ready for the euro and the year 2000.
What is it about the euro that makes it more complicated to program than, say, the drachma or the peseta? In preparing this new currency, European commissioners went out of their way to bring it into every transaction. This means that every exchange, for say, lira to German marks, has to go from lira to the euro and from the euro to marks during the transition period. This requires far more sophisticated software than is used in today's foreign exchange trades. To ensure that euro valuations are precise, the European Commission has called for accuracy to six full digits after the decimal. And they have imposed a more convoluted conversion formula than has been used traditionally.
NO HURRY? But even while adapting to the euro, companies must keep their computers flexible enough to allow for plenty of juggling--such as continuing to pay taxes in local currencies. "It's absolute craziness," says Michael Klemen, SAP's marketing director in Europe. SAP is riding 60% growth by selling companies vast new systems that bypass the messy euro and year 2000 fixes.
That's an expense that small and medium companies are in no hurry to confront. According to a survey by London-based accounting firm Grant Thornton, fully 37% of Europe's businesses have not yet considered, much less acted upon, the systems implications of the euro. Countries with a large share of laggards are Britain, Germany, and Spain. The prospect for these companies, says Grant Thornton partner Stephen Dexter, is an erosion of sales.
Meanwhile, U.S. companies doing business in Europe also face pressure to adapt. Many of them simply rely on vendors to provide a packaged solution. Owens Corning, for example, is just completing a $75 million installation of SAP's enterprise software package. This will allow the company to switch to euro accounting country by country, depending on how quickly its customers and suppliers embrace the new currency. Others are only starting to wrestle with the problem. "This is going to affect our derivatives, foreign currency, and a lot of systems in our treasury operations area," frets the CIO of a large regional bank in the U.S. that is still identifying the work to be done.
For both American and European companies, there's no need for white knuckles yet. If the computers aren't quite ready by Jan. 1, companies can handle the stream of euro traffic the old-fashioned way--by hand. But every day they do, and every day a rival comes out with a new euro product, the laggards risk falling further behind.By Stephen Baker, with Inka Resch in ParisReturn to top