Eurozone: crisis and opportunity

Recent events in Greece and Spain have ensured all eyes remain firmly focused on the continued financial instability within the eurozone. With predictions ongoing, it is important to remember that we are in unprecedented times. While many manufacturing companies are aware of the potential risks, not all have contingency plans in place that would meet the demands of extremely volatile markets. Clear and structured contingency planning is essential and manufacturers should begin by:

• considering your eurozone assets and how these could be impacted by redenomination. Can you borrow locally to offset these?
• counterparty credit risk – will your eurozone customers be able to pay you?
• assessing how a more volatile FX environment could impact results and cash; and
• reassessing your liquidity position. Bringing forward re-financing plans may be advisable.

If plans are in place, how many of these also consider the impact on your supply chain and the operational buffer that you might need? Do you need extra precautionary stocks of raw materials which may help conserve future production, or will these end up redundant if sales collapse? Have you considered what additional financing needs there are to match this changing stock and storage strategy? Do you need to act now to assist critical links in the supply chain with prompt payment or supplier finance programmes? These are all important questions that should be asked. Despite these concerns, the situation may also provide up a number of opportunities for UK manufacturers. Being outside the eurozone will clearly give UK manufacturers a different competitive position compared to those companies you compete with inside it. UK manufacturers may also have a better understanding of the issues – thanks to our geographic position and the eurozone being our biggest trading partner – than other global players that are further removed from the situation and therefore often more nervous and risk averse. While the eurozone crisis remains a key concern, those firms that can adequately prepare themselves, while identifying and responding to opportunities, could emerge from this crisis stronger and more successful. It can create competitive new opportunities for all to speak with new prospective customers and consider new markets.