The European Union has many member countries and all use the Euro as their currency (PSU WC, L.12, p.4). My employer has to source many raw materials from global sources because there are few people in the world that make the components we purchase. Oddly, a large portion of our suppliers are located in France and Germany, both of which use the Euro. It is difficult to estimate what we will spend on raw material when the Euro fluctuates just as the US Dollar does. Currently, the Euro is stronger than the Dollar, so it is more expensive to buy material from our French and German suppliers. I realize it is good for them to be a part of the larger group of countries, but hurts us when we have to buy material from our largest suppliers. It is easier to spread out raw material cost when we are able to spread suppliers out over many types of foreign currency.
Looking at this from the other perspective, it would be advantageous for European Union members to purchase from American companies, since the Euro is stronger than the Dollar. As of April 7, 2018, one Dollar equals 0.81 Euro (xe.com, 2018). Historically, the fluctuation of the exchange rate has made the cost of our parts increase as the cost of our raw material increased. I can’t help but wonder if the same is true for European Union members who source raw material from the United States. I could find little data on that, but I did find that it is cheaper for European auto makers to locate plants within the U.S., rather than export the vehicles from Europe (Klier & McMillen, 2015). This is a similar concept that my employer has used. Instead of exporting parts to Malaysia, it was more cost effective to open a small operation there to service the customers. It’s beneficial to the company and also helps the local economy in the host country.
Foreign currency should be at the forefront of any organization’s mind when they are getting material from global sources or even selling a good abroad. The Euro encompasses so many countries, it is one that would be relevant to nearly everyone dealing with a European organization. The exchange rate can change from day to day, so it’s important to watch it and hold off on conducting transactions until it is advantageous to do so. The strong Euro makes it seem like the European economy is in really good shape, but in reality, each country can have a different economic situation. Overall, I have noticed that European countries have the highest costs associated with exporting material, which is due in part to their currency. From an American business standpoint, it is cheaper to find other suppliers globally, but sometimes that just isn’t an option.
Klier, T. & McMillen, D. (December 2015). Plant location patterns in the European automobile supplier industry. Growth and Change, 46(4), p. 558-573. Retrieved from https://onlinelibrary-wiley-com.ezaccess.libraries.psu.edu/doi/epdf/10.1111/grow.12114
Pennsylvania State University World Campus. (n.d.). OLEAD 410: Lesson 12: Western Europe. PSU WC.
Xe.com. (April 7, 2018). XE currency converter: USD to EUR. Retrieved from https://xe.com/currencyconverter/convert/?Amount=1&From=USD&To=EUR