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Why Europe Is In Dollar Shock


International Business

WHY EUROPE IS IN DOLLAR SHOCK

In the Belgian village of Zaventem, Paul Vermeir stands out. German, French, and even Japanese cars line the tidy streets. Outside Vermeir's house, however, there's a sleek, black Chrysler Voyager minivan. Early this year, the 40-ish owner of a carpet-cleaning service paid $33,000 to buy the Voyager, equipped with air conditioning and automatic transmission. Vermeir rejected European and Japanese minivans in favor of the U. S. import. "This is a car the Americans invented," says Vermeir. "They know how to make it best."

Vermeir's choice may seem novel in Zaventem, but he's on the cutting edge of a new trend. Across Europe, American products are selling like crazy. This time, it's more than a consumer craze for Timberland boots and Levi's jeans, although such goods are still hot. Now, autos, computer peripherals, bar-code-reading sensors, medical products, and a much broader range of consumer, high-tech, and capital goods are pouring into Europe.

America's export success came across loud and clear when the U. S. Commerce Dept. released 1990 trade results on Feb. 15. Overall, the American merchandise trade deficit persisted at a level of $101 billion for the year. But for the first time in eight years, the U. S. had a surplus in merchandise trade with 23 countries of Western Europe, which soak up 29% of America's exports. Although the growth of total U. S. exports is slowing, the fact remains that American companies sold $4 billion more to Europe in 1990 than they bought (charts). Exports to Europe, at a 13% increase, outstripped export rises to Japan, Canada, and the rest of the world.

The low dollar is the driving force behind the European-bound export drive. The trend has been in the works since 1985, when the dollar began to sink against European currencies. The pressure has been gradually building, as American companies flocked to Europe in the late 1980s. Hoping to get in on the action as the Europeans went on a spending spree to prepare for 1992's single market, the Americans built up distribution and sales networks after years of neglect. Then came the weak dollar. Already enjoying lower costs at home after years of restructuring, U. S. companies could suddenly cut prices in Europe with ease. American goods are "hypercompetitive," says David Rolley, an economist at DRI/McGraw-Hill.

In the past, the Europeans might have taken quick American successes in stride, assuming that an upswing in the dollar would eventually drive U. S. companies home. But this time, as they begin to grab market share, their presence looks more permanent, and it's rattling European nerves (page 38).

In computers, the dominant Americans, including Sun Microsystems, Hewlett-Packard, and IBM, are lowering prices in the local currency, conquering market share, and putting enormous pressure on the already hobbling European computer makers. Price differences are so great that Dan Fletcher, a Brussels-based computer dealer, can buy U. S.-made 286 and 386 personal computers, printers, and monitors, add 20% profit, and still charge significantly less than his principal European competitor, Amstrad.

DIP IN `91? In some cases, the Americans are benefiting from a virtuous cycle. Many American multinationals gearing up in Europe are buying equipment from suppliers back home, which is one reason capital-goods exports are so strong. Now, some European companies are shifting their supplier networks to take advantage of cheaper U. S.-made goods. British Aerospace PLC, for example, is beginning to make U. S. products a permanent part of its business, shifting to lower-cost American suppliers.

To be sure, the American export boom has its skeptics. Some economists foresee a dip in exports to Europe in 1991 as the major economies there cope with recession and high interest rates. Others doubt American staying power, saying that a currency shift will prompt exporters to fold their tents.

But most American exporters and business leaders argue that the export surge is only in its early stages and will expand from Europe to other parts of the world. Hit hard by imports in the 1980s, American companies learned that they had to be more competitive abroad. That's doubly true now that the U. S. economy is in recession. The entry of many new players into the export game, say some, shows that American industry has a new self-image. "It thinks much more globally than it did 10 years ago," says Diane Swonk, an economist at First National Bank of Chicago. "This is a structural change in the U. S. economy."

The bulk of the recent export volume isn't from newcomers, though. It includes such traditional exports as Boeing jets, IBM mainframes, and Caterpillar bulldozers. Europeans gobbled up an estimated 39% of all U. S. aircraft exports and 44% of computer exports in 1990. Some traditional exporters that lost interest in Europe are back as well. U. S. Steel International Inc., a unit of USX Corp., now reaps 10% of its sales overseas, including Europe.

What's encouraging to U. S. export gurus, however, is that hundreds of small and midsize companies are jumping on the export bandwagon, taking over market niches where there is scant European competition--from transdermal skin patches to specialty teas. "You're seeing a much greater involvement among all sizes of American businesses," says Barry Rogstad, president of the Washington-based American Business Conference, which represents 100 companies with growing international sales. "You've got plenty of room for this to continue."

Overall, high-tech companies are big sellers in Europe, especially ones that help feed its growing appetite for efficiency and data management. Take Symbol Technologies Inc., a Bohemia (N. Y.) company. Its bar-graph code system, which stores 3,000 characters of text in two square inches of space, means that a transaction at a cash register is coded rapidly or that documentation for a shipment can be slapped on the side of a carton and read by a hand-held monitor. Symbol racked up $231 million in sales last year, $70 million of it in Europe.

BACK IN STYLE. One of the biggest surprises is Chrysler Corp.'s success on the Continent. For close to a generation, Europeans spurned American cars as gas-guzzling, clumsy monsters. But now, the cheap dollar lets U. S.-made autos undercut luxury European equivalents by a considerable margin. In Germany, sales of U. S.-made cars were up almost $40 million, to $284 million, in the first nine months of 1990.

In fact, the Chrysler LeBaron is becoming a modish second car for rich Germans, after the ubiquitous Mercedes-Benz. After withdrawing totally from Europe in 1978, Chrysler is now back with a flourish: In 1990, it sold more than 60,000 cars. Now, it is signing up 800 dealers in 11 countries. General Motors Corp. sold 16,600 imports in 10 Western European countries last year, up 25% from 1989. GM's mid-1990 target is 240,000 export vehicles, four times the current Chrysler volume.

Of course, U. S. export success has not been without problems. American companies have a history of flocking to the European market when a low dollar makes it easy to sell, then running when the dollar heads north, leaving clients without service or support. Indeed, the dollar is certain to rise again, and that could be a test for America's small export miracle. "The potential danger of a low dollar is it's easy to believe that you are more competitive than you really are," warns Tomo Razmilovic, vice-president of Symbol Technologies.

The broader test will be whether American exporters can duplicate their European success story elsewhere, particularly in the tough markets of East Asia. At stake is the American economy's ability to find its way out of recession. Most of the 1% growth inthe U. S. economy last year was the result of merchandise exports, according to the Commerce Dept. That's why no matter how difficult export markets are, the Americans are likely to keep coming.Jonathan Kapstein and Patrick Oster in Brussels, with Kevin Kelly in Chicago, Paul Magnusson in Washington, and bureau reports


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