Procurement needs to be prepared for further European problems

We gave an overview of the weekend’s political events yesterday – today we’ll look at some potential consequences and what procurement people should be looking out for, and indeed doing, to respond to likely issues.

It’s looking like Greece may need another election soon as it is hard to see any sort of workable coalition coming out of the mess left by Sunday’s election. Hollande, the new French President, will be off to see Merkel soon to beg her to print some more Euros. The most likely result is some sort of “growth charter” I suspect that saves face but will have little substance and will turn out to have little effect.

The Euro fell yesterday, and stock markets also dropped initially, although they quickly recovered- much of what transpired at the weekend was probably priced in already. So what effect do these recent political events – and local elections in the UK and Germany – have on business, and therefore on procurement functions and people? Here are some initial thoughts.

- Economic confidence in the EU is unlikely to recover until the future of Greece (and other struggling Southern countries) is clearer.  Further decline or just uncertainty may well weaken global commodity markets and prices, although Europe is less influential now than it was 20 or 30 years ago because of the growth of BRIC and other developing countries.

- The chance of firms sinking into financial problems or even bankruptcy will increase if European consumer and government confidence and spending don’t recover. Procurement executives need to re-double their analysis and intelligence about key suppliers who may be suffering financial risk.

- Firms will be less willing to invest given the uncertain outlook, which (combined with more bankruptcies) may paradoxically lead to less competition and even supply shortages in some areas, despite economic weakness. Buyers should make sure they understand competitive dynamics and capacity issues in their key supply industries.

- Extremist parties are likely to grow in strength. The potential for social disorder will also grow in Greece and perhaps countries like Spain (and in the immigration queues at various UK airports... !)

- One response will be actions taken to focus on “local jobs” and “local firms”. That may have implications certainly for public sector procurement staff. In the UK, the first policy announcement since his re-election has seen Boris Johnson, Mayor of London, announce a review into why jobs in London are going to foreigners rather than locals (we could tell him that in 5 minutes and save a lot of effort).

- There will be a growing “talent flight” from beleaguered southern European nations – and perhaps France if taxes hit a tipping point – to countries or regions where the jobs prospects are better. Recruiters in London, Frankfurt, New York, Singapore and Sydney are likely to see more cvs from bright young Greeks, Spaniards and Italians over the next months.

All in all, continued uncertainty makes it more important than ever for procurement people to take a strategic view of their key supply markets and suppliers. Supply and supplier risk management programmes, commodity market analysis, regular supplier data and reviews, keeping up to date with the latest economic and political developments – all need to be part of the procurement manager’s core role as we sail through these uncharted European waters!

 

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