Introduction
The ongoing European debt crisis has been recorded as the worst to have hit the continent ever since the euro was adopted as a common currency more than 12 years ago. The devastating aftermath has already seen such countries as Greece, Portugal as well as Ireland being put on financial life support (Negus 121). Financial experts have predicted that the eurozone will slump into recession by the time the first quarter of 2012 ends given the trends that have been observed since the end of 2011. More than half a dozen other countries, including Italy and Spain, are in dire state and there have been internal political grumblings from some of the worst hit states over their continued use of the Euro. Europe’s biggest economies, Germany and France, have not experienced the financial crunch being witnessed in the neighbouring countries but have been hesitant to offer support. Large multinational corporations that straddle across international boarders and with presence in Europe have not been spared either. This report discusses the role played by multinational corporations in the crisis as well as the effects they are facing.
Diageo
The British drinks company has been forced to cut its operation costs particularly in the troubled Southern Europe region following the biting of the financial crisis. The company is the owner and manufacturer of brand names Smirnoff and Guinness alcoholic drinks. Diageo, like many other businesses in Europe has endured difficult times economically owing to the inflation occasioned by the debt crisis. Already, up to 400 jobs have been axed in the distiller’s firms based in Greece, Spain, Ireland and Portugal. This initiative is poised to save funds to the tune of ₤80m within a period of two years.
The extent of financial harm suffered by Diageo is so intense that the firm has been forced to lay off its management team in Western Europe. This action has affected operations in Britain as well and has been sighted as inevitable as the company is re-strategizing and focusing on markets in other emerging continents like Africa, Asia and Latin America.
General Motors
The car manufacturer announced that it would not be able to record profits on its European business for the year 2011 following the harsh debt crisis being experienced. The announcement by GM, an American global company, sparked fears and speculations among workers employed at its plant in Vauxhall, Ellesmere Port as well as Luton of imminent job losses.
GM Europe, the official Opel and Chevrolet vendor recorded huge losses to the tune of $580m which is equivalent to ₤360m in the initial nine months of 2011. The Vauxhall plant had at the time recorded a drop of 5% on its annual sales yet Europe provides the hugest market for its finished cars, selling up to 90% of all the cars it manufactures on a yearly basis.
Vodafone
Vodafone is probably the biggest loser among mobile telecom firms that were operating in Greece at the time the financial crisis in the country worsened. The British company has been forced to write off up to ₤450m against its ventures in Greece. Vodafone operations in Spain tumbled by 9% in the first six months of 2011 while its Italian subsidiary recorded a drop of 2.3% in its total revenues during the same period of time.
As a precautionary measure, the company had set to reduce its workforce in the hardest hit regions. During the 2010-2011 financial year the company took impairment charge worth ₤6bn as a cushion against operations in Southern Europe which were on a steady decline. Efforts by the company in Spain have been minimized to price reviews in a bid to win back its former customers (Howden 1).
Dixons
The retailer company with origin in Britain has suffered immense losses since the beginning of the Europe-wide deterioration in spending by customers. This has forced the company to write down up to ₤220m worth of its overseas businesses. Dixons’ sales in Greece were suspected to have dropped by 50%.
Unilever
In mid 2011, the manufacturer of foods and household equipments warned of flat to low profit margins, citing tough conditions in Europe.
Prudential Insurance
In November 2011 Prudential Insurance began exiting markets in countries within Europe that had begun experiencing harsh economic times. Prudential saw it wise to go at a loss of ₤49m in debts instead of having to give out extra credit advances. One of the indicators that informed Prudential of its decision included sovereign debt amounts, promises to pay as well as carrying out an analysis on their individual financial balance.
Imperial Tobacco
The cigarette manufacturer reported a slump in the Spanish market which it recorded as 15%. However, the company’s woes in this market were further dealt a major blow when authorities put into effect a smoking ban in public areas and also increased taxes.
Barclays Bank
Being a financial institution that many looked up to for emancipation from the hard economic times, Barclays Bank instead did not commit its funds for credit purposes. The bank reduced 31% of its appearance in Portugal, Greece, Italy, Ireland and Spain by June 2011which translated to a reduction of worth ₤2.6bn. Some buyers got the opportunity of buying bonds which Barclay’s allowed to mature.The risk averseness of the bank meant that no aid in form of trade finance was being awarded to business entities thus choking further exportation by these firms (“Eurozone crisis hits UK companies” para 4).
Conclusion
Most multinationals with subsidiaries across Europe have suffered losses that have been attributed to the harsh economic condition being experienced in the continent. Although not all European countries have registered poor economic situation, the business environment in its entirety has been adversely affected. Poor sales have been recorded by virtually all corporations, transforming to reduced profits, or in other situations, registering losses. These corporations have taken the initiative of reducing their staff as a way of cutting costs and closing down plants in worst affected countries like Greece, Ireland and Portugal. In one scenario, British distillers Diageo have been forced to lay off their team of managers based in Western Europe as a strategy of reducing operational costs. Financial corporations on the other hand have played a role in aggravating an already sorry situation. Majority of the international banks, including Barclays, have refused to advance credit to be used in resuscitating the economy citing an oblique future. Similarly, insurance firms have sensed a dangerous and risky market situation to operate in. They have since withheld funds that could have been used to chip in and offer funds badly needed by enterprises and governments to sustain their weak finances.
Works Cited
Howden, David. Institutions in crisis: European perspectives on the recession. UK: Edward Elgar Publishing, 2011. Print.
Negus, George. The world from down under. Sydney: HarperCollins Publishers Australia, 2012. Print.
“Eurozone crisis hits UK companies.” The Guardian News. 2011. Web.