Tough Going Abroad : How U.S. Firms Cope With Europe's Faltering Economy

By JAMES F. PELTZ

Aug. 4, 1993 12 AM PT

TIMES STAFF WRITER

Europe this summer is no vacation spot for U.S. companies.

American firms with major exports to Europe--or with operations based there--already were grappling with a three-year-old European recession. Now comes a currency crisis, making it even harder for U.S. executives to map plans for boosting European sales.

What happens now? The European Community’s decision last weekend to effectively abandon currency controls means interest rates could drop in several nations. That could lift their economies--and lift demand for U.S. goods.

But more turmoil in European currency markets--and a stronger dollar--could hurt.

Amid the upheaval, here are the stories of how American companies in five key industries--manufacturing, entertainment, high technology, consumer goods and financial services--are trying to expand, or at least maintain, their European sales and investments.

Walt Disney Co.

Doing business in Europe has been tough for Walt Disney Co.

In the first nine months of its fiscal year, Disney lost $100 million on its just-under 50% investment in the Euro Disney theme park outside Paris. The Burbank-based firm expects additional losses on Euro Disney in the fourth quarter ending Sept. 30.

Last month, Disney said the losses had triggered a “strategic re-examination” of the park, suggesting that development of Euro Disney’s next phase--a studio tour attraction--will be delayed.

Euro Disney’s main problem has been the weak European economy, which is hurting the resort’s hotel business and curbing tourist spending.

But another problem has been the strength of the French franc, which has made Euro Disney more expensive for visitors from Great Britain, Spain and other nearby countries. So for Euro Disney, it would be good news if the franc continues its recent weakening, said Richard D. Nanula, chief financial officer.

That, indeed, is the likely outcome of Europe’s new currency regime.

Sun Microsystems

For Sun Microsystems, the world’s biggest maker of computer workstations, the alarming prospect of further currency fluctuations in Europe--a market that accounts for a quarter of the firm’s annual revenue--is not without its bright side.

“If in the long term this gives France the opportunity to reshape its economy and move out of its recession, we see it having a positive effect on a significant part of our business,” said Richard Barker, vice president and treasurer. France represents about 6% of Mountain View-based Sun’s $4.3 billion in annual revenue.

In the meantime, Sun and its competitors will have to raise prices in France to offset the franc’s recent drop against the dollar, Barker said.

Like many high-technology firms, Sun--Europe’s market leader, with more than one-third of workstation sales--in the past year has suffered slower growth on the Continent as the recession weakened demand. But the industry typically thrives during even slow economic recoveries, as businesses look to automation to improve efficiency and increase output.

“It’s a double-edged sword,” Barker said, “but ultimately I’d expect to see the high-tech market benefit.”

Procter & Gamble Co.

Well before the nations of Western Europe began their march toward economic union, consumer products giant Procter & Gamble decided to operate on a pan-European basis, eschewing a nation-by-nation marketing approach in favor of a regional sales philosophy.

The Cincinnati-based firm has given some of its products European identities. Across Western Europe, for example, “Fairy” is the brand name for “Dawn” dishwashing liquid. And the strategy has worked. When P&G; releases financial results next week for its fiscal year ended June 30, it is expected to show a fourth consecutive year of big gains in Europe. European sales rose to $8.3 billion last year from $5.7 billion in 1990.

Shifts in European currency valuations are less important to P&G;, because the company concentrates on boosting sales volume while other firms focus more on revenue, said Andrew Shore, a Paine Webber Inc. consumer products analyst. “This company’s unit growth in Europe has been phenomenal and there’s no reason to believe it will slow,” he said.

Bank of America

“A no-man’s land.” That’s how John Weguelin, Bank of America’s European capital markets director, describes the European monetary situation.

BofA’s clients include American multinationals that sell, buy or manufacture in Europe--from auto makers to film distributors to insurance companies. They pay wages, buy supplies and receive payments in foreign currencies whose values can shift dramatically as the money is “repatriated” in U.S. dollars, Weguelin said in a telephone interview from London.

So it’s important that those companies--with BofA’s advice--make educated predictions on the future value of various currencies.

Clients can either buy currency on a spot basis or make commitments to buy or sell at a certain rate later, when the money actually is due to be paid out or collected.

An example: Expecting the franc to drop in value against the German mark, BofA advised German customers doing business in France to arrange to pay for goods in francs later rather than sooner. That proved to be sound advice; the franc has lost 3% of its value against the mark over the past week, effectively cutting the German clients’ costs.

For its part, BofA turns a nice profit trading currencies on its own account. That activity--combined with commercial lending, foreign exchange and corporate finance activities in Europe--contributed $71 million to net earnings in the 2nd quarter, or 15% of total profits.

Boeing Co.

There’s a worldwide slump in demand for commercial jetliners, but Europe’s recession is a particular problem for Boeing, America’s single largest exporter.

European airlines last year accounted for 41% of Boeing’s $17.5 billion in foreign sales--and fully 24% of the Seattle company’s total sales of $30.2 billion. But of the 243 new jetliner orders Boeing received last year, only about 40 came from European carriers.

“We had a very bad year in Europe,” said Borge Boeskov, Boeing’s vice president for European sales.

Europe’s recession is curbing jet travel--and, therefore, the revenues of European airlines. In addition, Boeskov said, deregulation in Europe is creating “uncertainty about what (airline) revenues will be” and doubt about whether they can afford new planes. The dollar’s strength is another worry. “I expect the market in Europe to be very slow, at least through the middle of 1994,” he said.

Times staff writers James Bates, Amy Harmon, Chris Kraul and George White contributed to this report.

Doing Business With Europe Recession in Europe--the legacy of the high costs of post-Cold War changes, high interest rates and slowdowns in the United States and Japan--has made the 1990s tough times for U.S. companies striving to do business in Europe. Recent currency chaos has only complicated matters. The dollar has strengthened lately against key European currencies, a trend most experts expect will continue. But the weakness in U.S. exports is expected to reverse now that Western European economies have unyoked themselves from Germany’s recessionary policies.

GERMANY:

Marks per dollar

Monthly average, except latest

2 marks-- Aug. 3, 1.7065

U.S. Exports to Germany: in millions of dollars

$2,500-- May, $1,643.5

FRANCE:

Francs per dollar

Monthly average, except latest

7 francs-- Aug. 3, 5.9423

U.S. Exports to France: in millions of dollars

$1,750-- May, $1,232.2