The Business World: Staying strong is not the weakness it seems

THE BRITISH have come to like a strong pound. There is an obvious practical reason for this: it is great for those of us who are heading off on holiday. But there may be something deeper as well. It is not just that it is nice to be able to order a meal abroad and feel you are "saving" money. A strong currency may generate a general sense of economic well- being. We instinctively recognise that the money we are paid for work has a value throughout the world. Our savings are more valuable in global terms too.

Contrast this with the gloom people used to feel when there was yet another devaluation of the pound - or the widespread view that sterling's ejection from the European exchange rate mechanism was the key event that fatally undermined the Tories' chances at the last election. If the votes are in favour of a strong pound, commerce and industry will have to learn to live with it. Governments cannot control the level of sterling with any precision, but while we retain the pound they have a strong electoral incentive to try to ensure it remains pretty strong. The only safe assumption for British business is that the pound will remain relatively high.

Bad news for business? Well, not necessarily. For a start, the strong pound is a symptom, in part, of a strong economy. Yes, growth fell back over the winter, but now it seems to have recovered, and forecasts for this year are for 1.5 per cent growth, with maybe 3 per cent in 2000. Exporting may be difficult, but there is the prospect of reasonable domestic demand. For most firms that is better than more profitable exports and a slump at home. But there are undoubted pressures. In as far as it is possible to generalise, what should businesses do to offset these?

The trick, as a general principle, is to turn a potential problem into a competitive advantage. German industry has been brilliant at using successive revaluations of the deutschmark to find ways of cranking more productivity out of workers, or adding value to products so they can justify their high price. It feels counter-intuitive but the higher the level of productivity, the easier it is to increase productivity still further. The reason is that once a culture of increasing productivity is established, that culture will continue to deliver results. If, on the other hand, there is no culture striving to boost productivity, it is hard to establish one.

But where do you begin? Here is an inevitably crude 10-point plan our business world might consider adopting:

One: Accept that sterling may strengthen over two to three years and look at the impact on the business of a pound that is, say, 10 per cent higher than today. Shocking? Well, not so shocking as some blows that have hit companies. I remember, 25 years ago, a director of an oil giant saying the first thing they had to do when the oil price was quadrupled was to work out whether they were bust or not.

Two: Identify which markets will remain profitable. Focus attention on those which will still produce a reasonable return, and have a fall- back plan to mark time in those which won't. Do not attempt to rebalance the business yet; simply be ready to do so.

Three: Look at ways in which an even-stronger sterling will save money. Obviously, the cost of imported raw materials and components will decline. Liaise with UK suppliers to make them aware of the danger and encourage (even bully) them into lifting their game.

Four: Capture that elusive culture of increasing productivity. I suppose the clue should be to make doing more with less an enjoyable challenge rather than a grinding chore. At best it can almost be an intellectual challenge to find the elegant solution to a problem - using the intelligence of a few people instead of the weight of the many.

Five: Be nimble. Since we cannot know what will happen to sterling - what does happen will be as much a function of the dollar as anything we do - planning to cope with currency swings requires agility. Can a downward blip of the dollar be turned to advantage? Or an upward one of the yen?

Six: Charge more. No wise business suddenly sticks up its rates, but wise businesses can and do develop products or services which can justify the higher price tag. For example, by attaching service to products (and sometimes, products to a service) some companies can justify a significant premium over others which merely sell the commoditised product. You can charge for service in a way that it is hard to charge for product. If the service is really crackingly good, then the reasonable prem- ium is felt by customers to be money well-spent.

Seven: Use English. We are lucky in Britain in being surrounded by the global language. This gives a potential for many businesses, particularly those in the service sector. Demand for English- language information products is soaring, and people familiar with the language find it easier to create the information and education-based packages the market wants.

Eight: Use technology. We are in the middle of an extraordinary boom in electronic communications technologies, the sort of technical change that occurs only once in a generation. Astute business managers can use this to combat other cost pressures, create new business lines, get closer to customers and so on.

Nine: Recognise there will be one crucial benefit associated with a strong currency, low long-term interest rates. Short rates will continue to swing around in response to the strength of the economy. But long rates will continue to be far lower than anything most of us have experienced. Cheap long-term money makes it possible to finance long-term projects and to build quality into products.

Ten: Recognise a strong currency is likely to be associated with zero inflation. Not 1 per cent, or 2 per cent annual rises in prices, but zero. Adapting to zero price rises is perhaps the greatest challenge for a generation of business people who have known only inflation. The only greater challenge would be if prices were to start falling steadily - but let's leave that possible problem for another day.