A Brexit deal is 'almost within touching distance', according to Cabinet Office minister David Lidington interviewed on BBC Radio 4’s Today programme. What will this mean for UK businesses?
Without knowing the exact bend of the curve, companies, small and large alike, need to look to their supply chains to stand any hope of ensuring a continuous flow of goods, services, labour and capital. It comes as no surprise that product-based firms, for example, manufacturers and retailers, rely heavily on their supply chains that include European suppliers. Brexit will inevitably disrupt these supply chains and damage our already under-performing economy, leading to inflation and potentially recession.
Beyond the stories of companies that are already Brexit stockpiling, professional and financial service firms, which constitute a £188 billion sector, will be one of the most affected by Brexit. The UK professional service firms deliver about £66 billion worth of services to companies outside the UK. Brexit could massively affect the bottom line of these companies.
Firms are anxiously waiting to hear whether the Brexit deal will include equivalence rules to make it easier for non-EU financial institutions to operate in the single market. In simple practical terms it stands to reason that travel restrictions will hamper a company’s ability to to fly professionals in and out of the EU without repeated VISA application procedures, limiting their capacity to deliver services to European clients or support UK businesses based in the EU.
To survive in this immensely lucrative, but competitive market, moving operations outside the UK together European countries becomes an option. Some early signs of this ‘Brexodus’ are already showing. A leading multinational bank moved its head office and central procurement department to two European countries, taking jobs with them. The ease of moving a service firm with low fixed assets, compared to a manufacturing firm, could make this the norm. The risk of reduced UK operation of a sector that contributes to 80% of UK’s GDP should be a cause of immense concern.
Despite the uncertainty of what lies ahead, organisations need to urgently and clearly review and evaluate their various supply chain collaborations, both up and down-stream, in terms of their dependence and integration with the EU/common market. Preparation, data gathering and analysis is key. Organisations need to clearly map out their supply chain in order to identify all their suppliers and relationships. Working together with key supply chain partners is vital to jointly address possible hurdles.
Organisations need to think more carefully about national, British organisations at their disposal. The problem is that more than 90% of organisations are small and medium-sized enterprises (SMEs). These SMEs can deliver on a small scale, but can they replace their European counterparts, who were supporting the operations of a myriad of British organisations? This is a difficult task, though certainly not impossible. Hinkley Point C, for example, has integrated local SMEs in their supply network by getting them to enter into consortia and joint ventures with each other.
Each individual key supply chain collaboration should be ‘stress-tested’ by clearly analysing possible risks and their impact on the supply chain. Where significant linkages exist, businesses need to be sensitive to a number of issues: time delays, for instance, through border check disruption in the short term, as well as greater bureaucratic hurdles ; price increases due to, for instance, increased costs for logistics, warehousing and labour; and risks from divergence in standards between the UK and other EU countries. In circumstance where sensitivities are significant, businesses need to explore ways to restructure their supply chains to ensure risks are absorbed or mitigated.
In short, if firms of all sizes are to weather the challenges ahead they need to be proactive in terms of sustaining and developing relationships with partners in the EU, understand risks and challenges in their whole supply chain and work closely with their key supply chain partners.