KEEPING up with the latest surveys of business confidence post-Brexit is a fool’s errand: every day brings a fresh set of barometer readings from across the economy, many of which seem to contradict the last.
While the more hyperbolic ‘apocalypse now’ scenario painted in the immediate aftermath of the vote appears to have evaporated, there’s no doubt many businesses remain unclear on what comes next.
For what it’s worth, various bodies – from the CBI and BCC to sector groups – have come out with their wishlist of Brexit measures. Top of most lists was simple: retaining the benefits and ease of UK-EU trade that businesses gain from the Single Market, while assuaging political concerns that the big Brexiteer ambition – curtailing unfettered immigration – is delivered to the satisfaction of the 52%.
Achieving that, of course, won’t be easy.
For now, the experts are largely prescribing similar medicine: avoid knee jerk reactions, review scenario plans, consider new opportunities, form cross-functional teams and open dialogue with suppliers, customers and other partners.
Lisa Callinan is research director at Gartner. She says that many companies have put major investments on hold until trade agreements are known, as they face up to the need to formulate plans for a post-Brexit future.
“Of course there’s no doubt that the financial and services industry makes up over 80% of UK GDP, so it is likely have a very strong lobbying influence. And the industry will strongly favour retaining access to free market and financial passporting rights along with free movement of people.”
Whatever the plan she says, FDs will need to consider a range of factors:
- Border controls: Potential increase in admin and costs for customs clearance activities as well as delays in the physical movement of goods.
- Network Design: Little change for companies that already have centralised hub and spoke distribution located on mainland Europe.
- Capability development and resourcing: Begin thinking about how customs clearance processes will be managed as part of scenario planning.
- Evaluate the potential impact on human resources and access to talent as part of scenario planning.
Eliot Wells is FD at MLM, a £30m turnover multi-disciplinary engineering and construction consultancy. He says that, so far, reaction has been mixed. “We had seen a slow down in decision-making in the build up three months prior to the vote in any case,” he says, admitting that he, like many others, had not anticipated the leave vote.
“Post Brexit, some jobs have gone on hold and some have deliberately been slowed down by clients/investors. The level of new opportunities has been strong though – at the moment we don’t know if that’s due to our extra marketing efforts pre/post-Brexit or the market in general.”
That uncertainty is reflected across the UK, but Rick Cudworth, who heads up Deloitte’s Brexit Centre, says FDs can begin to assuage some of that by taking a few simple steps: “We recommend using a WTO scenario for impact analysis and planning purposes,” he says.
“This reflects the most potential business change if there is a ‘hard landing’ and will help FDs understand the key issues and when you may need to make decisions. On this basis, the key questions businesses should be asking are:
- What would I need to do to either maintain a right of access to the market, or maintain profitable access to the market? This should include looking at key investment decisions that maybe looming.
- If I need to make changes, at what points will I need to take key decisions and how sensitive are these to other scenarios?
- What information will I need to help make the best informed decisions at the time?”
But there’s no doubt that whatever concessions the UK’s negotiators manage to secure, structurally the UK will face challenges. The country is not in the ideal geographical position to be an attractive proposition for centralizing inventory for Pan-European supply, for instance.
In addition, the result will almost certainly result in added supply chain and logistics complexity as companies spend months disentangle supply chains, with many perhaps opting instead for EU-specific supply chains alongside separate ones for non-EU countries. Alongside that there is also the question of duties for U.K.-manufactured and EU-manufactured goods, and how these duties will be applied.
For Elliot Wells, the focus is now on the medium to long term: “As the FD of a growing profitable business I need to ensure the mix of operational and strategic decisions of the business to ensure the best outcome for stakeholders in the short medium and long term,” he says.
“One area we are keeping a close eye on is Ireland, we currently have a small office in Dublin and may look to expand here to maximise our EU presence and maximise the possible relationships with some of the large multinationals that have offices there.”
Cudworth agrees that no options should be off the table. “The key now is to have looked at this in a robust and measured way so that you have a clear plan where needed and are able to communicate this to relevant stakeholders,” he says. “This will in turn increase confidence and enable decisions to be taken at the right time. Simply saying I’ll ‘wait and see’ isn’t the best answer.”
Trade deals – the 5 possibilities in a nutshell
UK could join both and enjoy full access to single market, provided it accepts EU regulations and standards.
Example: Norway, Iceland
Sticking point: free movement of labour, if not people, is an intrinsic part of EEA
Goods travel tariff-free between UK and EU.
Sticking point: Many areas of the economy – notably financial services – unlikely to be covered
Bilateral accords +EFTA
UK agrees trade deals for each sector, free of many EU regulations currently in place
Sticking point: Not full access to single market
One deal to rule them all, with a single comprehensive treaty covering all areas of UK-EU trade
Example: Mexico-EU currently share this arrangement
Sticking point: Any access to single market likely offset by close political ties – and movement of people – remaining in place
The default option – no need for negotiations as UK and EU revert to basic WTO rules
Sticking point: UK leverage is decreased by acting solo.
Karan Lal of REL explores the impact of Brexit on working capital, and how businesses can adapt to a new economic environment in the UK
Anoop Kang will join the specialist child education and behavioural health services provider in July
Ex-Wolseley UK FD joins company behind Very.co.uk and Littlewoods.com
Live webinar to take place on 21 February at 2pm