Chris Baker, Managing Director of UK Enterprise at Concur discusses why the UK needs to present itself as a global force now more than ever
Thursday 23 June 2016 will be etched in the UK’s history as the day the country voted to leave the EU.
To say the result was unexpected is an understatement, but it was just the beginning of a number of political shocks. But as the saying goes – we are where we are – and despite many companies gritting their teeth in expectation of the worst, the UK’s economy has remained reasonably resilient.
In the latest Deloitte CFO survey, it was revealed that CFOs of British companies are at their most positive since the second quarter of June 2015.
Despite the rise in optimism, however, appetite for risk remains below long-term averages.
Since the UK voted to leave, business leaders across all sectors have been putting contingency plans forward. Whether they employ EU nationals or import or export, the top of their agendas is pretty crowded.
The government might be keen on a so-called hard Brexit, but CFOs remain wary about what this will mean in reality for their business.
A review of existing relationships
It’s against this background that we’ve begun to see a rising trend within supply chain strategies.
More and more businesses are reviewing their existing relationships and beginning to assess their global supply chain.
In many cases, they are seeking to diversify it. Some are looking at partners based in Asia, but the majority are seeking to bring their supply chain back to the UK.
There are two drivers behind this move. The primary motivating one is risk. Many organisations have complex supply chains and whilst it would seem sensible to assume that many of the thousands of EU regulations will still be in place, it is not guaranteed.
Therefore, as the market reacts to elements of the negotiations, organisations will be vulnerable to currency fluctuations as markets respond.
The impact of this could be felt twice, as headlines are driven by both speculation and fact. To counteract this, larger businesses will start to hoard even more cash reserves. Whilst it is a prudent move, it will also be detrimental to the economy.
This brings us to the second motivating factor behind a review of supplier strategies – money. Very much linked to the first point, many businesses with a supply chain outside of the UK have already found that the cost of doing business has gone up. They’ve been hit where it matters most; their bottom line.
A combination of both of these factors is leading companies to insert termination clauses in their contracts that state if there is a material impact on their business that is attributable to Brexit they have the right to terminate the contract with immediate effect.
Getting the balance right
Supply chains are complex beasts at the best of times, but in the face of Article 50 negotiations and a looming general election, it has become even more complicated.
Management teams want to protect themselves against the ongoing FX turmoil that will be in play over the coming months and years as the country seeks to redefine its relationship not just with the EU, but with the wider trading world.
At times of great uncertainty, it’s human instinct to retreat to firmer ground. But there is a balancing act to be done in de-risking the supply chain.
If companies invest more in their UK relationships, there are immediate and obvious economic advantages to be realised. For instance, if businesses invest their supplier budgets here in the UK, then jobs will be created and with it investment in skills and training. In turn, this could help boost consumer spending, which studies indicate may be declining.
Yet at the same time, we need to show to the world that we’re open for business. That we want to forge meaningful partnerships, because when we are no longer part of the EU, we will need to look further afield. We will need to widen our pool of commercial friends. When it comes to trade we cannot afford to be an island. Yes, UK companies must protect themselves and be prudent to the potential shockwaves that lie ahead, but at the same time they must do so with one eye on the long game.
British companies have a long history of succeeding in far-flung markets. Just because we are leaving the EU, it doesn’t mean that the experiences it has given us in multinational trading will be lost.
UK businesses will need to ensure that all their global experience is called upon in the coming months. For Britain to realise its vision of a post-EU economy, one where the UK is carving out new frontiers in AI, machine learning, invention, scientific research and engineering, we can’t afford to retreat too far.
It’s imperative that the optimism of the CFOs surveyed by Deloitte trickles down into all aspects of the economy, to ensure that the UK remains strong and resilient.
Chris Baker is the Managing Director of UK Enterprise at Concur