David Hearne, Researcher at Centre For Brexit Studies, Birmingham City University outlines how the trade ramifications of Brexit could affect you as an SME and what you can do to prepare before March 2019.
29 March 2019 marks divorce day for Britain and the EU, and much uncertainty still hangs in the air. For businesses, such uncertainty presents a certain level of risk. What will happen to your relationship with suppliers? How will the economy and the possibility of a devalued sterling affect your overheads and business costs? How will your supply chain change post-Brexit? All of this uncertainty and risk makes Brexit a harbinger of change and cost for businesses. It remains to be seen what kind of deal we will leave the EU with, but the departure is sure to evoke changes to the way businesses operate, especially if they are part or product of a supply chain.
According to the Federation of Small Businesses (FSB), of the UK’s small businesses that export and import goods, 92 percent export to Europe and 85 percent import from EU countries. With so many UK SMEs engaging trade with Europe, major changes in the trading environment are bound to present certain challenges.
So we know a change is coming, but the question is exactly how much change? The effects of Brexit on trade and the supply chain will depend entirely on what kind of deal is struck with the EU, as well as trade arrangements with other countries. In the immediate term, the question is ‘what will happen to the proposed Withdrawal Agreement?’ If it is agreed and ratified, the UK will have a further 21 months of ‘business as usual’, allowing SMEs more time to prepare. While we can’t predict our ultimate post-Brexit Future Partnership deal, we can hypothesise what some of the potential pinch points might be.
Currently, importing and exporting goods to and from the EU is a quick and easy process with few checks, but this will change if we’re no longer a member of the Customs Union and European Economic Area. The moment the border between the UK and the EU becomes unpredictable because of increased checks and admin at customs, it could become a problem for your supply chain or product. For example, at the moment you can order a part from the continent and know within 12 or 24 hours you will have that part. The speed of this process could dramatically decrease due to increased friction at the border, which in turn will affect a business's costs.
The possible cost of Brexit to businesses depends on a number of factors, including whom the business trades with and what industry they are in. Some potential costs include:
Delays at the border - If there is a border delay, where drivers are held up for two hours on the M20, that’s two hours where you’ve got to pay a driver. If delivering refrigerated goods, you have to keep the engine going, which means fuel costs will rise. All of this adds friction, increases costs and poses challenges for the businesses involved.
Tariff costs - In the absence of a deal between the UK and the EU, the UK would then be required to follow World Trade Organisation rules on tariffs, meaning it could cost more to import and export certain goods.
As a business, you may not have any obvious links with Europe from a trade point of view, but that doesn’t necessarily mean your supply chain is free of dependence on the European Union. One thing we say in business is ‘know your suppliers’. It’s one thing to know who supplies you, but do you know who supplies them? It may be that your tier 2 or tier 3 suppliers source from Europe, which may mean some form of service interruption or cost increase post-Brexit. As with preparing for Brexit as a whole, knowing your environment and how it will be affected is the best way to minimise any negative impacts.
Forewarned is forearmed when it comes to Brexit. Having an idea of if and how you may be affected whatever the outcome of the negotiations is the key to avoiding any potential downfalls. Some businesses are beginning to consider possible action plans in the case of a hard Brexit. BMW Mini, for instance, has moved their annual factory shutdown period. Instead of doing it over the summer, the shutdown will take place in April in order to give them time to assess the disruption of a “no-deal” Brexit.
While some businesses have been proactive, we have seen evidence of “wait and see” attitudes. SMEs may have less capacity to tackle all the issues Brexit could bring. They’re too busy running their own businesses or they think whatever happens there’s nothing they can do. Our message is you can do something, and it’s a question of what concrete steps you can take. What impacts can you predict and what can you do now to prepare for those impacts?
While all of the credible academic research concerning trade states that the costs of Brexit will outweigh the benefits, this doesn’t mean that all businesses will be hit equally hard. Some businesses will have more ties to Europe than others and these businesses will need to assess their options. Businesses who mainly deal outside of the European Union and aren’t hit by supply chain issues could benefit if there is a fall in the value of Sterling in the event of a “no deal” Brexit. This means that British goods will be cheaper abroad, leading to a boost in exports. The Brexit clouds may be laced with silver linings for some businesses, which will become easier to identify the closer we get to March 2019.
Simply put, Brexit is a risk management problem. Like all risk management problems, there’s a spectrum of outcomes based on the variables of your business or industry, which is where the expertise at Birmingham City University’s Centre for Brexit Studies can help. We can help you identify the challenges in your environment, which you can use to help mitigate any potential issues.
We’re able to work directly with your business to address your individual organisational issues and help you achieve business growth while the Brexit negotiation process unfolds, domestically and internationally. For help and advice please contact Centre for Brexit Studies and to attend one of our Business Breakfasts and other events, keep an eye on our events page.
David Hearne joined the Centre for Brexit Studies (CBS) in 2017 as a researcher, having previously worked as an economist at the Midlands Economic Forum. His primary research interests lie in regional economics and the regional impact of Brexit. CBS is a research centre which explores all aspects of the UK’s departure from the European Union. It promotes rigorous engagement with the multifaceted aspects of the “Leave” and “Remain” perspectives in order to enhance understanding of the consequences of withdrawing from the EU.