This topic was revisited for an article which appears within the ‘Imperial Business Intelligence’ web section.
Businesses in the UK are focused on being successful and appreciate that the result of the Brexit referendum has created significant uncertainty. There are a myriad of challenges ahead, but of course there will also be opportunities. The UK Government, the European Commission and the governments of the EU27 will begin their discussion and negotiations about the future relationship of the UK and the European Union, in earnest after the UK election. UK based businesses must do their best to interpret the situation, assess their own position within it and construct (flexible) strategies.
Stock markets have performed strongly since the June 23 decision, with both the FTSE 100 having gained approximately 18% and indeed the more UK focused FTSE 250 also having gained approximately 14%. Sterling has gone the other way, with EUR/GBP -11%, USD/GBP -12%, CNY/GBP -8% (figures from week commencing 22 May).
The IMF upgraded its 2017 economic forecast for the UK, but downgraded the one for 2018. Inflation is running at 2.7% and expected to go higher during the course of 2017, though perhaps peaking in Q3.
The negotiation process proper will commence soon and commentators regularly provide a range of stages and outcomes. These may include, but are not limited to: a quick agreement (within the initial 2 year window), an extension to the negotiation period with an accompanying transition agreement, a ‘cliff edge’ (sometimes called hard-Brexit or clean-Brexit) scenario where no deal is concluded and WTO regulations come into play.
At the same time conversations will proceed with non EU nations about trade links post Brexit.
Scenario planning for many businesses will look at future trading in goods & services with the EU. There are many challenges and these will manifest themselves differently for each business; including in which sector(s) they operate: financial services, hospitality, farming, manufacturing etc. Some of these challenges may be the availability of talent, intra-company transfers, equivalence of regulation, role of the European Court of Justice, potential tariffs, non-tariff barriers & the enforcement of contracts.
The EU has recently set out its current approach to the negotiations; the UK Government has not. It would be helpful for companies to know more about the Government’s negotiating priorities to better inform their own decisions. Positive consultation and engagement needs to be at a continual feature of the relationship between Government and the business community.
The UK Government must build up capacity, not only to negotiate with the EU and non-EU countries, but also to plan and later manage the repatriation of duties and powers e.g. customs regulations and product certification.
There may be an opportunity to begin to trade with, or increase the level of trade with countries outside the EU. Some companies are already scenario planning and asking what they need to have in place e.g. knowledge of the market, partnership agreements/JVs, knowledge of ‘how to do business’ in ‘new markets’, intellectual property, logistics etc. Trading may include with the nationals & companies of these countries in the UK as well as in the non EU countries ‘overseas’.
Having just returned from a business trip to Thailand and Malaysia there is great interest in Brexit. There are two main strands to the questions. What is going on and what will actually happen? What are the opportunities and challenges for our companies regarding future business with the UK? These are questions also being asked by international diplomats in London, including those from EU countries.
Businesses should scenario plan as best they can for the above and the associated twists & turns that will occur as the negotiations and discussions move forward. Companies may complain that it is a moving kaleidoscope of challenges and opportunities, and much energy and resource may be wasted considering variants that may not occur. Perhaps best ‘to wait and see what happens’.
Leaving aside the duty to shareholders and stakeholders, companies that do not actively consider the implications of the Brexit negotiations may leave themselves open to threats to their continuing existence. At a basic level companies should assess their own connections with the EU, including the supply chains of themselves and their partners. Further and perhaps as a baseline, companies should assess what their position might be if there was a clean/hard Brexit.
At the same time a business that does not assess its present and future position(s) may miss out on potential opportunities.
To borrow from Deng Xiaoping, companies should look to ‘Cross the river by feeling the stones.’
David Stringer-Lamarre