How can you prepare for leaving the EU and the difficult challenges facing the MSC industry?
Given the significance of trade with Europe and EU trade agreements, there are inevitably concerns for manufacturers and supply chains post Brexit.
According to the Office for National Statistics, UK businesses exported a total of £284.2 billion worth of goods between April 2015 and March 2016, 47.3% of which were destined for the EU. Whereas imports into the UK totalled £410.1 billion with 54.6% coming from the EU.
Free trade will of course continue until we formally leave the EU and an alternative trading relationship is established. The negotiation process will be lengthy and undoubtedly expose businesses to significant threat of disruption and additional cost, for example the UK could see tariffs imposed which both increase the cost of sourcing materials and reduce the competitiveness of UK exports.
It is important that business leaders stay alert to the potential risks of legislative change, take steps to reduce exposure to risk sooner rather than later, and work towards increasing supply chain agility in order to react quickly to change.
In the short term, our high degree of integration with the EU means trading relationships may be difficult to alter quickly. In any case, the exit process will take a minimum of 2 years, during which time all EU regulations will remain in force. In the medium to long term, it is possible that remaining EU members will take a tough stance on the UK’s access to its single market in order to discourage other countries from leaving.
However, IBISWorld Analyst Jonathan Breeze notes that any less favourable trade agreement than the one at present could potentially have a detrimental influence on industries in the EU exporting to the UK. He uses the wine production industry as an example whereby £2.3 billion pounds worth of wine is exported from the EU to the UK, while the UK exports are comparatively insignificant. It is therefore mutually beneficial to maintain the current trade terms.
Despite the uncertain landscape, with change comes opportunity. Free from the constraints of EU regulations and excessive red tape, SME’s may discover a freedom and flexibility that was not previously attainable.
Manufacturing Growth Lead Ian King suggests three ways in which manufacturers can take advantage of this time of uncertainty:
- The pound being at its lowest in recent history provides an incentive to trade in local currency and up exports.
- By focusing on personalisation and adaptation of products rather than volume.
- By using continuous improvement strategies to remain agile and keep UK operations strong in the face of political and economic challenges.
Ultimately only real-time insight will reveal the future impact of Brexit, nevertheless it is important to nurture relationships with our neighbours, and to ensure flexibility and agility in these uncertain times.