How Businesses Can Plan For A Post Brexit World
10th November 2017
Brexit has been a hot topic for businesses around the world lately and recently the haze has started to clear. Many opportunities are becoming apparent for both businesses and entrepreneurs globally who can make the most of the new freedoms after leaving the EU at midnight on Friday the 29th March 2019.
British small and medium-sized businesses (SME’s) are being encouraged to refocus and compete in a different global geo-economic landscape. To make the most of these changes, UK SME’s have started to change strategy and plan to seize new global growth opportunities.
Small Businesses Are Thinking Globally
One obvious insight is that SME’s should further utilize the global reach of the internet to access new customers and improve the competitiveness of their supply chains. The focus should be applied to upgrade their digital presence, as the internet is a gateway for businesses to access an estimated 3.2 billion consumers via their smartphone or 36% of the global population.
Furthermore, businesses should consider changing their supply chains and thinking about their global reach, particularly in the context of non-EU markets where free trade deals with the UK will likely occur in the near future.
How Do Businesses Manage the Costs of Imports?
Many UK companies manufacture goods in the UK but source materials from EU countries and further afield. An example might be a UK based pizza factory sourcing mozzarella cheese from Italy. Due to the recent 10% devaluation in Sterling, importing goods has become more expensive, with the possible risk of import tariffs being applied - further increasing import costs after Brexit.
In order to mitigate this, businesses must look to source materials from cheaper overseas suppliers, or source materials from within the UK. The government may also consider reducing the tax on certain imported goods to help manage these import costs. With the UK leaving the EU, the chancellor will, for the first time since joining, be able to reduce the rate of VAT.
With this in mind, Brexit creates an opportunity to improve certain elements of a business’s supply chain. This may be, to source and manufacture locally and apply a focus on increasing quality of output or, reduce costs and overcome risks introduced by currency fluctuations.
For the moment, currency fluctuations can be managed by businesses taking out a crowdfunded loan, thus increasing working capital and hedging against potential FX movements by buying other currencies. These loans can also be used to make the investment required to enter and serve new overseas markets or migrate the supply chain to the UK. Crowdfunded loans, rather than traditional loans, bring additional benefits such as recruiting private investors to support the businesses growth and generating awareness for the business when the campaign is marketed.
What Could Be The Impact To British SME Exports?
For goods and services sold in Sterling, the lower value of the pound creates additional demand from overseas buyers. This is because prices are comparatively cheaper for buyers who transact with different currencies, such as the Dollar or Euro, when compared to before, the cost for British goods and services is now discounted 10%. This is a clear benefit for non-UK businesses who purchase goods and services from the UK.
Let’s take tourism as an example: the UK attracted the highest ever number of tourists, since records began in 2017, due to the lower value of Sterling. This brings the associated industry revenues to an estimated record value of £127bn per year. In addition, the increased number of Brits buying UK holidays gives the UK tourism industry a huge boost because of Brexit.
Another example is Rolls Royce, who are forecast to sell an additional £400m car within the current financial year due to the lower value of the Pound against the Dollar. The British car market tends to be more premium car brands which are now more accessible to people around the world due to the comparative reduction in price and this principle applies to many British high-quality brands which were previously inaccessible to most.
In addition, recent data from The Food and Drink Federation shows that sales of related goods overseas reached £10.2 billion in the first half of 2017, up 8.5% during the same period from the previous year.
As such, exports provide the biggest Brexit opportunity, with the European Commission predicting 90% of global growth over the next 20 years will take place outside of the EU. For the first time in over 40 years, Britain will be able to decide the terms with which it transacts with non-EU countries.
The quickest and easiest way to start export sales is to do so online and sell directly from your own website, using tools such as Shopify, marketing through social media, and leveraging advertising channels such as Google AdWords. Increasing online presence can be expensive; in such situations, obtaining a peer-to-peer loan through Crowd2Fund can provide the capital needed for such endeavors, boosted with the new IFISA, where £480bn of investment funds can be easily accessed by UK SME businesses.
Mark Marengo, a Saville Row tailor who has twice run debt crowdfunding campaigns on Crowd2Fund, is continuously seeking to reach new markets outside of Europe, with a current focus on Asia.
When asked about Brexit, Mark commented:
“Due to the bad situation in Europe, we have been looking now for the last four years in Asia, not Europe, so Brexit has had no effect on us.”
Marengo is confident that a new trade deal with Europe will eventually be achieved.
“I think realism will prevail and that there will be a good trade deal with Europe but that we can move faster with regard to doing trade deals with other nations that are outside the European Union.”
To help others make the most of the upside of Brexit, the Government has set up the Exporting Is Great web portal, which has a plethora of tips on the practicalities and opportunities around exporting. It is worth noting that English speaking markets should be the main consideration due to the relative ease of entry. The government has also set-up a facility of £3bn to support exporting UK businesses called the Direct Lending Facility. This innovative and novel scheme allows non-UK businesses, who are seeking to purchase UK goods or services to access capital at preferential rates.
New Free Trade Deals
Many existing EU trade deals with non-EU markets are uncompetitive for British businesses. For example, there is currently a 150% levy when selling Scotch Whiskey to India, as reported by the Scotch Whiskey association due to the existing EU to India trade deal. As such, businesses with a product for global export should review markets where trade terms could be significantly more attractive if a free trade deal with that market is to be established. Businesses should research existing World Trade Organization tariffs for their sector, which should help define their export strategies.
The importance of the ASEAN region, a trading block with 650 million individuals, cannot be ignored. Forbes magazine recently highlighted Laos and the Philippines as two growing ASEAN markets set to increase their GDP’s by over 5% in 2017. The US, Australia, Canada, South Korea, and India are all markets where there have been hints of free trade deals with the UK, amongst many others.
Entrepreneurs generally are positive thinkers and see opportunities that others may not, however, they must act now and ensure that plans are put in place in the lead up to 2019 to make the most of the once in a generation opportunity that Brexit will bring for global businesses.
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