Am I Alright Jack? The Domino Effect of Brexit

Businesses that trade heavily within the EU are sure to be concerned about what impacts a UK withdrawal from the European Union may have. But what if your business only sells to or buys from the UK, or countries outside Europe?

You might be sitting there thinking “I’m alright, Jack, it won’t affect me.” However, the reality is that Brexit would have implications even for those businesses that don’t deal directly with the EU.

Chain reaction

Even if your company does not do business with EU countries, there is a high chance that you have suppliers or partners who do, so any effects on them will also have a knock-on effect on your business. This is particularly true in certain key exporting sectors where there are long European supply chains and the impact of Brexit would be most felt, such as the automotive, chemicals and financial services industries.

As an example, if you’re a car dealer selling in the UK, the cars that you’re selling probably contain parts that were manufactured in the EU or the car itself may have been produced in Germany, France or Italy. At the other end of the supply chain, parts manufacturers may only sell their products in the UK but those parts could be used for vehicles that are then exported to the EU. If UK car exports take a hit as a result of higher costs and tariffs following Brexit, then this is going to be felt throughout the supply chain.

Changing the rules

Likewise, UK businesses that rely on EU-based suppliers would face growing complexity in dealing with them due to new regulatory and administrative procedures that Britain would face as a non-EU nation. This could result in them having to find other suppliers elsewhere, which could even have an effect on customers who may have to wait longer or pay more for their products.

Departing customers

There are around 2.4 million nationals from other EU countries currently living in the UK, who are all consumers of products and services for British businesses. If the country votes to leave the EU, what happens if a lot of those citizens leave? This could be particularly significant for certain businesses who sell proportionally more to EU citizens than Brits, such as lettings agents in London where a large proportion of renters are migrants. It is also likely to impact on subscription based service providers such as TV, mobile phone networks and broadband providers who will see a significant dent to their customer base if EU residents in the country choose to leave the UK.

Buy British

On the other hand, this disruption to the EU supply chain could provide a boost to British producers. If Brexit increases the costs and complexity of buying and selling in the EU, it could cause a shift in the economy towards home-grown goods, particularly in consumer markets such as food and drink. For example, the UK is currently one of the biggest importers of wine in the world, with a large proportion of wines in supermarkets coming from countries such as Spain, Italy and France. Since you don’t have to pay duty on alcohol brought in from the EU, it would almost certainly be more expensive for retailers to important wine from Europe if the UK was outside the EU, boosting sales of British wine which of late is enjoying a better reputation.

Barriers to entry

While UK businesses would face potential barriers to EU markets such as tariffs and greater regulations, Brexit would enable the UK to agree trade deals with other countries outside the EU, lowering the barriers to these markets. Open Europe points out that the Scotch whisky industry, which accounts for 25% of UK food and drink exports, currently faces a 150% tariff on exports to India, the biggest whisky consumer in the world. So while Brexit may create problems in EU supply chains, it could open up new opportunities in the rest of the world.

Who’s in your supply chain?

It’s clear that EU supply chains are important to the UK economy and that the UK has a prominent position in these chains – around half of all EU imports to the UK are intermediaries. The higher costs and barriers that Britain would face outside the EU could potentially reduce the UK’s involvement in these supply chains. At the same time, there are certainly benefits to be had from Brexit. Increasing our reliance on British products could be healthy for the economy, while trade deals with growing economies in other continents could open up new supply chains.

While the effects on supply chains will very much depend on the post-Brexit agreements that the UK makes with the EU, one thing that is certain is that the impacts and transitional period are likely to be highly complex and disruptive for your business, requiring you to prepare for a multitude of different scenarios. As a result it is critical that you use available tools to predict and model what your organisation will look like post-Brexit. By doing so you will be able to avoid any nasty shocks you’ll be inviting by falling into the trap of thinking “I’m Alright Jack”.

DataQuarks offers Brexit Analyser solution to help companies analyse the impact of Brexit and plan next course of action.

Want to access our whitepaper on impact of Brexit on a company performance? Get in touch now.
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