In early January, Honda announced its’ No Deal Brexit mitigation strategy.
Initially, this would lead to a 6 day closure of the Swindon plant. Initially, this is to cover the period of anticipated logistical issues resulting from problems at various points of entry around the UK.
Separately and not so well publicised BMW stated that they would switch their annual maintenance closure to April in the event of a No Deal Brexit. Jaguar Land Rover however announced job losses which were less Brexit related as they are suffering from a global slowdown in demand and a global movement away from diesel powered cars.
Direct and Indirect Effects
The moral of these announcements is that these manufacturers have all assessed the forthcoming scenarios. Indeed in the Honda press statement they stated that they were prepared for all scenarios.
The question is however whether the economy in Swindon (Honda’s base) is prepared for the impact of the closure. Whilst many businesses are stating that Brexit doesn’t effect them they will all suffer indirect effects.
What are Indirect Effects
Any action has a consequence. Be it direct or indirect. For example the recent drone incursion at Gatwick had a direct effect on the airport and flights but an indirect effect on the local economy such as the hotels. Thus, there was a build up of population which had restricted ability to travel away from the immediate locale. This created pressure on hotel rooms resulting in increased prices (allegedly) and increased revenue for local restaurants and pubs.
The indirect effects are usually difficult to assess as they could go on for long periods. How do you assess the indirect impacts of a natural disaster? Loss of power in Peurto Rico following a hurricane continued for months which had a long lasting effect on the economy.
Indirect Effects of Brexit
We can anticipate some events as a function of Brexit e.g. exchange rate movements and postulate about others e.g. legislative changes. So in the words of Donald Rumsfeld we have the known unknowns.
For example, these would include the exchange rate. The anticipation is that in a no deal Brexit the exchange rate would weaken by 7-10%. Unfortunately, for example, oil is priced in dollars so immediately we will have a hit in terms of commodity prices. Therefore anticipate fuel prices at the pump to increase. Other commodoties and imports may well be priced in non sterling currencies when imported so most imports will naturally increase in price.
In addition, Tariffs are anticipated to change as a function of no deal. Obviously, this will be a direct effect. Logically, it is assumed that we will switch to WTO terms. However, the major change is that goods imported from the EU which account for around 44% of our trade will suddenly be around 5-10% more expensive before foreign exchange effects are considered. The indirect effect of the tarriff change is the consequential effect on consumers. As naturally through Brexit things become more expensive people will have to make consumption choices which in turn will effect retailers and their supply chain.
A lot of people are advocating that Brexit will create new opportunities for new trading relationships. Naturally, this is a correct statement. Unfortunately there is a finite supply of goods so all we are doing is trying to move from one market to another market. It will be a while before the impacts of the structural changes of where we get supplies from become clear.
Some industries such as agriculture may well benefit from a Brexit departure as it would allow the UK to move away from the Common Agricultural Policy.
SME’s may not have as many resources as large multinationals however they are more nimble with their decision making. That said, the level of planning for Brexit amongst SME’s is frighteningly low. We have been told by people that it won’t affect them or that theres is nothing they can do. Neither of these statements are correct. If you introduce a droplet of ink to a container of water, eventually that ink spreads to the whole of the water. Similarly, whilst Brexit may directly effect one part of the economy it will have a knock on effect throughout the whole economy. During the 80’s it wasn’t only the mines that were closed in South Wales, Nottinghamshire and Yorkshire but entire communities.
What Can You Do For Your Business?
In order to be prepared for an event you need to understand the nature of the threat it poses. Thus, by identifying the core risks you can then start to mitigate them.
Furthermore, by looking at your business as a whole it will serve as a great exercise in understanding the tensions within your organisation and how best to manage these.
The British Chamber of Commerce identified potential areas of exposure as follows
- Cross / Border Trade
- Intellectual Property
- Data Protection
In addition, to the above we would add the following
- Travel & Overheads
- Stakeholder Impacts
- Customer Impacts
For example, analysing your customers to determine who may be affected by Brexit may assist preparation. Mitigations may include a demogrphic analysis of customers to determine which customer segments are most at risk. Once identified consider whether you can cover any potential loss of demand from these customers from elsewhere within your market.
Whilst such a piece of work may sound problematic, the results will be worthwhile.
Still unclear as what to do or simply want assistance?
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