Dive Brief:
- Delays and a lack of clarity in Brexit negotiations are contributing to corporate unease in Europe, as many businesses work to create contingency plans in case the process remains rocky, Reuters reports.
- The number of non-British European companies expecting to relocate at least part their supply chain out of the U.K. has risen to 63% from 44% when surveyed in May, according to the Chartered Institute of Procurement and Supply (CIPS).
- CIPS notes that a fifth of British businesses are trying to secure contracts that extend beyond March 2019, when Britain is due to leave the EU. Yet, Europeans firms are reluctant to lock in suppliers when terms remain unknown.
Dive Insight:
Brexit was the first vote in 2016 to indicate a global shift away from the consensus on free trade, and companies are beginning to feel the side effects.
At first, relations were rosy if uncertain. Buyers and suppliers alike were attempting to navigate the politics of Brexit and understand how and if it would affect business relations. An optimist could argue the EU and the U.K. would retain essentially free trade, despite secession. But a year and a half later, the picture is far less certain as tensions between the island-country and the continent rise over what constitutes fair trade among two, unassociated countries.
The formal break up will not take place until 2019, but business relations cannot wait. Suppliers need certainty to plan their business, and buyers need to know where to mitigate risk in their supply chains. At the moment, relying on U.K. suppliers, it seems, constitutes a large enough risk.
"The Brexit negotiating teams promise that progress will be made soon, but it is already too late for scores of businesses who look like they will be deserted by their European partners," said Gerry Walsh, group CEO of CIPS in a statement. "British businesses simply cannot put their suppliers and customers on hold while the negotiators get their act together."
In fact, U.K. businesses are already facing additional costs as a result of Brexit. The survey found 25% or businesses with more than 250 employees have invested more than £100,000 (US$131,263) redesigning their supply chains. On a shorter term, CIPS also notes 64% of the 1,118 supply chain managers surveyed reported increased costs from currency fluctuations since Brexit. To date, only 14% of respondents said they were prepared for the effects of Brexit.
It is important to note, however, these effects may be desirable for proponents of Brexit. While non-British companies are shifting their supply chains away from the U.K., the survey also reveals 40% of U.K. businesses are replacing EU suppliers with domestic ones. If the goal of Brexit was a more localized economy, it is beginning to succeed.
Regardless, the survey provides a stark case study of the effects of shifts in trade relations. A vote, or a negotiating stance, begins altering supply chains on day one. More so, when the results are uncertain — as is the case with both Brexit and NAFTA. The survey may be focused on the U.K., but it would be unsurprising if North American supply chains, too, are already undergoing shifts.
Walsh puts it best in his statement: "While the TV cameras are fixed on Brussels, the deals which will determine the future prosperity of Britain and Europe are being struck behind closed doors in businesses large and small. The lack of clarity coming from both sides is already shaping the British economy of the future — and it does not fill business with confidence."
