What Brexit Means for Small Business Supply Chains

By: on August 23, 2016

In June, the citizens of the United Kingdom voted to exit the European Union. Now that the initial shock over Brexit or, “British exit,” has subsided, practically every business (large and small) that trades with the UK is asking: What happens next?

 

Without going into a boring diatribe over the complexities of British nationalism and Article 50 of the European Union, the short answer is: Little will change in the immediate future.

As the UK hammers out negotiations with the EU—or leaves the entire motion to exit in limbo, as some have predicted—businesses that trade with the UK are likely bracing themselves for what is, to say the least, an uncertain future.

Keep in mind, there’s no need to panic just yet.

Businesses ought to “[avoid] knee-jerk reactions to changing processes—there is precedent to trading with non-EU member countries such as Norway and Switzerland,” say Gartner analysts Lisa Callinan, David Gonzalez and John Johnson in their report, “What Does Brexit Mean For Global Logistics?” (This content is available to Gartner clients).

In this article, we’ll be tackling some questions you might have about Brexit, including:

What Does Brexit Mean for Small Businesses?
Is There a Silver Lining?
What Does Brexit Mean for The SCM Software Your Business Uses?

What Does Brexit Mean for Small Businesses?

It’ll present challenges, but they’re not insurmountable.

To be sure, small businesses with supply chains that reach into the UK will eventually face unique challenges.

“The ramifications of Brexit are far reaching for small businesses, depending on the length of their supply chain and its complexity,” says Donna Lubrano, professor of international business at Northeastern University.

Depending on how the relationship between the UK and the EU is renegotiated, Lubrano expects the costs of logistics and distribution within and outside the EU to increase due to the imposition of new tariffs and restrictions.

“While major players can capitalize on things such as economies of scale, small businesses do not have the size to absorb new or additional costs and secondly pass that cost onto the customer.”

Donna Lubrano, professor of international business at Northeastern University

Indeed, fluctuations in exchange rates due to Brexit have already posed problems for some businesses.

Paul Healey is the owner of Noted Fashion, a clothing importer and exporter based in the UK. He says his profits have already taken a hit due to those fluctuations.

“The majority of the brands we stock are from EU countries, although there is only one that we pay for in Euros. The recent weakening of GBP against the Euro has hurt our margins directly for this brand, but we are happy to stick with it because it is such a good product,” he says.

Is There a Silver Lining?

Maybe, depending on your industry.

The general consensus suggests that Brexit will complicate trade relationships, and could adversely affect certain industries. But some businesses see a silver lining.

David Nilssen, CEO of Guidant Financial, thinks that some businesses in the United States could see a benefit from Brexit as the dollar strengthens over the pound. He notes that this could give American businesses an edge when it comes to trade, and could also be beneficial for the travel industry.

But otherwise, it’s not clear what broader benefits there are for small businesses.

“I think it’s yet to be determined whether it’s a positive or negative for our customers, Main Street American small businesses. We may have two years of negotiations ahead of us. Uncertainty spooks the capital markets.”

David Nilssen, CEO at Guidant Financial

What Does Brexit Mean for the SCM Software Your Business Uses?

Vendors will most likely make the appropriate updates.

One major selling point for many supply chain management (SCM) systems is that they help businesses maintain compliance with international regulations pertaining to quality control, accounting, product tracing and so on.

Therefore, if past precedent holds from when other regulatory dust-ups have occurred, the major software vendors will most likely be on the ball and ensure their systems are up-to-date when any regulatory changes go into effect.

But, you should do your homework too. If your business relies on a SCM system, you might want to prod the vendor about their plans are to double check that their systems will be compliant. If they fail to reassure you, it might be time to shop around.

Key Takeaways

Suffice it to say—there’s still a lot we don’t know about what will and what won’t happen with regard to Brexit. But what we do know is that the best course of action is to sit tight and take any developments one day at a time.

Here’s what some of the experts have to say:

  • “Avoid making long-range plans until the tone of the negotiations between the U.K. and the EU is known,” say Gartner analysts Lisa Callinan, David Gonzalez and John Johnson (this content is available to Gartner clients).
  • “For small businesses the only thing to do is to keep calm and carry on. Small business owners need to become more comfortable with long term uncertainty. Continuing to focus on your business, while paying attention to events as they happen, is more likely to result in future profit, than endless speculation on currency rates and trade agreements […] This may not be a fashionable point of view, but resembles the long standing investment advice to ‘buy and hold,’” says Corrie Shanahan, CEO of The Beara Group LLC, a Washington, D.C.-based international consulting firm.

Further reading:
The Economist’s full coverage of Brexit
New York Times: ‘Brexit’: Explaining Britain’s Vote on European Union Membership

Brexit still rustling your jimmies? What do you think will happen and how will it affect your business? Email me your thoughts at forrest@softwareadvice.

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