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The Labour Party wants to fix Brexit, the Liberal Democrats wants to stop Brexit and the Conservatives claim they want a free trade agreement signed by the end of 2020. In addition to this, the Chancellor of the Exchequer Sajid Javid revealed that U.K. traders will be affected by changes made to customs procedures after the General Election.
Considering Brexit uncertainty, Grant Thornton surveyed 300 mid-market U.K. businesses who are currently operating internationally and 91% revealed that they would do things differently if they could start again. While hindsight is a fine thing, four in 10 agreed that the top thing they would change is to develop plans that go further into the future.
I spoke with Simon Littlewood, Partner, Growth Services at Grant Thornton about how U.K. SMEs would trade internationally differently if they had the chance, how difficult it is for businesses to get it right the first time and advice for preparedness.
Contingency for the unexpected
In addition to planning for the future, U.K. SMEs wish that they had built strategies that plan for appropriate contingencies and ensured that domestic strategies are appropriately resourced. Littlewood highlights that preparing for the unexpected is “intrinsically linked to the need for exit strategies.”
Over 75 percent of respondents to the survey said that they now have an exit plan in place when entering new markets and 80 percent revealed that they are now developing contingencies.
Littlewood explains examples of where an exit plan should be made could be “agreements for local distributions, manufacturing or even for sales and marketing support. Setting up any contract or agreement in a new market with a clear view of how it might end is essential.”
He continues: “Experienced traders also know that strong domestic operations form a vital platform for international growth. We sometimes see businesses looking into new territories as the solution to or as a distraction from long-term or endemic problems in the core business.”
In addition to this, stable and properly resourced domestic operations will provide successful growth in new markets. While this may not have the same return as international trade, it will ensure that “if things don’t go quite to plan in new territories, or additional investment is required in terms of time or finance, that you have somewhere to turn.”
Your Brexit checklist
Littlewood states that 73 percent of participants said that the U.K. is more concerned about Brexit than the rest of the world, which is unsurprising. “The uncertainty of political turmoil of this kind of course makes planning unpredictable. Most often, the businesses enjoying strong growth have been trading internationally for many years are capitalising on that.”
As detailed in Grant Thornton’s ‘How to cover the bare essentials of Brexit planning’, there are three essential considerations that must be included in a Brexit plan.
1. Compliance: Your organization, products and services must comply with new rules and processes that could follow a no-deal Brexit as has been detailed by the U.K. Government and European Commission, ensuring that you are aware of their implication on your business.
2. Continuity: Disruption must be minimized during Brexit by understanding that EEA citizens living and working in the UK will now have a right to remain and work in the UK after Brexit. While they should apply for ‘settled status’ to secure their legal right to remain, employers should expect a growing skills gap and a tighter labor market in a no-deal scenario. Movement of people on assignments between UK and EU will also require new processes.
3. Cost: Action must be taken to mitigate costs and protect cash in a no-deal scenario as imports from the EU will incur tariffs and new customs procedures; all imports will now be eligible for deferred VAT.
Localization
Littlewood concludes by reiterating the importance of understanding the value of your product or service to local customers when building presence in a new market.
“Alignment is also important in terms of local culture. For example, a company looking to sell services in Texas, USA will have more success where the salespeople are Texan locals than if the sales team are brought in from the UK, or even from a different area of the States. Similarly, in China there are cultural nuances about how business is done, meaning that people with local knowledge and contacts have a major advantage.
“Tailoring for local customers is also vital as buying habits differ from market to market. For example, in India people prefer to buy sample-sized toiletries given the lower purchasing power in the country – requiring fundamental changes in packaging for Western manufacturers,” Littlewood concludes.
