Leveraging Supply Chain to tackle Brexit: Opportunities and Challenges for Firms and Industrial Strategy
Brexit has brought about one thing that businesses don’t like – uncertainty. Many firms are unprepared for Brexit, which in part reflects the lack of transparency on what the final deal between the UK and the EU is likely to mean in practice for business. Moreover, a recent report revealed three-quarters of UK automotive firms fear a no deal Brexit. The industry imports 80% of its components from the EU, and a no-deal will impose significant costs through new tariffs and customs checks. To mitigate such risks, several firms have begun to relocate operations to the continent. Eisai, a Japanese pharmaceutical company has moved several of its facilities from the UK to Germany. The company is also stockpiling six months of supply (both in the UK and Europe) to ensure availability of its medicines post-Brexit. This has resulted in a twofold increase in its operational costs. Honda and Nestle have both adopted similar costly strategies.
In order to address these concerns, the UK government has advocated businesses start to re-configure their supply and begin to look towards local sourcing. However, in reality the situation is more complex. Implementing a local sourcing strategy will require significant investment in new capital equipment and skills within UK based supply chains, since many UK SMEs – particularly in the regions – suffer from low productivity and are ill-equipped to take a bigger role in domestic procurement. Securing this investment will be challenging, especially since UK SMEs already face significant credit constraints and have weak cash flows exacerbated by late payments from buyers; on average UK SMEs are owed £80,000. Moreover, many UK SMEs benefit indirectly from EU Structural funds, such as the European Regional Development Fund (ERDF) and European Investment Fund(EIF) that support business incubation and entrepreneurship; access to this funding pot will end post 2020.
Pleaes find the full article by Professor Jens Roehrich and our Research Fellow Jas Kalra, as well as Dr. Tomlinson here.