UK plc is feeling uneasy.
Brexit is only a few weeks away, and the general feeling among Small to Medium-sized Enterprises – SMEs – is that of being caught up in a surreal dream, if not an outright nightmare!
Most of the talk and planning has centered around larger business and corporates, while the specific concerns of SMEs have been largely overlooked.
Most SMEs do not have the luxury of the operational “padding” and economies of scale enjoyed by larger, more robust, businesses and they have been calling for the need to minimize the disruption and upheaval caused by Brexit. Together with the rest of the UK, they are all still in the dark, and wait to hear of news – any news – from Westminster…or Brussels.
So, just a few weeks away from a hard or soft Brexit, in reality, what can a SME look to put in place to act as a safeguard against the Brexit shocks?
We took a snapshot of general viewpoints across…
The end of free movement for Europeans and tighter immigration rules post-Brexit will impact small and micro businesses if they are reliant on foreign nationals, especially if operating in industries such as hospitality, food and drink, and professional/financial services. According to figures released by the Chartered Institute of Personnel & Development, between the first quarter of 2016 and the first quarter of 2018, there was a massive 95% fall in EU nationals joining the UK workforce. During 2018, many employers experienced issues recruiting and retaining staff.
Proposals for new immigration systems and visas will ease these difficulties in the long term. In the short term however, most businesses have put recruitment on hold and are trying hard to keep their staff in place. Home-grown talent will take time to train, and this isn’t helped by the fact that many Millennials and Gen Zs do not wish to apply for such jobs.
Although the brakes appear to have been applied to the UK Economy since the Brexit vote, happily, most firms have forged ahead with their own growth plans. UK SMEs make up 99% of all UK firms and as Deputy Director Mark Hart of Enterprise Research Centre wrote: research is showing that the most innovative firms are finding ways to grow despite shocks to the economy – chiefly by focusing on their productivity and looking to export markets to provide new opportunities.
The International Monetary Fund has predicted that the UK will continue to grow at a rate of just above 1.5pc in the coming years post-Brexit …but its forecast is based on the assumption that the UK does not crash out of the EU, but has a broad free trade agreement in place.
In the meantime…the Centre for Responsible Banking and Finance at the University of St Andrews believes that SMEs will be impacted negatively, especially the high-productivity, export-oriented and import-oriented firms. Areas such as customs procedures, immigration rules and new sector-specific regulations are critical for SMEs to plan and continue operating.
There is a Brexit silver lining that should realise opportunities for SMEs. While some SMEs are spreading their bases and opening offices in the EU countries – making it easier for them to tap new markets and access new talent pools – others are exploring international markets further afield. It is worth pointing out that many small businesses will need more support from government before they consider exporting.
With digital trading forming a large part of the small and micro business DNA, many believe that they are already tapping into those markets, albeit on a micro-basis. Whether it is a start-up, scale-up or lifestyle business, Brexit has not stopped their progress, but it has affected the number of awarded contracts/tenders with larger companies that appear to be adopting a wait and see approach to engaging SMEs in their supply chains. It may be anecdotal, but many SMEs have remarked on this during this past year.
In the long run, as we stated above, trade is the silver lining – especially as UK goods and services continue to be sought after across the world. As the government reported, in 2017, the UK exported around £342 billion to non-EU countries and a further £274 billion to EU countries. As of June 2018, the UK’s exports were up 4.4% compared to the same period a year previously, with the trade deficit narrowing by £6 billion over that period.
The issue lies only in the speed with which the Government will have new trade agreements in place for Europe and other countries. Most SMEs tend to export to their goods and services close to locations near where they operate, which means they are still far more likely to target EU countries than more distant markets such as Africa, Brazil and China.
A post-referendum survey of SMEs by PWC highlighted that for SMEs, trade deals and market access are more important than immigration targets, or environmental legislation and emission targets. Two thirds (66%) of firms say Westminster should focus on agreeing continued access to the single market, while 62% also want trade deals to provide access to non-EU markets – singling out Germany as the top priority EU market for 67% of SMEs with the next preferred export markets – France and Ireland – lagging well behind and favoured by only 5% and 3% respectively.
The only way SMEs can emerge on the Brexit winning side is if they try to reduce their risks and plan to maximise any arising opportunities. That however takes time and planning, and as the CBI’s Brexit survey in November 2018 revealed, fewer of its smaller members had undertaken any scenario planning than their larger counterparts (44% vs 76%).
Come April, planning, an agile approach and digital/new technology are just few of the tools in the SMEs’ arsenal that they can use to protect themselves from an economic fallout.
So if you are a SME thinking beyond Brexit..spend a few days getting your house in order. Do you have contingency plans in place to grow the business and take advantage of the opportunities that leaving the EU will bring?