Cracking the Brexit puzzle and unlocking opportunity

15 November 2017:

In the run-up to Brexit, the Association of Professional Sales is canvassing opinion about what leaving the European Union will mean for British business. Over the next 18 months, as Britain counts down to Brexit, we will be looking at how professional salespeople need to adapt to thrive in a new-look marketplace. We will be hearing a range of economic views and political thinking. This month, we presented a webinar with Dr Dominic Swords, visiting professor of business economics at Henley Business school.

There is no saying what Brexit will look like. There is no saying even who will be in charge of delivering it. It’s a frustrating position for UK businesses which need to plan ahead, something that is easier to do when circumstances are more predictable said Dr Swords.

In Passage To Brexit, his insightful webinar on what the sales industry can expect between now and Brexit in April 2019, the professor of business economics promised to set aside the shifting politics and to analyse what we can say with any certainty about how the economy will perform and the plans we need to lay.

Planning ahead

There are some conclusions we can draw irrespective of what the Brexit deal looks like. In the months ahead it’s sensible to expect some unwinding of our interconnectedness with the EU economy as the market restructures.

We can expect less favourable trading conditions for UK suppliers in EU markets. Competition will increase as EU-based rivals take a predatory look at contracts currently fulfilled by UK suppliers.

“The real concern after 2018 is whether businesses – the auto industry, and financial services in particular, and the supply chains towards those – will find it difficult to maintain their sales into the EU, and therefore their profitability will go down. I think companies are preparing for not having a free trade agreement with the EU after the end of March 2019,” said Dr Swords, a frequent contributor to BBC Radio 4’s Today programme and Financial World Tonight.

Dr Dominic Swords of the Henley Business School has worked in the Bank of England’s economic intelligence division

In the financial services sector, the over-riding question was whether or not the Brexit deal will preserve “passporting” rights, he added. “If businesses start to relocate, we might see that revenue stripped from the UK.”

Meanwhile multinational manufacturers may be looking to repatriate production that currently takes place in the UK, relocating it to an EU setting.

EU-based customers will be looking to avoid risk by replacing UK suppliers with EU suppliers.

Likewise, UK manufacturers should now be looking for opportunities to replace EU suppliers currently supplying UK customers.

Looking for new markets

Whatever the deal we reach with the EU, we will still need to grow business.  Perhaps the most important message is that UK suppliers need to start looking for new global markets right now.

Many of our customers will be opening conversations with potential new clients, perhaps in regions where the EU does not have a free trade deal. They will be thinking about reorienting their productive capacity. So we as sales professionals need to be supporting our customers as they start to plan for growth opportunities outside the EU.

“Having a closer understanding of our clients’ strategic direction, and helping and supporting them: that’s vital for the coming year,” said Dr Swords.

“We are safer looking for global customers, and if we have energy to spend over next six months that’s where we should be looking.”

Where to look first? US and Australia should be near the top of list, Dr Swords suggested, as these are the first where the UK will be looking to strike a free trade deal. India could also be important, though the Indian government’s insistence on freedom of movement for Indian talent may delay a deal.

The products and services likely to do best are those where the UK already has a global reputation for excellence.

Budgeting for the year ahead

Most economic forecasts agree that next year will be a holding period for the UK economy, a transition to transition. The economy is slowing, making trading tougher in many sectors.

One of the biggest influences is the falling value of sterling, which has gifted stock markets a Brexit dividend, promoted exports and boosted inbound tourism. Markets may continue to climb for as long as the pound continues to fall, but as the effect is based around rising values of FTSE companies’ overseas profits and assets, the boost is only temporary. Underlying profitability is likely to be in decline. GDP growth, which had been averaging 2{06b6b360492ea91dcf5956ae2bf4e3e9ada2ae4dc734c18526569b7e6363d027}, is forecast to fall to 1.5{06b6b360492ea91dcf5956ae2bf4e3e9ada2ae4dc734c18526569b7e6363d027} this year and 1.4{06b6b360492ea91dcf5956ae2bf4e3e9ada2ae4dc734c18526569b7e6363d027} in 2018.

Elsewhere weaker sterling has been driving inflation, which is set to run at 2.9{06b6b360492ea91dcf5956ae2bf4e3e9ada2ae4dc734c18526569b7e6363d027} next year, while wage growth continues to lag. So far consumer spending has stayed in growth, but with household borrowing at a historic high and more interest rate rises on the way, next year growth in consumer spending is likely to come to a halt.

‘So as we budget I think we need to think very sensibly about levels of growth we’re likely to see, and how growth and exchange rates will feed through to the sectors we supply,” said Dr Swords.

“I think there will be a softening of growth. We need to build in some flexibility, as there may be volatility in the exchange rate over the coming year.”

Conclusion

Dr Swords thinks the UK economy can expect 10 years of turbulence as the market restructures. Despite opinions he has heard voiced within government that UK business needs “a kick up the backside” to induce it to change course, he believes that the interests of the UK economy will be served best by a longer Brexit transition period, to allow gradual change rather than a sudden cliff edge. He predicts that more than two years will be needed in a post-Brexit transition period.

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