For UK companies that export, the question of how to navigate the choppy waters of Brexit in the years ahead is crucial. The arguments for creating a European entity were explored in our recent round table debate on export and international trade, held in partnership with RationalFX.
As the UK prepares to exit the EU within two years, with unknown consequences at this stage, what are the arguments for opening a European office to circumvent some of the potential trouble that could lie ahead?
At a recent BusinessZone Networks event, held over lunch at a restaurant in Bristol, this important question was tackled by those around the table.
Matt Tipping runs Double Retail, a business that specialises in the fashion, footwear and sportswear sectors, focusing on retail design, retail identities, fixture programmes and consultancy. He said the idea of a European base for the business was under low-key discussion internally as a possibility, given the company’s customers are nearly all from overseas.
“We have always had an international mindset at Double Retail,” said Tipping.
“You have to look after every client with a partnership mindset, and you also need to understand the nuances of each national market. A base in Europe could definitely help smooth some of Double Retail’s relationships in a post-Brexit world.”
Emma Beeson, founder of TomatoSource, a marketing and promotional premiums agency, said that most of the company’s work comes from US business. However, given its European and wider supplier base, setting up as a European legal entity could still be advantageous.
“It’s been discussed. By keeping open dialogue with our clients, the question of whether to open up a European office naturally arises. Why? Well, we can see it could help our suppliers and it could reassure our customers. And of course it could reduce any risk should the worst scenarios play out in relation to Brexit.”
Beeson added: “A European office could help to secure relationships with our international customers, for sure. Having native feet on the ground can really help in terms of building relationships and trust, as well, in certain markets.
“Even if you just take the example of France, say, there is lots of evidence that the French like dealing with the French. So if you have local representation operating within a European legal entity, that’s potentially a real help. We found we were being overlooked in France until we got a French native involved; since then it’s been much easier.”
Janis Sinton, managing director of flavourings business TasteTech, said the Europe question wasn’t yet being asked in her business, but she said customer relationships always need to be under review.
“About half of our exports are EU, so that’s about a quarter of our total turnover. It’s very significant, in other words. Our projects are long term, as we develop products in partnership with large corporate customers mostly, and we’ll succeed whatever the impact of Brexit because of our specialist offer – it means customers aren’t just buying on price. But you still want to be fully engaged and to see that any adverse outcomes are minimised. A European office could be what’s needed one day.”
Simon Neill, who is head of the law firm Osborne Clarke’s UK competition practice, said that when it comes to the question of a European strategy for UK businesses, business heads should at least understand and acknowledge that Brexit will almost certainly happen.
“Clearly the terms on which it takes place are key, and that’s still to be decided. The assumption has to be that within two years there will be withdrawal arrangements in place, with some idea as to what a final trade agreement might look like. But there also won’t be a trade agreement at that point, which means there will have to be transitional arrangements in place before a finalised trade agreement comes in.”
In a worst-case-scenario, said Neill, there could be a tariff or customs shift for UK businesses to deal with.
“This would happen if the UK can no longer rely on the free trade agreements that the EU has, because the UK has no free trade agreements of its own. Right now, UK business with global supply chains don’t have to worry about much because so much is covered under EU free trade agreements and the customs union. Being outside of that will have an impact, which will make a detailed understanding of your supply chains beneficial.”
Beyond the specific solution offered by a European office, there is still a need for businesses with overseas clients to engage fully with customers about Brexit’s uncertainties.
“After the referendum vote last June we made some emergency visits to certain clients and thought about our supply chain”, said Tipping of Double Retail.
“The conversations are ongoing, too, and at a very senior level with the retail brands we support. When a retail brand works with us, it is a big commitment and a big contract and they need to understand our business and any risks that are attached to it. Understanding Brexit is part of that, but we are able through our efforts to reassure that once a contract is signed, we can deliver, however Brexit unfolds.
The comments from around the table chime in with the position of another business head who spoke to BusinessZone earlier this year about Brexit and export – Tim Westwell of the herbal-teas-and-products business Pukka Herbs.
“I think Brexit is awful. I feel it is needless,” said Westwell. “It adds complexity and will cost us as a country. It creates fear, uncertainty and doubt. In the short term the pound is weak, so we get better returns. But that will balance out with the many downsides that are coming.
“How do we plan for Brexit? At this stage I believe you cannot. Do we need to move to Europe at some point? I hope not. What I do know is we have some amazing people at Pukka from all over Europe: from Italy, Bulgaria, Latvia, Spain, Germany. These people are experts in their field, and with us on the journey; we value them enormously and we need to look after them.
“Where is the fairness and longevity in Brexit? So many Europeans have invested their lives and taxes and contributed to the UK economy. Now all they face is uncertainty. We need that addressed by Brexit with as little drama and change as possible. That’s the hope.”