Economists, politicians, and the media have spent the last two years voicing many contradictory predictions of the future that’s in store for the UK after its exit from the European Union. So far, neither Brexit enthusiasts nor doomsayers have been proven right. Instead, the UK economy has continued to grow steadily, even as British businesses have battled a loss of access to foreign labour, and the decline of the value of the British pound.
Many British SMEs rely on their economic connection to the EU to do business, while others have almost no ties to the larger European market. The economy as a whole, however, benefits from the lack of trade barriers in the current arrangement. By understanding how these large-scale effects are already playing out, small businesses can begin to try to capitalise on this time of change to position themselves to compete in a post-Brexit economy. While some businesses will certainly be the worse for wear, those who approach Brexit as the opportunity it can be may find themselves coming out ahead of their competitors both at home and abroad.
Finding opportunities is about understanding change
Depending on your industry, there are an uncountable number of ways that Brexit might change how different businesses operate. In the event of a “hard Brexit” it’s possible that half a century worth of trade deals might simply be thrown out with no replacement. Surprisingly, these aren’t the core problems that most business owners need to focus on at the moment. It’s still too early to know exactly how consumers, businesses, and investors will react when Brexit goes fully into effect in 2019, and what new rules businesses will be operating under. The way that the economy has already responded to Brexit preparations, however, gives business owners plenty of other information on which to act.
The UK can expect years of increased foreign investment
Since Brexit was announced, the value of the pound has dropped significantly against foreign currencies, and stayed relatively low. For small local businesses, this hasn’t been a major issue, but businesses that import or export have definitely felt the difference. Lower local currency values make exporting more profitable, and importing more expensive. This is because euros, US dollars, and other currencies earned abroad can be exchanged for more pounds than before the Brexit announcement, while pounds can buy relatively fewer goods abroad.
Similarly, foreign investors can use their foreign funds to invest relatively more value in UK companies than the same funds would have accomplished before the Brexit announcement. The result of this is that foreign investment in UK businesses has surged in the last few years. While the value of the pound remains low relative to the currencies of investor countries, that investment is likely to remain high, and potentially to increase. This means that, while the productictivity of the UK might take a hit, the damage will be mitigated, and possibly even overshadowed, by this influx of foreign funds.
Reduced red tape
The EU is famous for its red tape, and Brexit supporters have long pointed to the end of EU regulations as something that will provide a major economic boost to UK businesses. After all, red tape is expensive, and makes businesses less flexible in terms of reacting to both challenges and opportunities. While the UK government is sure to replace most of this red tape with its own over time, it’s likely that businesses will have far more flexibility in how they can operate, and the amount of regulation they need to deal with in the near term. This is critically important for UK businesses with European rivals. During this time, they’ll enjoy a competitive advantage over their EU counterparts, potentially allowing them to dominate markets that those rivals are currently competing for.
Successful SMEs will focus on personnel
Perhaps the most significant issue that businesses of all sizes are already facing is personnel related. EU workers, as well as foreign workers from outside the EU are leaving the UK, and coming in much smaller numbers, even for temporary work. Worse, this isn’t an issue limited to unskilled labourers. Nearly half of the “highly skilled” EU workers polled in the UK by Deloitte indicated a desire to leave within the next few years, regardless of how Brexit actually played out.
This reduced desire to work in the UK will only be exacerbated by the increased difficulty of moving there after Brexit, leading to a serious skilled labour shortage. This will leave many businesses working to attract and retain a limited number of skilled employees. Businesses who fail to access the talent they need won’t be able to grow, and may not even be able to survive for long, while those who succeed can benefit from abundant foreign investment to expand into the markets those businesses can no longer supply.
In many respects, the story of how Brexit will impact small businesses remains to be written. Many of the overarching effects of the coming divorce, however, are already clear. By understanding how these will affect your local economy and industry, you can work to ensure that your business doesn’t just make it through, but does so ahead of competitors both in the UK and abroad.