The uncertainties surrounding the conditions under which Britain may leave the EU in March are challenging companies worldwide, and they weigh particularly heavily on Irish businesses.
The supply chains, availability and cost of labour, taxes, pricing, and regulatory requirements for businesses in Ireland are likely to be affected by a Brexit — whether negotiated or not.
On 29 January, a deal that the government of UK Prime Minister Theresa May had negotiated with the EU failed in the British House of Commons. The rejection of the deal increased the uncertainties. It’s not even entirely clear whether Brexit is going to happen at all, which makes preparing for it even more difficult.
The ties between Ireland, an EU member that adopted the official EU currency, and the UK, an EU member that retained its own currency, are close and tangled, as can be expected between neighbouring countries that share a land border, language, and much history.
The UK is one of Ireland’s largest trading partners. During the first ten months of 2018, 22% of Irish imports came from the UK, more than from any other country, according to Ireland’s Central Statistics Office. Eleven per cent of Irish exports went to the UK, the third-largest destination for Irish goods and services behind the US and Belgium.
Post-Brexit tariffs could affect Irish businesses’ pricing and competitiveness. Already, exporting into the UK has become more competitive for many Irish businesses because of currency devaluation, Aongus Hegarty, FCMA, CGMA, president of Dell EMC in Europe, the Middle East, and Africa, said during a recent Association of International Certified Professional Accountants panel discussion in Ireland. The euro, Ireland’s official currency, increased about 23% in value compared with the British pound between 20 July 2015 and 10 December 2018.
Brexit could also change rules that regulate market access. That’s a concern, for example, for the Irish fishing industry that depends on access to UK waters. About 34% of all stock landed in Ireland was located in UK waters.
Access to the UK market is a particular concern for Irish businesses along the border with Northern Ireland such as Silver Hill Foods, a duck producer that employs 270.
Straddling the border
Goods, services, consumers, and workers freely cross the border between Ireland and Northern Ireland while both Ireland and the UK are EU members. Silver Hill Foods is located within a couple of miles south of the border and has duck breeders north of the border, hatcheries and a processing plant south of the border, and growing farms on both sides of the border.
A hard border with Northern Ireland, which is part of the UK, would be a significant inconvenience, said Micheál Briody, FCMA, CGMA, the CEO of Silver Hill Foods. Managing it would involve the company “taking into account the delays and extra bureaucracy that would be inevitable in a hard border scenario”, Briody said.
Briody, who was among the Association of International Certified Professional Accountants panellists, is also expecting post-Brexit issues with regulations and potentially with the availability and cost of labour.
Without a line of sight on where Brexit is going, Silver Hill Foods is forced to manage the uncertainties brought about by the political turmoil affecting the negotiations by:
- Delaying a €30 million ($34.23 million) investment to expand processing capacity. The current plant is at capacity, but committing to building a new plant depends on whether the company will maintain its market share in the UK, Briody said. About 45% of company sales are generated in the UK.
- Taking on only Irish contract growers, even though more contract growers are available across the border in Northern Ireland.
- Following a natural hedging strategy by purchasing feed and other imports from the UK in British pounds. That helps protect the company against a weakened British currency, Briody said, but not against tariffs in case of a hard Brexit.
- Continuing a growth strategy in South-East Asia that in the past seven years has doubled annual global sales to €32 million ($36.5 million), from €16 million ($18.25 million) in 2011. The growth strategy makes it necessary to expand processing capacity, Briody said, but the market diversification has cut the company’s dependence on UK sales nearly in half.
Preparing to transition
Technology company Dell EMC’s EMEA business, which is based in Ireland, employs about 25,000 in 120 countries. As a multinational business with broad market diversification, “we’re a big company, we can handle this”, Hegarty said about the UK transitioning out of the EU.
To ensure that it is prepared for this transition, whatever form it takes, Dell EMC’s EMEA business last year set up a Brexit Task Force that meets weekly. The task force looks at a large range of business areas such as manufacturing, supply chain, customs, product regulations, mobility and immigration, and finance. Here are a few examples:
Manufacturing. The company does not manufacture in the UK, which means its level of exposure to Brexit is limited. Unlike other large multinationals with manufacturing operations in the UK, Dell EMC’s EMEA business is not concerned about just-in-time supply of goods post-Brexit.
Instead, the task force is preparing to ensure that product and warranty parts for UK customers remain available should Britain leave the customs union and single market.
Product regulations. After leaving the EU, the UK is expected to adopt product regulations that are different from those in the EU. As part of its product planning process, the task force is looking into the possibility that Dell will have to manufacture products for the UK market to a slightly different standard.
Customs. The task force is considering adopting a quality mark for imports and exports that is internationally recognised and reflects a secure international supply chain and efficient customs controls and procedures that meet EU standards. Known as Authorised Economic Operator status, it would reduce the number of physical and document checks at UK customs, limit pre-customs paperwork, and fast-track the clearance of shipments through UK customs.
The ability to recruit and retain employees with skills driving innovation is increasingly important for businesses, especially tech companies like Dell EMC. Brexit could limit the mobility of talent between the EU and the UK and hamper the ability of Dell EMC’s EMEA business to deal with uncertainty and change.
Hegarty said he plans to continue his relationship with Irish entrepreneurs, including the Dell Women’s Entrepreneur Network, to counter any Brexit fallout. For Irish businesses to thrive amid change, remote working arrangements and upskilling and reskilling the existing workforce may be beneficial, he said.
UK businesses that import from and export to Europe should consider these lessons from the actions Silver Hill Foods and Dell EMC have taken to prepare for Brexit uncertainties:
- Review sourcing to increase the level of internal hedging.
- Diversify export markets.
- Establish a cross-functional task force to review processes and regulations.
- Review training for existing workforce and remote working arrangements for new hires to attract and retain talent.
- Review planned investments.
For more on Brexit, visit cimaglobal.com.
— Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com) is an FM magazine senior editor.