Manufacturing currently accounts for approximately 10% of the UK’s gross domestic product (GDP) and, contrary to speculation about the sector’s recent stability, ONS data published at the beginning of 2019 reported that it was positively contributing to GDP while others sectors such as construction and agriculture lagged behind (Office of National Statistics, 2019).
Although this paints a positive picture, over half of the UK’s manufactured exports go to the EU which means there is of course repercussions to leaving without a trade deal in place (The Manufacturer, 2018). Since March 2017, European customers have been steeling themselves for a potential no-deal outcome, reluctantly sourcing materials from the UK. Now the goal posts have moved and businesses are growing restless, many are firming up plans to reroute parts of or entire supply chains to more attractive markets. The UK manufacturing sector is already feeling the fallout as output and new orders slow, and jobs are under threat.
In this piece, we explore the core risks and opportunities of a no-deal Brexit from a business strategy, operational efficiency and supply chain standpoint.
Tax and trade regulations
The Economists for Free Trade (EfFT) estimate that “current EU trade barriers are equivalent to a tax of 20% on both agriculture and manufacturing” (UKTPO, 2017). Accounting for these new costs will be demanding for UK manufacturers, but also provide an opportunity for those able to mobilise and optimise their business models in response. In a publication comment recently, Rob Dobson, director at IHS Markit, identified three ways manufacturers can consider doing this “new product launches, new technologies and improved marketing strategies to drive growth forward” (minutehack.com).
According to research and sentiment within the sector, although traditional manufacturing markets may be destabilised in the face of a no deal, there will likely be a boom in demand for artificial intelligence and automation technology—opening up new opportunities for savvy manufacturers. This will require companies that are willing to take on the challenge to think smart and act fast.
As with many other sectors, one major complication of a no-deal exit is immigration and how the UK manufacturing sector can either protect the jobs of the skilled non-UK workforce that are needed to deliver the output or, if that cannot be achieved, then how to fill the gaps. Skills shortages put businesses at great risk as recruitment of the necessary skilled professionals can be a lengthy and unpredictable process.
If a no-deal Brexit results in a shortage of investment in the manufacturing sector, apprenticeship frameworks are at risk. Although this may seem insignificant, it has the potential to trigger a recruitment crisis for the industry in the future. As a business, safeguarding future talent pools is a sensible and relatively low-cost strategy.
Hansaya consulting have 10 years’ experience in rapid change management
Speak to one of our team today on +44 2081 507165 if you want to explore a rapid change strategy. All calls are confidential.