The last time such a referendum was held, in 1973, the consensus was overwhelmingly in favour of joining the EEC, as it was then. In 2016, that outcome is far from assured. Though the ‘remainers’ have the edge, there is a distinct possibility the ‘leavers’ will prevail on the day.
The question mark over the outcome is being compounded by uncertainty over the implications – particularly if voters opt to leave. Though newspapers’ opinion pages are full of discussion over what might happen in the event of Brexit, the simple truth is nobody knows for sure. It is telling that none of the major accountancy bodies have yet published any clear guidance for finance professionals on planning for the possibility of Brexit. There is no single script that explains how ‘one of the most complicated divorces in history’ will unfold, and what its impacts on business might be.
As a consequence of this businesses must model and plan for multiple possible futures. These plans should cover best and worst-case scenarios, and all points in between, to understand their business impact. These exercises could be more valuable yet: disruptive events present huge opportunities to organizations that are best placed to exploit them. Brexit is likely to be no exception.
There are, of course, many other issues at stake in the referendum – the supply of labour, regulatory uncertainty, trade with Scotland, and London’s future as a financial centre outside of Europe to name but a few. In my view, however, all of the uncertainty boils down to just two big questions:
- 1.What will happen to the costs of doing business?
The ‘Remain’ camp has made much of the many trade agreements that would need to be renegotiated once Britain left the EU. The most important of these is the European Single Market itself, but the UK would also find itself out of soon-to-be-concluded deals with the USA, Japan and Canada. In the short term, it is virtually inevitable that UK goods for export to Europe will find themselves subject to import tariffs, as could components from overseas that are built into British-made goods.
Brexit could also require Britain to renegotiate airport access rights with each country individually – pushing up the cost of air travel (and air freight) in the process.
The likelihood is that in the short term, UK firms will find themselves facing higher costs, forcing them to choose between increasing their prices and jeopardising their international competitiveness, or accepting lower margins.
- 2.Will I need to radically reorganise my sales force?
Uncertainty over the dynamics of international trade may require organizations to rethink how they structure and incentivize their sales forces. Where the EU is likely to have been the default export market for many firms, Brexit (and the subsequent renegotiation of trade deals) may encourage firms to look further afield. Could this see UK exporters placing a greater emphasis on regions like Africa, the Middle East, or South America? Those that reach these conclusions fastest will have a natural edge in those markets – not to mention the pick of the best sales and management talent.
Where outcomes and their impacts are as nebulous and interconnected as they are in the Europe referendum, businesses are going to need to be equally sophisticated in their planning. Isolated spreadsheets here and there are unlikely to tell the whole story; companies must try and model all of the variables, from marketing to supply chain, HR and finances, in one place. Get it right, and however events unfold on 23rd June, executives can rest assured their businesses will thrive. The best antidote for uncertainty is a plan.