The economic consequences of Brexit

[RYH64E]

davepoth said:

Right now, the only thing that makes the loss of further manufacturing more likely is people saying the loss of further manufacturing is more likely. Sentiment is incredibly important to the financial markets, and that filters down to SMEs like the one we're talking about. If everybody could believe in the UK a little bit more it would make a big difference to the result of Brexit.

The risk to UK manufacturing is that companies reliant upon the EU market will take the prudent course and make sure that they have a base within the EU. Business doesn't like uncertainty, and uncertainty is what we voted for, that will most definitely affect sentiment and so it should.

[RYH64E]

davepoth said:

One business tool (there are others) is the SWOT analysis. Strengths, Weaknesses, Opportunities and Threats. It sounds like he has done the W and the T very thoroughly, but hasn't looked at the S or the O.

Any business that says "we'll just stick with what we have" will die eventually, the only question is how long it will take. Instead of worrying about how to keep what he has now the standard business response to this sort of risk would be to look to diversify into new markets and new products to cushion any potential blow.

Easy to say, keeping existing customers is (usually) a damn sight easier than finding new ones. If being outside the single market is a major threat the obvious response is to relocate back within it, one way or another.

[davepoth]

RYH64E said:

Easy to say, keeping existing customers is (usually) a damn sight easier than finding new ones. If being outside the single market is a major threat the obvious response is to relocate back within it, one way or another.

Business isn't supposed to be easy. If it was, everyone would be an entrepreneur.

In the poster's example, moving the business to the Single Market would put up a a tariff barrier with the UK, and with a 50/50 split between the two markets he'd end up no better off than if he'd stayed put.

That's even before we take into account the changes that will occur in the EU over the next few years. Italy and Austria are voting right now and that might have a big effect on the bloc.

If I was looking at maintaining a business I would not be placing all of my eggs into the European Single Market basket right now.

[RYH64E]

davepoth said:

Business isn't supposed to be easy. If it was, everyone would be an entrepreneur.

In the poster's example, moving the business to the Single Market would put up a a tariff barrier with the UK, and with a 50/50 split between the two markets he'd end up no better off than if he'd stayed put.

That's even before we take into account the changes that will occur in the EU over the next few years. Italy and Austria are voting right now and that might have a big effect on the bloc.

If I was looking at maintaining a business I would not be placing all of my eggs into the European Single Market basket right now.

It isn't easy but it doesn't have to be made any harder than necessary, and the prospect of 'hard Brexit' definitely makes it harder. The thought of selling to new markets in far flung parts off the world does little to cheer me up.

[JagLover]

PurpleMoonlight said:

http://news.sky.com/story/ministers-pressing-for-l...


The problem that needs addressing isn't low skilled immigrants willing to work, it's the low skilled British not willing to work ...

A seasonal work Visa programme for fruit pickers might work well. What you would be able to do once outside the EU is not pay them in-work benefits while they are doing so.

[B'stard Child]

PurpleMoonlight said:

http://news.sky.com/story/ministers-pressing-for-l...


The problem that needs addressing isn't low skilled immigrants willing to work, it's the low skilled British not willing to work ...

Firstly I fully agree - immigration has been allowed to give elements of the "something for nothing" an excuse to continue to enjoy a very comfortable life with no alarm clock to worry about. I do have a little chuckle when the odd one pipes up with "immigrants taking ours jobs" I had hoped that it would be turkeys voting for xmas but I don't think any politicians have got the balls to address that issue.

[///ajd]

Mario149 said:

davepoth said:

///ajd said:

You may have misread - he said it is not a niche space craft type product - its mundane.

I did indeed. In that case the business owner's standpoint is even more strange - he has a wide market for his products and a lot of people he can sell to both inside and outside of the EU.

///ajd said:

The discussion included his analysis of the risks going forward - and the solution from his point of view is to relocate to the EU to keep the business going. He is exactly looking at the opportunities and changing business environment and concluding the UK is getting less competitive.

This is quite logical and likely to be the best option for the business (but not for the UK).

Why do you think he would keep the business in the UK if it more profitable/sustainable to move the EU?

I'm not saying that. What I'm saying is that he hasn't analysed the situation properly - how can he when we have no idea what the trading situation will be?

That's half of the entire point. By the UK buying the Brexit house before seeing it, he has no idea what tariffs etc will be if we leave. He can't quote, at least not sensibly, until there is an answer (i.e. an agreement on the SM/tariffs etc has been made). By the time he does know, the business won't be viable, and even if it did survive that long, any significant tariff on his primary raw material would kill it. The example he used was that in the near future he won't be able to tell his potential EU customer whether their order would cost £2m or £3m, whereas his competitors in the EU can.

Exactly - there is a failure to factor in uncertainty in business decisions.

Brexit - lots of uncertainty.

Going to the EU - trading conditions known.

Ability to plan business - no brainer.

I can't think of how it could be clearer.

[davepoth]

///ajd said:

Exactly - there is a failure to factor in uncertainty in business decisions.

In that case you eliminate the uncertainty, and look at other markets. That's simple enough for you, isn't it?

[PurpleMoonlight]

davepoth said:

In that case you eliminate the uncertainty, and look at other markets. That's simple enough for you, isn't it?

One wonders why the business has not done so already and is turning over £100M pa.

[Tony427]

In Mario's example we have a manufacturer of undifferentiated commodity products faced with extensive competition that is making a nett 10% margin manufacturing in the UK.

His business is split 50/50 UK and EU.

He imports all his raw materials and is expecting a 60% tariff on those imports if the raw material cost is 50% of manufacturing cost. As it's a commodity product with little added value and lots of competition 50% raw material cost is probably on the low side. ( Cannot say if a contract is worth £2m or £3m only difference raw material cost import tarffs)

I'd like to know wha traw material product he currently imports where a 60% tariff from the EU would apply.

He is not expecting his foreign competition to face any tariff barriers to the UK market whatsoever.

He is expecting to lose his EU business because of tariffs facing him exporting into the EU.

He is not looking to source his raw materials from non EU suppliers.

He is planning to move to an EU country, where his EU competition is, thereby surrendering his UK market ( tariff barriers again) which, as the product is a commodity, will be supplied by his existing UK competition or maybe a new start up company.

I'm finding it difficult to understand his logic.

Cheers,

Tony

[///ajd]

davepoth said:

///ajd said:

Exactly - there is a failure to factor in uncertainty in business decisions.

In that case you eliminate the uncertainty, and look at other markets. That's simple enough for you, isn't it?

How do you eliminate the uncertainty of brexit before 2019, given the government has not told anyone what it will look like?

Fox is on about WTO. Should everyone plan for that worst case? If they do there would be a partial exodus as business flocks to the customs union zero tariff certainty. The EU will welcome them.

[Mario149]

davepoth said:

Mario149 said:

That's half of the entire point. By the UK buying the Brexit house before seeing it, he has no idea what tariffs etc will be if we leave. He can't quote, at least not sensibly, until there is an answer (i.e. an agreement on the SM/tariffs etc has been made). By the time he does know, the business won't be viable, and even if it did survive that long, any significant tariff on his primary raw material would kill it. The example he used was that in the near future he won't be able to tell his potential EU customer whether their order would cost £2m or £3m, whereas his competitors in the EU can.

One business tool (there are others) is the SWOT analysis. Strengths, Weaknesses, Opportunities and Threats. It sounds like he has done the W and the T very thoroughly, but hasn't looked at the S or the O.

Any business that says "we'll just stick with what we have" will die eventually, the only question is how long it will take. Instead of worrying about how to keep what he has now the standard business response to this sort of risk would be to look to diversify into new markets and new products to cushion any potential blow.

I suspect he's been doing all of that and more. From what I understand his business has morphed and progressed to be something very different to what it started out as. Maybe it could survive in some other shape or form or smaller, but that's not the issue. The issue is that it's been steaming along well by all accounts and as best as can be guessed, would have continued to had there been a vote to Remain or no vote at all. Instead, just the vote in favour of Brexit economic masochism has thrown it all into disarray. One suspects his employees would have preferred things keep going along well as they were before.

[Mario149]

Tony427 said:

In Mario's example we have a manufacturer of undifferentiated commodity products faced with extensive competition that is making a nett 10% margin manufacturing in the UK.

His business is split 50/50 UK and EU.

He imports all his raw materials and is expecting a 60% tariff on those imports if the raw material cost is 50% of manufacturing cost. As it's a commodity product with little added value and lots of competition 50% raw material cost is probably on the low side. ( Cannot say if a contract is worth £2m or £3m only difference raw material cost import tarffs)

I'd like to know wha traw material product he currently imports where a 60% tariff from the EU would apply.

He is not expecting his foreign competition to face any tariff barriers to the UK market whatsoever.

He is expecting to lose his EU business because of tariffs facing him exporting into the EU.

He is not looking to source his raw materials from non EU suppliers.

He is planning to move to an EU country, where his EU competition is, thereby surrendering his UK market ( tariff barriers again) which, as the product is a commodity, will be supplied by his existing UK competition or maybe a new start up company.

I'm finding it difficult to understand his logic.

Cheers,

Tony

That's prob because you're massively over simplifying the situation - I'm not having a go btw, you can only go on what I can share and he didn't give me a detailed breakdown of his business. As I said in my initial post, the main threats appear to be his suddenly and significantly increased raw material costs due to the weak £ in terms of his UK business i.e. he can still do the work but his margins are reducing and if he raises his price he won't be able to sell enough. And the uncertainty over tariff barriers selling to the EU and tariff barriers that may go up for his purchase of raw materials from outside the EU i.e. in say a year's time Deutsche Kompany GmbH will ask how much it will cost him to supply X, but he won't know what tariff may be applied to his raw materials by the UK gov or what tariff may be applied to his output products by the EU, so he can't give them a number they can rely or one that he can guarantee to deliver on.

Fundamentally, people reading this can either:

1) assume a chap who's built a £50m turnover business over a few decades knows what he's on about when he says our current political course may be terminal for it, or at best force it abroad and/or massively downsize it, and that many of our other companies may be about to take a shafting as well if we pursue a hard Brexit

or

2) assume a chap who's built a £50m turnover business over a few decades is a bit of an idiot and doesn't know what he's on about and everything is fine and dandy

Edited by Mario149 on Sunday 4th December 15:02

[don'tbesilly]

Mario149 said:

Tony427 said:

In Mario's example we have a manufacturer of undifferentiated commodity products faced with extensive competition that is making a nett 10% margin manufacturing in the UK.

His business is split 50/50 UK and EU.

He imports all his raw materials and is expecting a 60% tariff on those imports if the raw material cost is 50% of manufacturing cost. As it's a commodity product with little added value and lots of competition 50% raw material cost is probably on the low side. ( Cannot say if a contract is worth £2m or £3m only difference raw material cost import tarffs)

I'd like to know wha traw material product he currently imports where a 60% tariff from the EU would apply.

He is not expecting his foreign competition to face any tariff barriers to the UK market whatsoever.

He is expecting to lose his EU business because of tariffs facing him exporting into the EU.

He is not looking to source his raw materials from non EU suppliers.

He is planning to move to an EU country, where his EU competition is, thereby surrendering his UK market ( tariff barriers again) which, as the product is a commodity, will be supplied by his existing UK competition or maybe a new start up company.

I'm finding it difficult to understand his logic.

Cheers,

Tony

That's prob because you're massively over simplifying the situation - I'm not having a go btw, you can only go on what I can share and he didn't give me a detailed breakdown of his business. As I said in my initial post, the main threats appear to be his suddenly and significantly increased raw material costs due to the weak £ in terms of his UK business i.e. he can still do the work but his margins are reducing and if he raises his price he won't be able to sell enough. And the uncertainty over tariff barriers selling to the EU and tariff barriers that may go up for his purchase of raw materials from outside the EU i.e. in say a year's time Deutsche Kompany GmbH will ask how much it will cost him to supply X, but he won't know what tariff may be applied to his raw materials by the UK gov or what tariff may be applied to his output products by the EU.

Fundamentally, people reading this can either:

1) assume a chap who's built a £50m turnover business over a few decades knows what he's on about when he says our current political course may be terminal for it, or at best force it abroad and/or massively downsize it, and that many of our other companies may be about to take a shafting as well if we pursue a hard Brexit

or

2) assume a chap who's built a £50m turnover business over a few decades is a bit of an idiot and doesn't know what he's on about and everything is fine and dandy

How many employees does the business have Mario?

[///ajd]

It is obvious that some genuinely don't see or understand the risks, even when explained very simply. I don't know how Mario can put it in an any more basic way.

What will it take to convince them - when the businesses are actually moving?

[powerstroke]

///ajd said:

It is obvious that some genuinely don't see or understand the risks, even when explained very simply. I don't know how Mario can put it in an any more basic way.

What will it take to convince them - when the businesses are actually moving?

Things are counstantly changing businesses large and small fail some prosper, with Brexit comes opportunity for some and possible failure for others ,Being in business is tough I have had to make changes and live with things outside my control and I didn't have the luxury of two years , to get ready If you think its going to be a bad outcome , make changes or pack up or pack up and move
Nothing stays the same regardless of Brexit , some will stay some will fall by the wayside and others will make fortunes
anyone who can't grasp this shouldent be in business or running one...
Im sick of hearing people moaning and being negative about the best thing this country has proposed times are changing for the better get with the program or fk off back on the titanic if you don't like this lifeboat !!!

Edited by powerstroke on Sunday 4th December 15:44

[kurt535]

powerstroke said:

Things are counstantly changing businesses large and small fail some prosper, with Brexit comes opportunity for some and possible failure for others ,Being in business is tough I have had to make changes and live with things outside my control and I didn't have the luxury of two years , to get ready If you think its going to be a bad outcome , make changes or pack up or pack up and move
Nothing stays the same regardless of Brexit , some will stay some will fall by the wayside and others will make fortunes
anyone who can't grasp this shouldent be in business or running one...
Im sick of hearing people moaning and being negative about the best thing this country has proposed times are changing for the better get with the program or fk off back on the titanic if you don't like this lifeboat !!!

Edited by powerstroke on Sunday 4th December 15:44

I love a blunt statement.

fyi lots of companies, especially, city based ones, have taken your advice and seem to like the frankfurt boat a lot more than the grace darling era lifeboat you appear to be sailing in......

[powerstroke]

kurt535 said:

powerstroke said:

Things are counstantly changing businesses large and small fail some prosper, with Brexit comes opportunity for some and possible failure for others ,Being in business is tough I have had to make changes and live with things outside my control and I didn't have the luxury of two years , to get ready If you think its going to be a bad outcome , make changes or pack up or pack up and move
Nothing stays the same regardless of Brexit , some will stay some will fall by the wayside and others will make fortunes
anyone who can't grasp this shouldent be in business or running one...
Im sick of hearing people moaning and being negative about the best thing this country has proposed times are changing for the better get with the program or fk off back on the titanic if you don't like this lifeboat !!!

Edited by powerstroke on Sunday 4th December 15:44

I love a blunt statement.

fyi lots of companies, especially, city based ones, have taken your advice and seem to like the frankfurt boat a lot more than the grace darling era lifeboat you appear to be sailing in......

Good for them and good business management no problem with that at all

[///ajd]

powerstroke said:

kurt535 said:

powerstroke said:

Things are counstantly changing businesses large and small fail some prosper, with Brexit comes opportunity for some and possible failure for others ,Being in business is tough I have had to make changes and live with things outside my control and I didn't have the luxury of two years , to get ready If you think its going to be a bad outcome , make changes or pack up or pack up and move
Nothing stays the same regardless of Brexit , some will stay some will fall by the wayside and others will make fortunes
anyone who can't grasp this shouldent be in business or running one...
Im sick of hearing people moaning and being negative about the best thing this country has proposed times are changing for the better get with the program or fk off back on the titanic if you don't like this lifeboat !!!

Edited by powerstroke on Sunday 4th December 15:44

I love a blunt statement.

fyi lots of companies, especially, city based ones, have taken your advice and seem to like the frankfurt boat a lot more than the grace darling era lifeboat you appear to be sailing in......

Good for them and good business management no problem with that at all

But these businesses in some cases contribute 10% of our GDP - thats' 100s of Billions.

You have no problem with that being lost to the treasury? That pays for your services and NHS.

[anonymous-user]

///ajd said:

But these businesses in some cases contribute 10% of our GDP - thats' 100s of Billions.

You have no problem with that being lost to the treasury? That pays for your services and NHS.

I think you know full well how the NHS will be funded post Brexit