Finance

The cases when protectionism makes business smooth

After Brexit equality is over at least for some businesses.

The vote in favour of Brexit was once described by the former chancellor George Osborne as the “biggest act of protectionism in British history.” Indeed, since the referendum the pound has fallen sharply against other currencies, and much uncertainty exists over the negotiations and whether Britain’s exit will be a hard or soft one.

Richard Wilding, professor at Cranfield School of Management, believes that the biggest threat for supply chains post-Brexit will be the devaluation of the pound. “It has either created challenges from the fact their demand has increased dramatically or it has created challenges from the perspective that all of a sudden their raw materials have gone particular high,” he says. “The bottom line for supply chains is that they run extremely smoothly. If you are looking at an event like Brexit there are standard supply chain risk management techniques that you can use.

“The good news with something like Brexit is we do have two years notice on it. We are going to have a disruption and it is going to occur so we can plan for it. This is actually really important, because [for] a lot of supply chain disruptions you don’t get much notice of – [such as] terrorist attacks, or volcanoes going up, or storms going across the ocean.”

Wilding suggests that companies take steps towards gaining a greater understanding of where their suppliers and customers are located in the world. “When something like protectionism starts to rise, companies need to know how exposed they are to it,” he says. “To be quite frank, that has been a challenge for many organisations, because they have not really understood the complexity of their supply chain networks.

“It might be that you need to change the routing of products. It might be that you need to identify different suppliers, or reduce exposure by finding customers in different areas.”

“When something like protectionism starts to rise, companies need to know how exposed they are to it”

Nevertheless, says Wilding, not all supply chains will face turmoil when the UK leaves the EU, and the effect very much depends on the industry. For example, if the UK leaves under a hard Brexit and begins trading under World Trading Organisation (WTO) rules, tariffs will vary depending on the sector. Some industries will benefit while others will not.

He points out that, while electronic products have zero tariffs under World Trade Organisation (WTO) rules, for example, the automotive sector would face the prospect of high tariffs being levied. “Already the automotive industry is going through scenario planning and looking at long-term restructuring of supply chains,” he says. “We are already seeing that type of activity taking place. We are also seeing in some areas in the food sector that is also changing to some degree. People are saying can we actually start re-routing.”

“On the other hand, we are also finding the reverse going on,” he adds, “where organisations are saying that because the UK is such a big market, they need to make sure they have a big footprint in the UK.”

It could also mean, Wilding explains, more British ports being open to accept goods from supply chain managers worldwide, instead of stopping off in Europe first. “There is a lot of hard work ahead, but at the end of the day we are going to adapt supply chains,” he says. “People have always had supply chains, they are always going to adapt and they are always going to create opportunities. At the end of the day, it will all work out.”

This article was published in our Business Reporter Online: Logistics laid bare.
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