BREXIT: Chaos and Opportunity

“In the midst of chaos, there is also opportunity.” Sun Tzu.

OK, OK, “chaos”, is a bit hyperbolic! But it’s apt, perhaps, that the great Chinese general – now unwittingly eponymous with board room slogans the world over – made this observation, given that China is among the countries already seeking trade deal talks with a post-Brexit UK.

An adaptation on the Chaos Symbol

It’s true to say that there has been and, three weeks later, there still is political chaos, no doubt. And, initially, there were dramatic fluctuations in a variety of economic indicators: the pound hit a 31-year low, and then rebounded strongly with the certainty of Theresa May’s accession to Prime Minister; the FTSE 100 dipped and then entered ‘bull market’ territory (related to the £); the FTSE 250 – more domestically focused – also dipped and then rose sharply to a point higher than that at which it started the year; and the Bank of England was apparently going to cut interest rates, but then didn’t. The ongoing process of untangling the UK from the EU – which we now know will be led by David Davis – will be complicated…messy…chaotic?! 

But in chaos, lies opportunity. And opportunities abound for a post-Brexit UK and its enterprising businesses. Already, the business community is talking in optimistic terms; in particular, two freight forwarding companies – those engines of the UK’s export market – local to me (Global Freight, Telford; and dap UK, Rugeley) are talking of opportunities, such as those in Africa, and “excitement” as opposed to “doom-and-gloom”. I have also been particularly impressed with the post-referendum coverage from Enterprise Nation – with Shropshire links, itself – and the tone of articles such as, “Keep calm and carry on” and “How to get your business Brexit-ready.”

In that vein, already, the following countries have expressed a desire to sign a trade deal with the UK: Australia, Canada, China, Colombia, Ghana, Iceland, India, Malaysia, Mexico, New Zealand, South Korea, Sri Lanka, and the US. Sajid Javid (Business Minister, at the time) has already started globe-trotting to lay the foundations for some of these deals, and Liam Fox has taken up a new Cabinet position specifically responsible for them.

Early front-runners for UK trade deals

Furthermore, the fall in the pound makes British exports more competitive. It reached a 31-year low against the dollar in the wake of the referendum, a three(ish) year low against the Yen, the Australian Dollar and the Rupee. Looking at the £ against the $, there is a correlation between a falling £ and rising exports to the US (a correlation coefficient of -0.45, if you must know; i.e. a moderate correlation whereby exports rise as the £ falls). The two charts below show this: that on the right demonstrating a long-run trend of a falling £ and rising exports; and that on the left showing that in 8 out of 12 years, the year-on-year rate of growth of exports rose/fell as the rate of growth in the strength of the £ fell/rose – excepting the bonkers recession years.

But enough of the macro. At the micro-level, the countries listed above are, perhaps, the first places that enterprising companies should start to look when considering new markets for exports. Let’s remember, there’s nothing new here: we could, and did, trade extensively with these countries before, just as we will trade extensively with EU countries after Brexit. It’s also worth remembering that Britain’s exports to the EU as a proportion of its total had long been on the wane, while those with the rest-of-the-world have been growing.

Hence, what we are likely to see is the accentuation of this trend as we go forward. So while Brexit does not change the fundamental principles of our global trade – despite a new trade deal here, and higher/lower tariffs there – it should, instead, provide the impetus for companies to review and refresh their export strategies, and their target markets. Secure and reassure your existing markets first, particularly if they are in the EU, while seeking out these new opportunities or preparing for growth in existing non-EU markets where a trade deal is on the table.

What follows is an anecdote, I realise, but I recently (although long before the referendum campaigning took off) looked at opportunities for a sweet manufacturer that had thus far only dipped its toes in exporting and was looking for the best places to focus its limited resources. To cut a long-story-short: seven of the top ten opportunities that we identified (below) lay outside of the EU – from Turkey to Malaysia – and this will now be the story for many businesses.

And herein lies my pitch: half of SMEs cite market intelligence (MI) as a challenge to exporting. I have argued previously that it is imperative that this is addressed; but, now, MI has never been more important to exporters, and prospective exporters, as it helps to provide some clarity amidst the ‘chaos’. Where are those opportunities I’ve been going on about? Where are the fastest growing markets for exports of your product? With whom will you be competing if you decide to enter a new overseas market? 

These are some of the many questions that MI can help you answer as you review and refresh your export strategies. I am optimistic, and I believe there will be a ‘Brexit Boom’. If you want a piece of that action, then contact me to explore how MI can be the first step in guiding you.