Businesses operating across Europe’s largest economies must study the potential impact of a possible move by the United Kingdom to leave the European Union as a referendum draws near.
We recently conducted a survey of senior decision makers at over 1,000 businesses across the UK, France and Germany, which found that only 26 percent of firms have a tangible plan in place for dealing with the risks arising from the so-called Brexit vote.
Just over half of the respondents said that there has been no board-level discussion about the potential commercial impact of the June 23 referendum.
Having spoken to a large number of our clients who operate in Asia or are based in the region, my sense is that the level of preparedness in Asia is not much different from that in Europe.
Many businesses may be adopting a “wait and see” approach due to the uncertainties related to the vote.
But the stance would mean missing out on a chance to address the risks and capitalize on potential opportunities.
Irrespective of whether your organization has operations, investments or customers in the UK – or Europe – a Brexit vote could constitute a significant economic shock.
Some economists have warned that it may push Europe – the world’s largest free-trade zone – back into recession.
One cannot protect against all eventualities, but it is possible to identify the risk areas and start thinking about how these could be mitigated. It is also possible to identify where commercial opportunity might arise.
For instance, currency hedging is an obvious option to consider. If your organization has significant exposure to the British pound or euro, it is worth addressing that.
Almost none of the businesses we surveyed have reviewed business-critical contracts to identify any legal ambiguities in the event of a ‘leave’ vote.
Any agreements which specifically reference the EU as the territory governed by the contract may lack clarity. Ambiguity as to who would carry the costs of changes in trade tariffs should also be addressed.
It is likely to be easier to agree amendments to those pacts now, especially where contracts have not yet been signed, rather than after a vote when people on the other side of the table will know that the clock is ticking.
It would also be prudent to assess the extent to which an organization’s workforce – particularly at a senior level – could be affected by changes to freedom of movement rules.
As to opportunity, the research finds that one in ten UK businesses have discussed or made plans to relocate operations to another country should the UK vote in favor of leaving the EU.
Financial services firms are more likely to have had these discussions, as are manufacturing businesses. Does that afford opportunity for Hong Kong and the wider region?
Clearly the question of Brexit is weighing heavily on the minds of financial institutions more than most. Fifty-eight percent of respondents at financial firms say they have had board-level discussions on Brexit, compared to just 34 percent of construction firms.
It is important to recognize that if the UK vote is in favor of leaving the EU, there will be profound implications. Similarly, even if it were to remain, there are suggestions that other member states will seek a similar re-negotiation of their terms of membership.
Europe is changing, and the effectiveness with which businesses respond to that will shape their prospects in that market.
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