How to manufacture a positive outcome through the fog of Brexit
25 August 2016
Following Brexit, the only certainty is uncertainty. But that does not mean manufacturing businesses should sit tight and wait for the picture to emerge. Given the real risks the short-term impact brings, doing nothing is simply not an option. This is not just an opportunity for growth once the fog clears; it's about survival and staying ahead, even where direction is uncertain.
There are a number of areas that we think require immediate focus:
- Investors, customers and employees are uncertain what Brexit means. Now more than ever, you need to be regularly communicating the proactive and positive steps you're taking to stabilise the share price, give customers confidence about the broader macro economic environment (as well as your ability to navigate through it) and provide an exciting vision for your employees. Demonstrating pragmatism and decisiveness and messaging this clearly through the fog will separate out the leading organisations.
- Brexit is causing people to react cautiously which is causing a slowing down of domestic and international demand, hitting both the top and bottom line. Whilst proactive engagement with stakeholders will help, now is the time to manage cost more effectively. From manufacturing productivity - including early adaption of digital, changing processes and working practice optimisation- through to support infrastructure such as head office costs and enabling functions (Finance, HR, IT, etc.)
- Commodity prices and exchange rates are volatile, resulting in a pervasive impact on cash flows and the ability to forecast with any certainty. Manufacturers have typically blamed the industry dynamics for not driving working capital improvements or optimising direct/ indirect tax but there is money on the table. In the same way, companies have typically relied on Treasury boutiques, if at all to manage exposures. This will simply not be enough to maximise cash flows in a period where revenues are in decline and foreign direct investment comes to a halt.
- Decisions on capital and fixed infrastructure investment will be influenced by an economy where buying and outsourcing will consume less capital, and therefore be more attractive, than 'making'.
- The full outcome of new trade deals is unknown, yet it will have an impact on manufacturers who are reliant on politicians to negotiate on their behalf. Companies cannot afford to be passive. There are many "knowns" that will allow businesses to have informed discussions both internally and with governments. You can assess how Brexit will impact your existing footprint based on the likely available options. Now is the time to be clear on which deals matter most, the critical components of those deals and align these as closely as possible with your interests.
- A number of manufacturers have been over-reliant on their UK footprint using an export growth model and others have created value through regional and global models. However, addressing Brexit will force companies to think differently around their structures. New business model options could in turn become a catalyst for growth as well as reducing the tax burden and leveraging labour arbitrage opportunities.
- Multi-national manufacturers rely on their people having mobility. The talent pool of leaders, both commercial, operational and engineering is sparse. Any restrictions on movement of people will likely create a drag on new market development, market growth and any sense of regionalisation unless companies are ready. Being prepared and maintaining flexibility will be key. How the talent pool is managed and employed will need to be revised with new opportunities for talent management.
Now is not the time to wait it out. Rather, plan and act pragmatically to remain in front of the competition. When the fog lifts you might find you can look forward to the future you have shaped with greater confidence.
