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Brexit crisis: How are businesses coping?

Theresa May’s impending departure has only deepened the confusion surrounding Brexit – so what does the business community make of it all?

This article can also be found in the Premium Editorial Download: MicroScope: MicroScope: The effects of Brexit

When the UK voted by 52% to 48% in a referendum to leave the EU, many government Leave-supporting ministers airily proclaimed that quitting would be a piece of cake and would result in the easiest negotiation ever. Nearly three years later, the process of departing from the EU has descended to the level of a tragi-farce.

Prime minister Theresa May – who has now resigned – went from being lauded as “The New Iron Lady” on the front page of the Daily Mail in January 2017, telling Brussels “We’ll walk away from a bad deal – and make EU pay” to “It’s a Brexit Halloween nightmare” in the Scottish Daily Mail in April 2019 after she was forced to agree to a six-month extension to the process.

Set against this backdrop of political incompetence, the business world has tried to steer a pragmatic course while the politicians on the bridge have done their best to navigate the country onto the rocks of incoherence and ignorance.

For the most part, the business community has avoided directly criticising the government’s conduct, perhaps assuaged by what has turned out to be a mistaken belief that a Conservative administration would always place the country’s economic wellbeing first if the emotional catharsis of escaping from the clutches of Europe proved too damaging.

It is only in recent months that business groups have started to become vocal on the potential catastrophe of a no-deal Brexit as it has dawned on many that perhaps, when it comes to Brexit, the party it has reflexively supported for so many years is more inclined to follow the lead of Boris Johnson, who reportedly uttered the words “F**k business” at a diplomatic gathering in January 2018, than to support it.

This led to the extraordinary spectacle of the heads of the CBI and the TUC issuing a joint letter in March this year calling on the government to avoid the danger of a no-deal departure. “Our country is facing a national emergency,” the letter said. “Decisions of recent days have caused the risk of no deal to soar. Firms and communities across the UK are not ready for this outcome. The shock to our economy would be felt by generations to come.”

New deadline

So here we are with a new deadline – 31 October – and still little, if any progress, despite EU president Donald Tusk urging the UK: “Please do not waste this time.” Now May’s departure has added to the confusion.

For the channel and the IT industry, the extension merely kicks the can down the road. Distributors that sensibly negotiated one-off stock-holding increases with vendors in March when a no-deal Brexit seemed possible at the end of that month, may well find themselves in the same position in October unless some progress is made. What are the odds that Brexit updates issued by the likes of Tech Data in April and Westcoast in March could end up cut and pasted and reissued in October? Many could be forgiven for thinking they are stuck in Groundhog Day, but without the laughs.

People are understandably concerned by the uncertainty generated by the Brexit process, but the UK is fast approaching the stage where uncertainty is the only certainty – and the new normality? As Gregg Lalle, vice-president, international sales and strategy at ConnectWise, puts it: “While we agree that the headlines are distracting at times, most small to medium-sized businesses know they can’t hold up their organisations based on the unknown.” Lalle adds that the UK and EU economies have “shown incredible resiliency and appear to be holding up, regardless of the headline news”.

“The never-ending cycle of confusion, uncertainty and delay has unfortunately had a fairly significant impact on UK IT channel companies”
Nick Craig Wood, Memsnet

Perhaps people are no longer paying attention to the headlines. Nick Craig Wood, CEO at Memsnet, is nowhere near as sanguine about the current state of affairs. “Based on recent conversations with our customers, the never-ending cycle of confusion, uncertainty and delay has unfortunately had a fairly significant impact on UK IT channel companies,” he says. “Businesses are suffering from a lack of clarity “over the difference in impact between no deal, delayed deal or deal, which has not only created an underlying sense of uncertainty, but it is also distracting businesses from day-to-day operations and also future investments.”

Wood adds that procurement managers “have become more and more sceptical about committing to products and services as a result of the ambiguity circulating the UK at present”.

Shaun Lynn, CEO of Agilitas, says uncertainty over Brexit “is leaving UK channel businesses in a very awkward position, and causing many businesses to delay making decisions about international expansion until after the official exit – or at least until some certainty is provided”. Research by Agilitas on globalisation in the channel found that one-fifth of those surveyed believed the impact of Brexit would be so profound that it would delay their plans to go global and expand internationally.

“With the UK’s standing on the world stage set to change drastically over the next year, companies need to ensure they always remain relevant for their customers and continue to meet their needs and demands through innovation and agility,” says Lynn. But he is optimistic that, as with other disruptive periods over the years, the channel will “remain resilient to the changing landscape at this time of uncertainty”.

Christina Walker, global head of channel at Blancco, believes the channel “is putting its head down on the topic of Brexit”, while customers are using Brexit “as a reason to clamp down on IT spend”. But she argues that with so much uncertainty now and potentially for years to come, “companies should operate a business-as-usual policy”.

“With the UK’s standing on the world stage set to change drastically over the next year, companies need to ensure they always remain relevant for their customers”
Shaun Lynn, Agilitas

But Brett Morris, CFO at Olive Communications, is not so sure. “The biggest risk of a long delay in resolving the Brexit conundrum is that it may cause complacency among some IT companies that come to accept this as business as usual,” he says. And if the delay becomes the status quo, not enough companies will focus on the risks “so that, when the unforeseen arrives, those companies will be caught off guard”, he adds.

Morris claims that the fog surrounding Brexit has been a catalyst for his company to accelerate key strategic and operational changes within its business, so it is capable of continuing to grow “no matter what the next Brexit twists and turns may be”.

Which is fine as far as it goes, but can channel partners realistically do much to prepare for Brexit, whatever flavour it turns out to be? Craig Wood at Memsnet doesn’t think so. “Ultimately, there are very few steps UK IT channel businesses can take to prepare themselves for the consequences of leaving the EU,” he says. Some have been looking at setting up offices in the EU to try to “ensure that their operations continue to run seamlessly across the continent, regardless of the nature of the deal”, he adds.

It would be unfair to describe Ian Stone, CEO and founder of Vuealta, as one of those in the “sunlit uplands” corner when it comes to Brexit, but he is prepared to suggest that it could prove advantageous for some. “Uncertainty can create confusion for some, but for those that plan effectively, it can be an opportunity to turn chaos into competitive advantage,” he says. “If you are prepared, then you can be the first to react. That principle stands firm for any uncertainty – including Brexit.”

Channel companies should be prepared for a worst-case scenario, a best-case scenario and “everything in between”, says Stone, which is an easy thing to say but, given the the government’s reluctance to detail the consequence of all the eventualities for the UK, possibly more difficult to prepare for. Stone also believes that Brexit will have more painful consequences for businesses focused on hardware that relies on a European supply chain, compared with software-as-a-service (SaaS)-type companies which, he says, “will continue to thrive”.

“Uncertainty can create confusion for some, but for those that plan effectively, it can be an opportunity to turn chaos into competitive advantage”
Ian Stone, Vuealta

Robinder Koura, Europe, Middle East and Africa (EMEA) head of channel at RingCentral, makes a similar point. “Partners will have to find some way of having a presence in Europe if they are to successfully operate in these markets,” he says. “This poses an issue for hardware-based resellers, who will need to invest significantly in offices and physical spaces for products and kits. Software-based partners, on the other hand, have less of an issue. Products and services tend to reside in the cloud, which removes the need for storage and shipping costs.”

As noted above, distributors that ship hardware are taking contingency measures to ensure a reliable source of supply in the event of a no-deal Brexit by increasing their stock holdings. In the case of Westcoast, it also advised customers “to order channel stock as opposed to product built to order in EU factories to ensure the best service to customers”, adding: “Westcoast has stepped up its services capability to configure locally to ensure end-users are serviced well during this period of uncertainty.”

For its part, Nuvias Group has invested in EU-zone people and facilities to service European customers from Venlo on the Dutch/German border, while serving UK and global customers from its UK operations. “Stock holdings in each location have been increased to compensate for potential transport delays,” says Hanspeter Eiselt, vice-president marketing. He adds that Nuvias logistics facilities in Smethwick, Newbury, Gatwick and Venlo “presently hold enough stock for 50 days’ worth of sales, and their capacity can be extended during the Brexit period”.

The distributor has also invested in expert advice concerning the legal and financial aspects of Brexit, as well as hiring specialists for its treasury and legal departments.

“Partners will have to find some way of having a presence in Europe if they are to successfully operate in these markets”
Robinder Koura, RingCentral

While Westcoast’s Brexit update says that the distributor has not applied for authorised economic operator (AEO) status “as management consider this will not be effective in speeding up customs procedures”, its rival, Exertis, is keen to stress the significance of this accreditation. Chief operating officer Richard Hinds describes it as “part of a broader Brexit strategy to plan for a worst-case scenario with the intention of maintaining the maximum degree of agility in our supply chain and mitigating the risk of disruption”.

By providing Exertis with a “trusted trader” status that the UK government has advised will survive post-Brexit, it should give the distributor “quicker access to numerous simplified customs procedures and authorisations and, in some cases, scope to fast-track our shipments through customs”, says Hinds.

Given the number of AEO equivalents globally, says Hinds, “it is possible that this standard will become more important if the UK leaves the EU since it will be regarded as a third country”. He adds: “It is possible that EU partners will look to UK businesses to hold AEO accreditation to continue trading.”

Human cost of Brexit

What is often forgotten in all the talk about the impact of Brexit on business is the human cost – a point made by Ghazal Asif, senior vice-president of worldwide channels at Cybereason. “I am seeing an effect on employee morale,” he says. “For those employees who left their families to build a better future in Britain, the uncertainty is not great.” No doubt these sentiments are replicated by UK citizens who have gone to find work in the EU.

Eltjo Hofstee, managing director at Leaseweb, believes the delay to Brexit merely extends the uncertainty, “and that is never good for business”. Like the distributors and other hardware-carrying businesses, Leaseweb “increased stock levels prior to 29 March to provision for deliveries and avoid potential customs delays”, he said. “This is now not necessary, in the short-term anyway, and while additional stock will be used as part of normal business operations, opex [operating expenditure] and capex [capital expenditure] have been impacted.”

Hofstee sums up the confusion and uncertainty surrounding Brexit: “The fact remains that we don’t necessarily have any better idea of what Brexit will look like now, or in six months, than we did a year ago, and this makes it really difficult for businesses operating in the UK to prepare. The best we can do is follow the news and have scenarios in mind for the most likely Brexit outcomes, so that we have the best idea of what to do once it is clear when it will happen and what form it will take.”

Good luck with that.

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