GIA in the EIOA class: exploring the impact of Brexit (1)
UK companies can and should see the current high-uncertainty environment as a spur to rethink their supply chain strategies and make them more resilient.
https://www.mckinsey.com/featured-insights/europe/brexit-the-bigger-picture-rethinking-supply-chains-in-a-time-of-uncertainty
Why Europe is so critical in British supply chains
The EU is the UK’s largest trading partner, accounting for approximately half of both imports and exports of goods (Exhibit1). Moreover, a large proportion of the UK’s imports from and exports to the EU are in the form of intermediary products—an indicator of the high degree of interconnectedness between UK and EU supply chains (Exhibit 2).
Trading ties with the EU are of particular importance to UK-based firms in the food and drink, chemicals, and automotive sectors. The EU accounts for the great majority of the UK’s trade in the crucial commodities in these sectors’ supply chains (Exhibit 3). Trade in these inputs is vulnerable to disruption from Brexit, as they would all face relatively high duties in the event that UK trade with the EU reverted to World Trade Organisation (WTO) most-favoured nation status.
In our interviews with UK-based executives, we found deep concern about the near-term uncertainty and impact of Brexit, but limited preparedness for the ongoing ambiguity about UK–EU trade that could be with us for years to come. In total we interviewed about 50 executives in FTSE 100, FTSE 250, and other large UK-headquartered corporations, across key sectors including consumer goods, retail, pharmaceuticals, advanced industries, and logistics.
Consumer-goods-manufacturing companies, for example, told us they were fundamentally concerned about the impact of tariffs and border friction on existing supply chains. Many food-manufacturing companies serve EU markets from UK manufacturing plants, and vice versa. Companies manufacturing products with short shelf-lives are particularly concerned about potential delays at ports. As one food-manufacturing executive said: “If Brexit goes badly, we could easily lose £100 million of business. Some of our products become immediately uncompetitive if we are hit with tariffs”.