Opinion: Irish SMEs face a once in a generation challenge irrespective of what form Brexit takes

Joe Aherne,CEO of Leading Edge Group in Cork, suggests that SMEs need to make significant productivity gains and that Brexit, in whatever form it eventually takes, poses a once in a generation challenge for small business.

 

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While the media focus has been firmly trained on the growing probability of a hard Brexit, the fact remains that the UK’s departure from the EU represents bad news for Irish business regardless of how it comes about.

Withdrawal agreement or not, the UK will become a third-world country whether at the end of a transition period or in the coming months. This will mean a hard border somewhere, either on the Irish Sea or on the border with Northern Ireland. It will mean customs duties and tariffs. It will mean customs declarations, delays at ports and disruptions to trade flows.

Most significantly, it means increased costs. Most Irish exporters to the UK will have to supply their UK customers on a duty paid basis following Brexit. In other words, the price on the invoice is inclusive of duties and tariffs.

Unfortunately, it is highly unlikely that the price paid by UK customers post Brexit will be any different to what it was before the UK’s departure from the EU. In fact, it is quite possible that major UK buyers of Irish goods will seek to apply downward price pressure on their smaller Irish suppliers in an effort to make up for Brexit induced cost increases elsewhere in their businesses.

And that’s just the beginning of the problem. Irish exporters will also have to bear the costs of customs declarations, either through broker fees or hiring new staff and installing new systems of their own, as well as higher transport overheads incurred as a result of delays at ports.

The choices facing Irish companies are fairly stark in this scenario: try to absorb the cost increases through reduced margins or find new customers. The former may simply not be possible for Irish commodity food producers and other low margin businesses. This is likely to create further disruption on the domestic market.

Companies forced out of the UK market could look for new outlets for their products here on the home market. The resulting product dumping will put pressure on other Irish suppliers with the potential for damaging price wars.

Finding new markets either in the EU or further afield is clearly the better option for all concerned. This, of course, is easier said than done. Products that appeal to UK customers may not go down quite as well in France or Germany.

Read our article in the Irish Examiner.