Ex­porters em­brace EU in­no­va­tion

Irish Examiner - Supplement - - 60 YEARS OF EUROPEAN UNITY - David McGee Brexit leader, PwC

Ire­land is one of the most glob­alised economies with the ex­port of goods and ser­vices a key driver of our na­tional eco­nomic well be­ing.

We have ben­e­fit­ted enor­mously from the EU over the years, and, with an over­whelm­ing ma­jor­ity (94%) of Ir­ish busi­ness lead­ers hav­ing con­firmed that Ire­land should not fol­low the UK and exit the EU, there are pos­i­tive signs Ire­land will re­main a com­mit­ted mem­ber state.

Ire­land was de­scribed by French writer Jean Blan­chard in 1958 as “an is­land be­hind an is­land” and there is no doubt that post-Brexit, Ire­land will need to in­crease its en­gage­ment and par­tic­i­pa­tion in the Euro­pean Mar­ket. Post-Brexit, Ire­land will con­tinue to have ac­cess to over 445 mil­lion EU con­sumers.

Al­though Brexit presents chal­lenges for many Ir­ish ex­porters, it will also present op­por­tu­ni­ties to be­come even big­ger play­ers in the EU and on the world­wide stage. But what will an evolv­ing EU look like? how will Ir­ish busi­nesses adapt? and what will the jour­ney be like? Ir­ish ex­porters will need to adapt and fur­ther en­hance how they innovate and di­ver­sify their busi­nesses. While there will be lots of change, Ir­ish ex­porters should fo­cus on the things that they can con­trol. And that in­volves re­ally un­der­stand­ing their mar­kets, prod­ucts, cus­tomers, sup­ply chains and work­ing hard to build new re­la­tion­ships.

In March, the Gov­ern­ment rolled out its new Trade and In­vest­ment Strat­egy — ‘Ire­land Con­nected, Trad­ing and In­vest­ing in a Dy­namic World’ — which con­tains a range of mea­sure­able tar­gets, in­clud­ing to in­crease in­dige­nous ex­ports to reach €26 bil­lion by 2020; to se­cure 900 new for­eign direct in­vest­ments; and to in­ten­sify and di­ver­sify 80% of in­dige­nous ex­port growth by 2020 to be out­side the UK mar­ket. The Strat­egy will be backed up with a most ex­ten­sive pro­gramme of Min­is­te­rial-led trade mis­sions.

While Ire­land has been suc­cess­ful at di­ver­si­fy­ing ex­port mar­kets, the UK is and will con­tinue to be a ma­jor trad­ing part­ner, es­pe­cially in cer­tain sec­tors, no­tably, agri-food. Ways will need to be found to con­tinue to build on this very im­por­tant re­la­tion­ship as the EU evolves. So Ir­ish ex­porters will need to adopt a more flex­i­ble mind­set.

The un­cer­tainty around Brexit is a great chal­lenge. The main con­cerns for Ire­land’s ex­port sec­tor in a post-Brexit world in­clude the po­ten­tial trad­ing im­pli­ca­tions with the UK, for­eign ex­change fluc­tu­a­tions and its abil­ity to pen­e­trate new mar­kets. Ir­ish ex­porters will be forced to dis­cover the un­tapped mar­ket po­ten­tial that ex­ists within Europe and fur­ther afield. In a ‘no deal’ sce­nario be­fore end March 2019, which PwC Ire­land views to be the most likely out­come, World Trade Or­gan­i­sa­tion tar­iffs could ap­ply on trade with the UK, which based on cur­rent rates with Non-EU states, would be around 15% on av­er­age for agri­cul­tural prod­ucts. Ir­ish food is cur­rently sold to some 180 mar­kets world­wide and with con­tin­ued op­por­tu­nity for new global mar­kets, ris­ing global pop­u­la­tion and a high qual­ity, grass-based prod­uct, the sec­tor is well-po­si­tioned for con­tin­ued growth. How we ex­port is also very im­por­tant. For ex­am­ple, a large part of our ex­ports to the EU and the rest of the world cur­rently is trans-shipped through the UK in­clud­ing phar­ma­ceu­ti­cals, med­i­cal de­vices, food and drink. PwC Ire­land ad­vises com­pa­nies to pre­pare for the worst and start sce­nario plan­ning right away. One thing is clear, di­lut­ing the risk and in­creas­ing mar­ket share in other coun­tries is a sen­si­ble ap­proach, but may not be that easy for some and will re­quire in­vest­ment.

For Ir­ish ex­porters wholly or sig­nif­i­cantly reliant on the UK mar­ket due to prod­uct type, di­ver­si­fi­ca­tion may be chal­leng­ing. As a re­sult of po­ten­tial tar­iffs and in­creased com­pe­ti­tion from new mar­kets with whom the UK may strike trade deals, the profit mar­gins may come un­der pres­sure. Hav­ing said that, con­tin­u­ing to trade with the UK in a post-Brexit world should re­main at the heart of the ex­port­ing strat­egy. Com­pet­i­tive­ness and lean­ness of op­er­a­tions will be crit­i­cal for such com­pa­nies. This will in­volve re­ally in­no­vat­ing prod­ucts and busi­ness mod­els and may in­volve new op­er­a­tions in the UK. Bear in mind also that EU coun­tries who are cur­rently buy­ing prod­ucts from the UK may them­selves seek out other new mar­kets in the sce­nario that high tar­iffs are ap­plied and Ire­land will be well placed in such in­stances. Po­ten­tial strate­gies com­pa­nies should con­sider to re­spond to Brexit in­clude: prod­uct and mar­ket di­ver­si­fi­ca­tion; iden­ti­fi­ca­tion of new over­seas mar­kets; prod­uct and ser­vice in­no­va­tion; adop­tion of leaner sys­tems; re­duc­ing sup­ply chain costs and in­creas­ing ef­fi­cien­cies to im­prove op­er­at­ing mar­gins and ex­change rate volatil­ity man­age­ment.

While Bri­tain’s exit from the EU will cre­ate sig­ni­cant chal­lenges, strate­gies al­ready launched by both the Ir­ish Gov­ern­ment and the EU of­fer real hope for Ir­ish ex­porters.

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