Exporters embrace EU innovation
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.