India Inc braces for Brexit as Britain leaves EU today
Indian companies which have a significant presence in the United Kingdom are preparing for Britain’s exit from the European Union on Friday by cutting jobs and relocating plants and staff. CEOS said they had time till December to finalise strategy for minimising supply chain disruption and sales. Britain plans to complete negotiations for a new trade deal with the EU by December.
Among the biggest, Tata Motors-owned Jaguar Land Rover (JLR) has announced it would cut 500 jobs from the UK operations due to Brexit. The company manufactures 77 per cent of its global shipments in the UK and has relocated the manufacturing of the Defender brand of SUV to Slovakia.
“We now need to see how the negotiations till the end of December pan out,” said P B Balaji, chief financial officer, Tata Motors Group, at a conference call with reporters on Thursday. The fears that the company had expressed earlier regarding a hard Brexit are not there anymore, he added. In October 2018, Ralf Speth, chief executive at JLR, had flagged concerns about a hard Brexit.
JLR’S sales in the UK have been under pressure due to uncertainties around Brexit for the past several quarters. The UK accounted for 23.1 per cent of the company’s sales at the end of December quarter. The EU contributed 29.7 per cent in the same period, according to a presentation on Tata Motors’ website.
Analysts are also watching the space to understand the impact of Brexit on the Indian information technology (IT) sector. Britain is the largest market for Indian IT services players after the United States. It contributes around 17 per cent of Indian IT exports of around $150 billion. Europe as a continent has a revenue share of
20-30 per cent for big IT services firms.
While Infosys draws around 25 per cent of its total revenues from European continent including the UK, TCS has a 30 per cent contribution from this geography. UK itself constitutes 16 per cent of TCS' top line. Similarly, Wipro has a revenue share of 24 per cent from Europe.
However, uncertainties related to Brexit have slowed the pace of revenue growth for most of these firms. For instance, TCS revenues from the UK grew at 7.5 per cent in Q3 of FY20, down from 14 per cent in the previous quarter. With Britain formally exiting EU, company executives expect better days ahead. In preparation for Brexit, TCS would relocate 1,200 workers from the UK, the company said.
Infosys officials had indicated last May that Brexit was turning out to be worse than the Y2K fear due to uncertainties surrounding the actual exit. “It is something which is a huge concern to all our clients.
Brexit, however, can be a blessing in disguise for the IT sector as more digital solutions will be needed for a new set of customs and border control between the UK and the EU. As most companies try to minimise supply chain disruptions, Indian firms can offer software solutions to manufacturing companies. "The only thing that has been confirmed is that Brexit is happening. However, the real challenge is yet to come. Brexit's biggest impact will be on the UK'S ability to trade freely with the rest of the world until it has negotiated separate trade agreements, which were formerly covered by the EU," said Hansa Iyengar, senior analyst at Ovum Research. "We expect some uptick in UK revenues (of Indian IT firms) from calendar Q2 (April-june) and beyond."
The adjustments that IT firms are required to make for Brexit are modest, according to Peter Bendor-samuel, founder and CEO of outsourcing advisory firm Everest Group. ‘’They have repositioned some of their talent out of the UK into the EU. Also, most firms have already been present in the EU countries with strong sales and delivery capabilities," he said.
Beyond IT, Tata Steel has significant presence in the UK. A source in the know ruled out any Brexit impact on Tata Steel customers or supply chain as status quo would continue till December. Among others, Essar Oil UK Ltd, which operates a 10 million tonne per annum oil refinery in Stanlow, is unlikely to see any disruption in business due to Brexit, an official said.