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Protectionism – on the rise?

Wednesday, 6th September 2017


A recent EC report points to a 10% increase in export barriers worldwide. What might increasing protectionism mean for SMEs, and what should you be doing now?

 

The European Commission’s (EC’s) annual Report on Trade and Investment Barriers analyses regulatory changes reported to the EC by businesses and Member States through the Market Access Partnership. Published in June 2017, this year’s edition shows European exporters reporting a 10% increase in the number of trade barriers encountered in the year to 31 December 2016, with 36 new pieces of legislation introduced, many in G20 countries including Russia, India, Switzerland and China.

The report claims that EC interventions have mitigated the worst impacts. (The EC argues it “managed to restore normal trading conditions in 20 various cases affecting EU exports worth €4.2 billion”.) However, the report – following similar assessments from the World Trade Organisation and Italy’s export credit guarantee agency, SACE – points to increasing protectionism worldwide. In the face of tightening regulation in key export markets, what are the potential risks for SMEs trading cross-border?

Increasing protectionism – the key risks to business

British businesses, in particular, have been voluble on the risks inherent in any post-Brexit withdrawal from the Customs Union. But the increasingly global digital economy means even the smallest microbusinesses are now vulnerable to the broader impacts of more protectionist trade policies in the United States and other key export markets.

Labour mobility

Tighter border security in America, together with the risks (real or otherwise) associated with Brexit, have put labour mobility firmly front of mind for companies headquartered or with subsidiaries in the UK and the US. Many of these will already be reviewing their talent-management strategies, and the more forward-thinking engaging in workforce planning and skills audits to ensure the availability of key staff and skilled personnel in those locations most at risk of more stringent visa and migration controls.

Whatever the ultimate outcome of ongoing Brexit negotiations, many entities located in London, but with the core of their business in the EU, are moving out of the capital – or, at least, establishing alternatives. Labour mobility, as much as business infrastructure, is a key factor here, with Paris, Frankfurt and Dublin all competing to attract these businesses. Dublin’s location as the closest alternative to London, together with its highly skilled and native-English-speaking workforce, makes it a viable competitor. But as local housing markets, educational facilities and social infrastructure become increasingly important drivers for the highest skilled, employers will need to pay ever closer attention to these factors in any planned relocation.

Currency and exchange risks

As business has become ever more global, currency risk is no longer the exclusive concern of the multinationals. The collapse in the value of the pound following last year’s Brexit vote is already causing genuine price pressure in the UK – and ever tighter margins for SMEs and micro-businesses trying to offset the worst impacts of this. Small business owners may now be forced to consider hedging currencies in a way they might never have anticipated – in an area notorious for its risk – in order to maintain a zero balance (i.e., to maintain the value of the business’s core currency) while avoiding a profit or loss.

Supply chain management – potential risks

Brexit and the election of Donald Trump have introduced an era of unprecedented uncertainty for companies currently manufacturing offshore. While the technological advances and competitiveness promised by Fourth Industrial Revolution technologies and the Internet of Things are encouraging many to consider repatriating operations in the long term, producers will, more immediately, face increasing costs and lead-times in sourcing suppliers in markets either effectively closed or no longer viable for them.

Many producers are likely to be analysing supply costs in alternative locations. The more foresighted will be taking this opportunity to undertake a full audit of current and future client demand, and to assess how far this can be met from current or alternative manufacturing and supply-chain capabilities. Others may choose to undertake a cost–benefit analysis of investing in advanced technologies and automation – or, if this proves financially unviable, to consider revitalising pre-existing manufacturing and supply-chain networks.

Planning for a new era

Increasingly complex supply-chain operations are just one aspect of the more burdensome administrative and managerial hurdles businesses are likely to face in an increasingly protectionist environment. Risks that might once have been the exclusive concern of mid-tier companies and multinationals are now of immediate interest to SMEs and the growing population of ‘micro-multinationals’. The most proactive of these will be putting their mitigation strategies into place now.

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Tony Carey, Dublin, Republic of Ireland


Tony Carey is managing partner and founder of Cooney Carey, Russell Bedford's member firm in Dublin. He is also an EMEA regional director of Russell Bedford International. Tony has over 30 years’ experience in corporate finance and business advisory services. His time as CFO of a large private concern gained him valuable practical commercial experience. His specialist areas include strategic planning, corporate recovery, financial investments, project funding and negotiation. arcarey(at)cooneycarey.ie

The views expressed in the articles in this website are those of the authors and do not necessarily reflect the opinions or policies of Russell Bedford International or its member firms. The information contained in this website is provided for general purposes only and does not constitute professional accounting, tax, business or legal advice. It may not be applicable to specific circumstances. Laws and regulations change rapidly, so information contained herein may not be complete or up-to-date. Please contact your professional adviser before taking any action based on this information.