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BREXIT: catalyst of uncertainties and opportunities for french SMES

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AFTER STRUGGLING TO FIND AN AGREEMENT WITH HER GOVERNMENT LAST WEEK, NEGOTIATIONS ON THE FUTURE OF RELATIONS BETWEEN THE EUROPEAN UNION AND THE UNITED KINGDOM ARE MORE RELEVANT THAN EVER, UNCERTAINTY ABOUT THE FORM WILL TAKE THE BREXIT SUBSIST.

The term “soft Brexit” is generally understood to mean a Brexit that would keep Britain closely aligned with the EU, while hard Brexiters who overwhelmingly voted for the EU exit, hope to take a maximum distance with the latter.

On 29 March 2019 at midnight continental time, the United Kingdom will leave the European Union following the referendum held three years earlier. Beyond the legal puzzle of untying integration efforts dating back more than 70 years, this political act will have direct consequences on the life of French companies.

THE UNITED KINGDOM: A KEY PARTNER FOR FRENCH COMPANIES

Indeed, the United Kingdom represents one of the largest trading partners of France by its size, its dynamism but also by its ease of access. French companies sold goods and services to more than 30,400 UK-based firms in 2017, accounting for around 7% of France’s total exports. Trade with the United Kingdom is all the more important for France as it generates a trade surplus of € 11 billion, while the overall French trade balance has been continuously in deficit since 2003. On the other hand, imports from Great-Britain they accounted for nearly € 20 billion in 2017, or 3.8% of our total imports. In 2015, some 3,300 French companies operating in the United Kingdom generated sales valued at € 119 billion. At the same time, the 2,300 UK companies based in France employed more than 200,000 people. The United Kingdom was also the third largest investor in France in terms of the number of jobs created and the fourth largest in terms of projects initiated.

WHATEVER THE FORM OF THE AGREEMENT, BREXIT WILL HAVE AN IMPACT ON FRENCH SMES

Indeed, whatever happens, the United Kingdom will no longer be able to enjoy the same commercial advantages by withdrawing from the single market. Currently, French companies evolve according to the rules of an intra-community market with this region. Tomorrow, working with the UK will like importing / exporting to a third state and no longer a member state. Small and Medium Businesses (SMB) must therefore be vigilant on certain points.

Similarly, if the negotiations tend towards a hard Brexit, British companies would no longer be subject to the same European standards, be they social, ecological, technical … More specifically, “if Brexit is not followed by the signature of a new trade treaty between the EU and the UK, French exporters will have to look for new outlets. The sectors most affected by such a scenario would be the automobile (378 million euros of losses of exports of goods in 2019), machinery and equipment (324 million euros), electronics (177 million euros), aeronautics (160 million euros) and beverages (157 million euros), “says Ana Boata, Europe’s economist at Euler Hermes[1].

Trading with Great Britain will be as difficult as with any other third country with which France does not have a commercial contract, except that of the WTO. This would result in particularly restrictive tariffs and trade barriers.

Hence, it is their whole process of manufacturing, production and consumer information that SMEs will have to change to continue operating in Britain. And vice versa for products from the United Kingdom.

It is therefore clear that the commercial habits of French SMEs will be significantly impacted by Brexit, regardless of its form. However, this does not mean that France must cut all her contacts with the United Kingdom. If the possible reintroduction of customs duties will make French products more expensive across the Channel and will require a revision of logistical circuits to avoid excessive waiting times during border controls[2], we must not forget that in case free trade agreement post transition period, tariffs could be close to zero. All options remain open today.

Also, French companies will have to update themselves on possible new certifications that the United Kingdom may implement.

For its part, the United Kingdom will, soon after the “hangover effect” post Brexit, implement the appropriate public policies to demonstrate its attractiveness in order not to lose its trading partners. If today it is to protect itself more than to encourage exchanges, the political vision will still have to deploy the administrative and legal levers essential to the continuity of the business with the European countries.

BREXIT ALSO REPRESENTS OPPORTUNITIES TO REACH INTERNATIONAL MARKETS

Although these difficulties may complicate the life of French SMEs in the short term, Brexit also represents an opportunity for France, and its entrepreneurial network.

This is highlighted by the second edition of HSBC Navigator, revealing that French companies are particularly optimistic about international trade, despite the uncertainty of Brexit, and protectionism of the United States[3]. French SMEs and ETIs are the most optimistic in Europe and among the most positive in the world on the subject of the international business environment: 82% positively consider the international trading environment and its evolution, against 78% worldwide[4]. The same study shows that while the United Kingdom, France’s historical partner, is no longer the first target area for SMEs, the rest of Western Europe is an important growth driver for them. Germany and Belgium are the two best-perceived business partners in France, and this trend tends to be confirmed, while 41% of SMEs surveyed believe that political evolutions in the European Union support the development of their activities. Still according to HSBC Navigator, while business leaders are already feeling the impact of the protectionist measures of some nations, 54% of them perceive favorably the political and regulatory environment of the European Union[5].

FUTURE OPPORTUNITIES AT THE DOMESTIC LEVEL

Another direct consequence of Brexit is the efforts of the French government to attract capital and companies planning to leave the UK.

Indeed, Paris has stepped up measures to be more attractive compared to to other major European cities competing (Frankfurt, Luxembourg, Dublin) to succeed London as the future financial hub of the EU. Reduction of the surcharge on wages in banks from 20% to 13.6%, exemption from the tax on wages up to 30% of the remuneration related to the impatriation, and temporary exemption from affiliation to retirement benefit system for employers and employees are examples of measures taken by France to attract capital owners and British employees[6]. By attracting banks and funds in France, it is the entire French economic system that can hope for the arrival of new investors. These will allow French SMEs and ETIs to finance their implementation or their international diversification, considered as their main levers of development.

STRATEGIC WORK IS NECESSARY FOR SMES TO REMAIN COMPETITIVE IN UNCERTAINTY

Despite the opportunities associated with the Brexit, uncertainty remains and not all companies are on an equal footing. “SMEs are at the forefront,” says Hanna Moukanas, of strategy consulting firm Oliver Wyman, “because they are less likely to adapt to new regulations and additional certifications, new logistical complexities, and financing needs. investment that will generate … “[7]. For SMEs and ETIs, it is important to get ready as soon as possible to be responsive once the UK exit conditions are established. For Moukanas, “it is important for the most vulnerable French SMEs to be accompanied (…). This support must be complete: administrative, operational, financial and strategic. Otherwise, the entire supply chain in some sectors could be destabilized. “[8]

It is then necessary that French companies consider the spectrum of possible exit scenarios and to plan accordingly, including the worst scenarios. To do this, it will be essential to conduct a thorough study of risks and opportunities according to its business, its sector of activity and its level of exposure to be able to identify the necessary guarantees to implement on subjects as diverse as commercial establishment, R & D transfer or repatriation of capital. These plans will be the answer to the impacts of the Brexit, whatever its final form is. Businesses that thrive in this uncertain environment are those that are taking action now to understand the challenges and opportunities ahead in refining their strategies.

CONCLUSION

In both the short and long term, Brexit is certain to have implications on consumer behaviors and market demand. The introduction of trade barriers, the threat of non-European competition or the slowing of British growth could put French companies in difficulty on the British market. As French SMEs have a higher degree of exposure, they will have to pay particular attention on how to remain competitive in the UK after Brexit. Beyond the message of political uncertainty recently sent by the part of the resigning government of T. May[9], French SMEs must now prepare strategically to respond quickly and effectively to any agreement between Brussels and London. Beyond this work of anticipation, it is time for them to turn to other European trading partners, while taking advantage of the efforts made by the government to make France more attractive and attract new financing solutions on the French territory.

[1] http://www.eulerhermes.fr/mediacenter/actualites/Pages/brexit-pertes-exportations-2019.aspx
[2] https://business.lesechos.fr/entrepreneurs/gestion-finance/030735383291-brexit-5-repercussions-a-anticiper-pour-les-pme-francaises-314899.php
[3] HSBC Navigator 2018: “Now, next and how for business France”
[4] HSBC Navigator 2018: “Now, next and how for business France”
[5] HSBC Navigator 2018: “Now, next and how for business France”
[6] https://www.lesechos.fr/finance-marches/banque-assurances/0600119207828-brexit-le-cout-des-traders-en-nette-baisse-a-paris-2221257.php#xtor=EPR-7-%5Bmatinale%5D-20181113-%5BProv_%5D-3143387
[7] https://www.ouest-france.fr/europe/grande-bretagne/brexit/brexit-les-entreprises-francaises-doivent-se-preparer-tout-de-suite-5911144
[8] https://www.ouest-france.fr/europe/grande-bretagne/brexit/brexit-les-entreprises-francaises-doivent-se-preparer-tout-de-suite-5911144
[9] https://www.liberation.fr/planete/2018/11/15/royaume-uni-demissions-en-serie-au-gouvernement-theresa-may-affaiblie_1692188

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