How Prepared Are Firms to Deal With a Post-Brexit Scenario?

businesses-post-brexit

The latest research by InterTrade Ireland has been released with some interesting findings about how prepared firms are to deal with a post-Brexit scenario:


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In 2016 InterTradeIreland commissioned a comprehensive research programme to understand how firms in both Ireland and Northern Ireland may be impacted by changes in the cross-border trading environment post-Brexit. Previously published research in the series examined the impact of WTO Tariffs on cross-border trade, the level of integration of supply chains and the tangible benefits to exporting across the border in terms of turnover, employment levels and productivity.

InterTradeIreland has now released the fourth research project, which uses detailed, firm-level patterns of risk exposure to examine how the capacity of firms to absorb shocks can be assessed.

Combining shock absorption capacity indicators which are based on firm turnover and profitability with information on cross-border and EU trade flows provides insight into how prepared firms are to deal with a post-Brexit scenario that involves increases in the cost of trading across the border.

Key Findings

1. Goods Firms Shock Absorption Capacity

In Ireland just over 45% of goods firms are in an “at-risk” group. This figure sounds eye-opening. To be clear this means that around half of the firms have at best, a mediocre ability to absorb shock.

At the more extreme end, 7.4% of goods firms are considered to be extremely vulnerable to any post-Brexit fall-out. Those firms that are considered “low-risk” account for just over a third of goods firms (35.5%) in Ireland. These are likely to be bigger and therefore will be larger employers.

2. Services Firms Shock Absorption Capacity

In terms of firms in the services sector, the pattern for the most vulnerable is broadly similar as the goods sector. Those in the most exposed or “highest risk” category stands at 4.4%. In fact, the research shows that, even more so than in goods, smaller firms in the services sector are the most vulnerable. Again they will represent a smaller share of employment.

More generally the number “at-risk” in the services sector is just over 46% . For those firms in this category any external shock could at best be called a “medium risk” and at worst, very “high-risk.”

3. Cross-border Trade Shock Absorption Capacity

North-South trade is quite dispersed across almost all levels of shock absorption capacity- meaning any major trading change to trading costs is going to be disruptive. It is worth noting that 30% of Irish goods exports to the UK are in overall at-risk categories, compared to 62% of exports from Northern Ireland goods firms to Ireland.

72.8% of Northern Ireland’s good imports from Ireland are undertaken by firms in at risk categories with 44.9% by firms in the higher risk categories, compared to 29% of Irish good imports from the UK, that are in an overall “at-risk” category. Therefore, this suggests that any equivalent-sized shock would have wider effects in Northern Ireland, with a greater share of firms exposed relative to Ireland.

4. East-West Trade Shock Absorption Capacity

Trade between Ireland and Great Britain is relatively highly concentrated in the lower risk groups of firms. To illustrate, for Irish goods firms, there is a greater concentration of both exports and imports amongst firms with greater capacity to absorb shocks, with 48.8% of exports to the UK accounted for by the least at-risk group and 45.4% of imports accounted for by this highest capacity group.

How can businesses mitigate risk?

This research underlines the heightened exposure of small cross-border traders, to post-Brexit trading relationships that involve cost increases. InterTradeIreland is responding by enhancing its Brexit support. While there is still a huge amount of uncertainty surrounding the outcome of Brexit, now is not the time to be complacent. Businesses can put measures in place to help them identify risks and opportunities.

In fact, demand for InterTradeIreland’s Brexit Planning vouchers has surged in recent months, with a third of all applications for the scheme, launched in May 2017, coming since the start of this year.

Now, InterTradeIreland has unveiled details of an enhanced Brexit Advisory Service, where businesses can secure up to £4,500 of funding, as well as benefit from a new bespoke on-line learning tool focused on practical help to prepare for Brexit.

Visit the InterTradeIreland website to find out more background on businesses shock absorption capacity or for information on the Brexit Advisory Service.

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