29 March 2018 | By Angela McGowan Insight

Northern Ireland's SMEs: trade, Brexit and digital strategy

Following the launch of the CBI’s SME network, CBI director Angela McGowan highlights the challenges and where more support is needed

Northern Ireland's economic growth is hugely dependent upon small and medium-sized enterprises (SMEs), so how they respond to the ever-changing economic environment is vital. Last week the CBI teamed up with accountancy firm BDO to launch a new SME network, which aims to allow local SMEs on a growth trajectory to share their own experiences in areas such as exporting, investing, innovating and much more.

With our first event focused on trade, we were joined by the CBI's international trade team. In addition, John Dickerman, Head of Group in CBI's Washington office also flew into Northern Ireland to provide local companies with his insights into any future US:UK trade relations.

Without doubt many local SMEs in Northern Ireland are exposed to the risks of leaving the European Union and it is widely recognised that smaller companies have less capacity to respond to changing trade relationships compared to their larger counterparts. At last week's event we discovered that the average SME's ability to respond will depend on information and confidence.

It is hoped that business confidence may have ticked up a little following the recent breakthrough in Brexit negotiations. The CBI have been calling for a transition period to be agreed since last summer and on Friday past, we saw the EU's 27 countries signing up to one. This means that SMEs will no longer face a cliff edge in terms of trading arrangements on 29 March 2019. The newly agreed transition period should start on 29 March 2019 and last until the end December 2020 (assuming other issues such as the Northern Ireland border are resolved).

Ability to prepare 

Transition is a critical milestone that will provide many hundreds of businesses with the confidence to put their contingency planning on hold and keep investing in this region. It brings a welcome period of extra time for firms across Northern Ireland. Admittedly, some sectors may need more than 20 months to prepare for post-Brexit life, but nonetheless this is a small victory for common sense which will help protect living standards, jobs and growth. It shows what can be achieved when people and prosperity are placed above politics and ideology.

The CBI's Brexit survey in November 2017 revealed that only 44 per cent of SME members had undertaken some scenario planning for Brexit, compared to larger companies where 76 per cent were making plans. At our CBI/ BDO event we heard that the lack of planning for SMEs may have more to do with the lack of detail they have to go on, rather than lack of awareness of what's at stake.

For example, many SMEs do not have economies of scale and cannot easily start splitting operations over different jurisdictions as a larger company can. CEOs have a fundamental responsibility to ensure the survival and growth of their business. Many larger firms need a hedge against Brexit uncertainty and the Irish economy for many firms is a viable alternative option. But such contingency plans cost money which only larger firms can afford.

On the regulation side, the CBI finds that SMEs are keen to keep EU regulations so that their current trade with the EU can be maintained. In addition, they fear additional costs from any potential customs barriers in terms of time, paperwork and money. Many will not have any experience of applying tariffs or complying with administrative burdens such as ‘rules of origin' or ‘trusted trader status' and they fear they would have to hire more people to cope with such a burden.

Larger companies also fear that the SMEs in their supply chains will not be able to cope with any extra administrative burdens from both a time and cost perspective.

Making the most of opportunties

However, on a positive note, it is worth highlighting the fact that Northern Ireland also has a handful of firms that have great experience in exporting to the US, Asia and beyond. Importantly, these companies are happy to share their observations, help other firms avoid the pitfalls and make suggestions to the CBI's international trade team on where improvements can be made.

Although transition has been agreed, the business community still unfortunately does not have a clear view of what our future trading arrangement with the EU will look like and, for that reason, there is a high risk that the appetite of small business for exporting and importing will diminish. Targeting new markets in the current climate is highly risky because after December 2020 many trade agreements between the UK and other countries around the world could alter substantially.

While the conservation last Wednesday evening was mostly about customs, tariffs and borders, our tax experts in the room from BDO quite rightly pointed out that nobody is focusing on the fact that we have a simplified tax system because we are in the Single Market and things could potentially change post December 2020. While larger firms will be deploying their tax experts to consider this, many SMEs will undoubtedly need help.

However, every cloud is supposed to have a silver lining and, as uncertainty and confusion around Brexit continues, there is also a growing demand for technology companies to start developing new software programs and digital solutions to help companies track information on things such as ‘country of origin' or tariffs etc. No doubt in years to come newly developed technology could help to reduce the Brexit-related administrative and cost burdens on firms.

But for that to happen Northern Ireland needs to have a ‘digitally enabled society' and in the glaring absence of a digital strategy for this region, the chances of successfully supporting companies to deal with the negative ramifications of Brexit are greatly diminished. Unfortunately for now, it looks like SMEs face plenty of challenges ahead and the current pursuit of Brexit, without strategically organising the technological and digital solutions that companies will desperately need, is a little akin to putting the cart before the horse.

This article was originally published in the Irish News

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