How EU-reliant small British businesses are preparing for Brexit

While large companies can afford to plan and pivot, small businesses can only wait and hope for the best-case scenario.

Brexit businesses SMEs [Ylenia Gostoli/Al Jazeera]
Savoir Beds has stocked up on the materials it imports from Europe before Brexit [Ylenia Gostoli/Al Jazeera]

London, United Kingdom – In an industrial park in north London, artisans from Poland, Italy, England, Mauritius, and elsewhere painstakingly stitch mattresses for Savoir Beds, a British luxury brand.

Like the craftsmen and women, most of the materials are from the European Union or from around the world via Europe: plywood from Latvia, wool from Spain, horsetail from South America via Switzerland.

Savoir Beds only makes about 900 mattresses a year, with customers willing to pay an average of £14,000 ($18,300) – and up to £150,000 ($197,000) – for their custom-made products.

To avoid disrupting the supply chain of materials because of border delays, should there be a no-deal Brexit, the manufacturer has stockpiled £250,000 ($328,400) worth of the materials it needs to ensure production doesn’t grind to a halt.

It is feared that should the UK quit the EU without a deal, or without an agreement that is useful for small businesses, there would be additional red tape and transport restrictions.

“None of this would normally be here,” said Alistair Hughes, the company’s owner and managing director, pointing to large white sacks of curled horsetail lined up in the warehouse.

A worker from Romania makes luxury mattresses in London [Ylenia Gostoli/Al Jazeera]
A worker from Romania makes luxury mattresses in London [Ylenia Gostoli/Al Jazeera]

Over in the next aisle, the shelves are stacked with plywood boards and cashmere rolls worth thousands of pounds.

“Back in October, we had to begin thinking: What are we going to do?” Hughes continued. “It’s money that we normally use elsewhere in the business. We’re lucky because we have that money. But of course, everything we do is a choice.”

Savoir Beds was established 114 years ago and was able to invest in its Brexit contingency plans. Other SMEs (small and medium-sized enterprises) in the UK are not as fortunate.

Rafael Rozenson founded Vieve, a startup that produces flavoured protein water drinks, a year ago.

He has serious concerns about how Brexit will impact the company. While Vieve is manufactured in the UK, most of its ingredients are sourced from countries in the EU.

We do not have the funds to afford to stockpile goods and rely on ingredients to arrive just in time for our production runs,” Rozenson told Al Jazeera.

Hardly a day goes by without a business announcing relocation to the EU, or warning of how dangerous Brexit would be for the UK economy.

Stocks are piled up at Savoir Beds to prepare for Brexit [Ylenia Gostoli/Al Jazeera]
Stocks are piled up at Savoir Beds to prepare for Brexit [Ylenia Gostoli/Al Jazeera]

These have included aerospace firm Airbus, which employs more than 14,000 people in the UK. Electronics multinationals Sony and Panasonic have both moved their European headquarters from the UK to the Netherlands, while financial services company JP Morgan announced 4,000 of its staff could be moved from London in the event the UK crashes out of the EU. 

While multinational firms have sufficient capital and resources to plan and pivot, just over a month before the UK is due to leave the EU, most smaller businesses can only wait and hope.

“In order to continue operating in the EU, we need to set up an EU base and have an EU address on our packaging,” Rozenson explained, “this means incurring additional costs of running two offices.”

Brexit uncertainty surrounding tariffs has already taken a toll on the business, which relies heavily on exports to the EU as well as the Middle East, which together account for 70 percent of its sales, says Rozenson.

“We’ve had three major distributors in the Netherlands, Sweden and Iceland who have postponed or cancelled our launch due to Brexit,” Rozenson told Al Jazeera, “if tariffs are applied to our products we will become uncompetitive.” 

If the UK leaves the EU without a deal, it will default to World Trade Organization (WTO) rules.

According to Rozenson, the pullouts have cost Vieve nearly a third of their projected income for 2019, which he said could be “devastating for a small business like ours”.

Small businesses feeling the bite

According to the Federation of Small Businesses (FSB), only one in seven of their members had begun preparations for a no-deal Brexit by the end of 2018, and that figure is unlikely to have changed much.

We think there is another 40 percent who would be affected by a no deal who haven’t, and they told us they don’t have the reserves. They can’t afford to,” Craig Beaumont, head of external affairs at the FSB, told Al Jazeera.

For a small business, it costs money to prepare,” Beaumont added.

Big companies can move production, people around ... When small companies export, they focus on neighbouring markets, there's a higher level of psychic distance.

by Ross Brown, researcher

The British parliament had rejected a withdrawal agreement – negotiated over 18 months by Prime Minister Theresa May – on January 15.

Under pressure from backbench conservative MPs, May has returned to Brussels to renegotiate the agreement. She is seeking legally binding changes to the backstop, the insurance policy to avoid a hard border in the island of Ireland, which hard Brexiters see as a way of tying the UK to the EU’s trade rules indefinitely.

But the EU is unwilling to grant May the changes she needs to appease the hard wing of her party, while in recent days the British prime minister faced defections from moderate MPs.

The EU negotiates trade deals on behalf of its member states, and the UK currently relies on 36 free trade agreements covering more than 60 countries worldwide, amounting to 11 percent of total UK trade.

Ministers have been scrambling to ensure the continuity of those deals, and have so far secured just over a quarter of them, according to a government update.

Amid a global economic slowdown, industrial production shrank by 0.9 percent in the Eurozone in December. The UK’s Office for National Statistics (ONS) said the economy witnessed its weakest annual growth rate in six years in 2018.

Research by the University of St Andrews found innovative, high-tech and export-oriented small companies to be the most concerned about Brexit.

While innovation may be stifled by a lack of investment, small companies also find it harder to target alternative markets.

“Big companies can move production, people around,” Ross Brown, who led the research, told Al Jazeera.

“They have the capability to target different markets. When small companies export, they focus on neighbouring markets, there’s a higher level of psychic distance.”

Source: Al Jazeera