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How Multinational Companies Are Preparing For Brexit

12 Jun | By Smart MBS

Brexit

In March 2018 the giant consumer goods company Unilever decided to relocate its company headquarters in Rotterdam. The company had previously operated two global headquarters, one in London and one in Rotterdam.

The company line said the decision was based purely on metrics.

We chose the Netherlands because pretty simply, at the end of the day, the Dutch company is quite a bit bigger than the UK”  said Chief Financial Officer Graeme Pitkethly speaking to the media.

When quantifying the size disparity, it turns out the Dutch element contributes about 55% of the share capital to the group. It’s bigger, but it might be a stretch to say it’s “quite a bit bigger”.

In fact, the UK operations employ over 7,000 people compared to just over 3,000 in the Netherlands.

UK government officials were at pains to point out that the decision was “not connected to the UK’s departure from the EU” but rather “part of a long-term restructuring of the company”.

This may be one of the greatest examples of an ‘it’s not you, it’s me’ corporate move.

In the overall context, a small proportion of Unilever staff will be moving from London to Rotterdam; but the company dynamic and relationship between the two regions has changed meaningfully because of Brexit.

Key Brexit Dates Ahead

What is at stake?

If the UK does withdraw from the European Union, there will be several knock-on effects.

The most important issue for businesses in the UK will be the loss of access to the European Single Market that covers 28 countries. There are a further 7 countries (including Poland) working towards economic convergence to allow them entry into the European Single Market.

Among the 28 countries there is an agreement that the ‘four freedoms’ (goods, service, capital and labour) can move freely across borders.

Once the UK leaves they will have to negotiate new independent treaties with separate countries on each of these four issues.

Put simply a UK-based company will find it harder to do business, move money between locations and employ non-nationals once they are no longer part of the European Union.

The Brexit problem is Ireland’s opportunity

While there is still a lot of uncertainty around the terms and timing of Brexit some companies have already acted. Unlike Unilever, other companies have come out and explicitly said they will be making changes as a direct result of Brexit.

In our blog post Janssen Sciences, the Wasdell Group & Brexit we saw how Martin Tedham, Wasdell Group MD, acknowledge that his company’s move to Ireland was partly to do with the scale of the Irish Pharmaceutical sector but also to protect his company against the business implications of Brexit.

Speaking about his company’s decision to set up in Ireland, Tedham said

“We have always had a strong customer base in Ireland and we are certain that this trend will continue with the impending Brexit situation as companies typically from the UK and USA look to secure a base to service their European markets”.

The Wasdell Group aren’t the only ones with a post-Brexit eye on Europe.

Given the concentration of financial companies in London, it’s natural that this sector is at the forefront of activity and speculation.

Some of the biggest players in this sector have already made announcements.

Bank of America Merrill Lynch announced last year that Dublin would become its EU hub post-Brexit. They plan to start moving employees from the UK to its Irish offices in July 2018. The company has 700 existing staff in Ireland and are expecting 125 roles to move from its UK offices.

Barclays is splitting its euro rates trading team and establishing a eurozone government bonds and interest rate swaps trading desk in Dublin. The bank is also to make this operation in Dublin its main EU hub outside the UK. The company will be adding 150 - 200 additional staff to their new office building in Dublin.

Companies beyond the financial services industryare also taking steps.

The Standard Club are a global marine liability insurer that cover all vessels but mostly oil tankers and cargo ships.  The UK regulated company announced it had picked Dublin for their EU subsidiaries as a direct result of Brexit. The company’s CEO, Jeremy Grose said at the time of the announcement,

“We carefully reviewed all the options for The Standard Club’s European office.  We have concluded that Dublin offers the best location to serve European members post-Brexit. The tax, regulatory and legal regimes are like the UK, which means that the transition will be easier to manage than some of the other competing locations.  We will seek regulatory approval and progress our plans to establish a presence in Dublin during 2018."

What Smart MBS say

Regardless of Brexit, Ireland is an excellent location to set up your business for US based companies looking to expand into Europe. Brexit has now made the island an even more attractive place to locate an EU headquarters.

The advantages Ireland has for US and UK companies over mainland Europe include.

  1. No language barrier
    Given that English is widely spoken across the US and Canada, ties with Ireland will get even stronger once Brexit is finalised. Post-Brexit, Ireland will be the only English-speaking country in the European Union.
  2. Ireland is committed to the European Union
    Ireland has benefitted greatly from its membership of various European communities since the 1970s. Irish citizens are keenly aware of how our economy has benefited from access to such a vast market as the European mainland. In recent surveys, the support and confidence the Irish have as members of Europe has been very apparent. Irish citizens are among the most positive about the EU of all the member countries. 86% are in favour of the free movement of EU citizens to live, work, study and do business. The EU average is 81%. In a recent poll of 1,000 adults only 10% responded in favour of leaving the EU.
  3. Youth and diversity in the workforce
    Ireland has the youngest and one of the most diverse employee populations in Europe. One third of all workers in Ireland are between the ages of 24 and 35. 50% of people in this age bracket have a third level education qualification, versus the OECD average of 43%. Approximately 15% of the workforce hail from countries overseas.
  4. Economy going from strength to strength
    The Irish economy grew twice as fast as the EU in 2017 with a growth rate of 4.1% versus the European average of 2.1%. This trend is expected to continue with Irish growth forecast to be 3% in 2019 vs the EU average of 1.7%. Unemployment levels in Ireland have fallen to 6% as of February 2018, half the level they were at in 2014. At 6% our unemployment is below the EU average of 7% and eurozone average of almost 9%.
  5. Overseas companies are flourishing
    Ireland plays host to a wide variety of multinationals across a range of sectors. Overall, these multinationals:
    • Account for 10% of the workforce
    • Spend €5 billion annually on capital projects
    • Account for 70% of Irish exports
    • Account for 80% of corporation tax paid.

Some of the global players that have enjoyed long running success in Ireland include IBM, Microsoft, Intel, Google, Facebook, GlaxoSmithkline, Liebherr, BorgWarner, Merck and many, many more.

Curious about what Brexit means for your business?

If you have any questions on how Brexit may impact a company set up in Europe, please drop us a message using the form below and we’ll have one of our experts call you back.

Alternatively, if you have any queries on expanding your business into Europe, please also get in touch.

While you’re waiting for the call back, why not download our eBook for more information on Smart MBS? 

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Topics: Global Business Expansion, Brexit, Expanding Overseas, Ireland, International Expansion

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