Brexit spreads to the US – new ITC forecasting parameters

us-brexit

Like most market researchers I’m both liberal and international in my outlook and can’t hide my unhappiness about the UK’s decision to leave the EU. It’s too late in Britain to wish the referendum at the end of June had gone the other way, but we need to consider how market growth will be affected and make plans for making the best of a bad job. The UK isn’t the only country affected by disaffection – the election of Donald Trump in the US has also been described as ‘Brexit‘ (although ‘Demxit’ might be a better term) and there are a number of other countries which may see similar democratic shifts in coming months and years.  In this post I’ll look at the political and cultural shifts Brexit brings and how to add their effects to the multiple forecast parameters we need to plan future business levels.

The cultural and political causes of Brexit

British prime ministers – education and work experience

Prime Minister School University Work experience
Edward Heath Chatham House Grammar School Baliol, Oxford Soldier
Margaret Thatcher Kesteven and Grantham Girls’ School Somerville, Oxford Chemist, Barister
John Major Rutlish Grammar School none Banking
Tony Blair Chorister School Durham, Fettes College Edinburgh St Johns, Oxford Barister
Gordon Brown Kirkcaldy High School Edinburgh Academic
David Cameron Heatherdown School Winkfield, Eton Brasenose, Oxford Political Researcher, Media
Theresa May Holton Park Girls’ Grammar School St Hugh’s, Oxford Banking

Source: ITCandor, 2016
An analysis of this is a hostage to fortune since I and our industry can quite rightly be considered as part of the world the Brexiteers are trying to move away from. Nevertheless let’s have a go! These were the causes:

  • Anti-elitism – British prime ministers come from a very narrow educational background (5 of the last 7 went to Oxford University for instance) and typically have very little real world work experience before politics (see Table); the same is true of the leaders of most major banks and financial institutions, the BBC and the civil service. With the addition of the Royal Family, Church of England archbishops and the richest aristocrats you get the ‘establishment’, which from the days of Empire have been the ruling elite. Deference is built into the political system – UK passports for instance declare us as ‘subjects’ of the Queen rather than citizens of the country. The elite look after themselves, with a large proportion of bills being passed into law being the result of ‘influence’ from major companies, rather than in response to the needs of constituents; most senior managers kept their jobs despite the need to provide them with £billions to prevent their banks from failing.
  • Anti-immigration – net migration into the UK’s 63m population in the year to March was 327k (including 633k entering and 306k leaving the country). There has been no legal restriction in the number of EU citizens from other countries moving to the UK to work and live, with a net addition of 180K in the year. While new economically productive entrants clearly help the country through taxation, it’s of little use to the existing citizens if their perception is that the wealth created filters up to the elite rather than being spent on improving their own lives.
  • Blue-collar discomfort – in general British people have little interest in politics, but there has been a growing dissatisfaction at the growing disparity between the ‘haves’ and ‘have nots’, especially as successive austerity budgets have hacked away at public service spending and stopped wages from growing; in addition the influx of EU workers from other countries and migrants from the war-torn Middle East have increased the competition for jobs and benefits. It is significant that the leave vote was strongest in several areas of Britain that receive large EU grants (Cornwall, Wales for instance) or are home to major foreign manufacturing operations (e.g. Sunderland).

There are many parallels between the background to Brexit in the UK and the election of Donald Trump as US president – the major difference is that US voters could reverse their decision in 4 years time, while the UK change is constitutional and will last forever.

The effects on the success of the ITC industry

All of the execs I talked to about Brexit to a ‘business as usual’ line; however there are some serious issues for their companies to address. In particular:

  • New trading blocs and tariffs – eventually Britain will leave the EU and will set up new international trading regulations; in the US president Trump intends to cancel the newly signed Pacific trade deal and wants to look at the NAFTA deal as well. The 2 countries will have opposing strategies – the UK needs to re-establish all current EU deals, while the US will cancel those the new president considers poor for the US. Either way vendors will need to work with whatever new systems are set up and there’s a huge potential for disruption in contracts and the supply chain.
  • Be global, act local – if countries are becoming more nationalistic vendors will need to work harder to succeed in each one than they do today; you should expect a backlash against big companies who fail to localise their marketing and sales operations. In the UK I expect buyers to be increasingly resistant to adverts only featuring American accents or cheap concepts such as French supplier EDF’s use of a green Union Jack to encourage British environmentalists. The 2 countries are very different from each other in term of national suppliers; the US can be self-sufficient in any ITC product, while the UK has no hardware supplier, almost no Cloud Service Providers and very few international software companies (which is one reason why Brexit is very bad for the ITC market here).
  • Buyer confusion – uncertainty kills business. In the UK we have no coherent plan for leaving the EU – we know we have to sign Claus 50 of the treaty of Rome, but not whether Brexit will be ‘soft’ (including open borders, freedom of movement of UK and EU citizens and open trade) or ‘hard’. The US situation again will be easier – top marks from the new president are likely to go to any major supplier opening US-based factories; nevertheless there’s likely to be some confusion over continued relationships with international buyers; it’s nothing new however, since the Federal government’s ‘buy American’ policy effectively killed Bull’s business some years ago.
  • Skills shortages – as an international business both buyers and sellers in the ITC market rely on a highly skilled workforce. Changes in immigration laws in the UK and US can only have negative effect on the ability to hire international talent. In addition the decision of both countries to become more insular is already making foreign workers less happy about living and working in these countries.

Of course suppliers will need to continue to adjust their prices to allow for huge currency fluctuations such as the post-Brexit decline in the value of the Pound against the dollar. Perhaps the most important thing is to measure the change in demand and take action to maximise business levels in an increasingly changing world. Also be prepared for more insularity in other countries – the only certainty about change is change itself! For my part I’ll continue to size individual county and regional revenues, profits and headcount and report back to you once the dust settles.

 

 

 

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