This appendix provides three real-life SME case studies from interviews with owners and directors in 2018. The SME interviews revealed the challenges and opportunities that Brexit was expected to create.
We publish them with the kind permission of Ready for Brexit who undertook the interviews. Click for the full interview write-ups: CYCL, Penny HydraulicsGroup, Rex London.
1 – CYCL (London)
Luca Amaduzzi’s innovative bicycle safety company CYCL successfully negotiated a deal in the venture capital TV show Dragons’ Den, but to keep his business on the winning track post-Brexit he is seriously considering relocating it to his native Italy
Can you give us some background on CYCL?
We are a start-up that was set up three years ago. We design innovative bicycle products, such as direction indicators for bicycles. My business partner and I are Italian and we are a very international company with an international workforce, but the company was founded in the UK and based in London. We design in the UK and we manufacture in China.
When did you first notice that Brexit would have an impact on your company?
Immediately after the referendum when the pound to dollar exchange rate dropped massively. We pay our manufacturers in dollars, so that had a huge impact and forced us to raise prices. And it hasn’t got any better. The exchange rate now is even worse.
Do you export much to Europe?
Yes. The UK market makes up about 25% of our business and the European market takes up about 60% of our export business. If there is no deal and tariffs are introduced and delays occur at customs we will have to move the stock abroad.
Are you seriously considering relocating?
Yes. We will relocate and open a separate company in the EU to sell from there. If we did move to the EU, Italy would be the country we would be most likely to relocate to. I used to have a company there and I know how the legal system works. I have a temporary company there that I can use if necessary.
If we have to, we will move the company to Italy in January and move our stock there too so that we can serve Europe. Europe is a bigger market for us than the UK. Although we are based here and are happy here, the reality is we are considering whether to move so that we can continue to access the European market.
What do you think the UK Government should do to help keep small companies like yours operating here?
They should definitely stay in the Customs Union. Instead of our goods going straight through at the border, goods will have to stop at customs, which will lead to delays and extra paperwork, which is not good for business.
2 – Penny Hydraulics Group (Derbyshire)
Robin Penny managing director of Derbyshire-based lifting equipment manufacturer Penny Hydraulics Group says the prospect of a no-deal Brexit has led him to increase his stocks in preparation for border delays
When did you first notice that Brexit would have an impact on your business?
About a month ago when the negotiations got to the point where no deal looks to be a distinct possibility. I think that up until then everybody thought that there was going to be some sort of a deal and that there would at least be a two-year transition period, but it’s getting very close to March now and people are placing orders for things, quite a lot of which are on three-month lead times. It’s getting to the point where if there is going to be a hard Brexit we need to start overstocking.
How much trade do you do with Europe?
We only export about 15%, but when you look at all the components we use, virtually everything is imported whether it’s the steel or the plastic or the fittings, everything comes in from somewhere to start with. We do get a large number of items from the Far East, but I would say that 75% is from Europe or Eastern European, which is going to be affected by any border controls down at Dover and Calais.
What are you doing to prepare for Brexit?
The possibility of there being no deal will cause tremendous hold-ups at the borders. So we are planning to overstock. We are looking at renting extra warehouse space so that we can overstock just to keep our customers serviced. That will probably give us a couple of months grace, by which time hopefully something has happened and goods start to flow again. I can see there being a problem for a month or more down at our borders, where normally stuff comes through without any checks.
So you have had to make a considerable investment in space and extra stock?
Yes, that’s what we are doing now. We are also ringing our suppliers to ask what they are doing about it. We are going out to see a supplier in Italy in November to see how they are going to supply stuff to us and what their plan is. We are starting to get a plan together to mitigate the problems because I think now that whatever happens there will be some sort of disruption. Even if there is a two-year conversion point then all we’re doing is pushing that back. This could just be a trial run for two years’ time, but at some point, there’s going to be a problem.
What is the reaction from your European suppliers to Brexit?
They think that it’s our problem, so we’re going to firmly tell them that it’s also their problem. If they can’t get stuff here, then we are not going to be buying from them. For stuff coming in from China, there are established routes. There is somewhere to put the containers while they go through customs. That supply route is sorted out, but for stuff coming in from Europe there is no infrastructure, there is nobody to check it, there is nowhere to park the vehicles.
What do you think the Government should be doing to help SMEs through the Brexit process?
There’s a lot of information on Government websites about what we should be doing, but none of it is very constructive. There needs to be somewhere to park lorries coming in from Europe and going to Europe and it’s just not going to be there. I think that businesses are starting to realise that there is going to be one almighty cock up in March no matter what happens. I am losing any hope that they are going to sort it out and if they do buy two years, we are only putting it off and then there will be an almighty cock up in two years’ time.
3 – Rex London (London)
Taig Karanjia, chief operations officer of gifting business Rex London is creating a base on mainland Europe to minimise any disruption to his trade with EU nations post-Brexit
Has Brexit had an impact on your business to date?
So far no. We do some trade shows in Paris and Frankfurt, the two biggest ones in Europe, and interestingly just after the referendum, we saw a different reaction from the French and the Germans at those shows. The Germans were acting like we’d lost a relative and were saying we had big problems and were quite concerned about how they were going to trade with us. Whereas the French didn’t seem to mind at all and were oblivious to it.
Aside from that, we haven’t seen an impact. Our exports have grown in the last year and a half, but that’s up until now. We have four trade shows in January and February, three of which are abroad and if things are quite tense and undecided by then I think that’s when you might have some severe ramifications, because people are unlikely to want to order thinking ‘well am I going to have to be paying tax on this or import duties?’
Have you made any changes to your business in preparation for Brexit?
Yes. We design our products and we have them made in China, so we import everything into the UK from China. Then we export from the UK. Currently, 45% of our turnover is export and the majority of that is direct to Europe. We do export to Japan and Australia as well, but it’s Europe – France, Germany, Spain and Belgium – that is our key market.
We have no alternative, but to create a base in Europe. Unlike some companies where they might have a handful of products and customs clearance would be quite straight forward, our product range goes to 2,700 lines, all of which will be liable to different types of regulations and will all have commodity codes as well.
As a result of Brexit, we’ve had to broaden out our options and we’ve set up a warehouse presence in Holland. We have warehouse space in Venlo and we have another warehouse that is being set up this week just outside of Amsterdam. From the warehouse close to Amsterdam we will sell directly to the Dutch and the Venlo warehouse is for our German business, as it’s right next to the border.
We also have a business address in Amsterdam so that we can set up a company very quickly, which will be the next step.
Why have you chosen Holland as your base on the European mainland?
We chose Holland because of its geographical location for distribution throughout Europe. Also, from a point of view of setting up companies, Holland is a good deal easier than somewhere like France where the administration is quite arduous.
We are probably going to hold off until December before we set up the Dutch subsidiary company. At the moment we are setting up the structure so that we have the relationship with two different warehouses, then we have the facility to register our business and we can start that in December once it looks like it’s going to be absolutely necessary. We will then have to take larger warehouse space so that we can export our goods into Holland and only go through one set of customs clearances.
Our selling point to our customers is that we deliver within five working days. That is one of the reasons that we do well, and we export very well. Not only do they like our products, they like that we are quick on delivery. That is a quick supply, particularly if you’re a business wanting to sell goods on, knowing when you’re going to get a delivery is important to you.
What support would you like to see the Government give to SMEs like yourself to help with the Brexit process?
I don’t think that there is anything that they can do because they are bound by their own interests and by much larger businesses. They are much more interested in the huge businesses like the services and the automobile industries than giftware companies. We are one of the many small businesses that fall outside the huge amount of pressure that the larger organisations put on the Government. They don’t have the time to deal with or be interested in small businesses.
Do you see anything positive coming out of Brexit?
Not in the industry that we are in. We already export to places like Japan and we’re very aware of the different regulations that are required to export to countries around the world.
For example, we sell a packet of four paper straws and they come in four different colours – yellow, orange, purple and red – and we cannot export that to Japan because they don’t accept anything with a purple or red dye, which is related to food. There are little things like this which different countries have that mean when you are exporting the product lines like we are it becomes problematic.
For a company like ours a big market is good for us, it’s easy to deal with and it’s very simple to trade with. The only option for us as a company is to go and have a presence in Europe and trade from Europe, because we can’t practically trade into Europe with this many products.