Brexit with Benefits

How German companies can capitalize on Brexit

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Embrace your Brexit fears. Source: Reuters

For Sortimo, a German producer of racks, shelves and tool boxes used in vans, Brexit could be a blessing. The Bavarian company, a European market leader, recently moved part of its assembly business from Germany to its plant in Warrington, a town between Liverpool and Manchester. After Britons voted to leave the European Union in 2016, the pound fell versus the euro and it became financially attractive to move part of Sortimo’s production to Britain, said managing director Reinhold Braun. The country is the company’s biggest market abroad.

Sortimo, whose storage systems are used by electricians, carpenters and parcel deliverers, is one of more than 2,500 German companies with operations in the United Kingdom. Surveys show many of them are worried about the upcoming rift between Britain and the other 27 EU member states. One out of every twelve companies is planning to redirect investments from the UK to other markets, according to a recent study. Banks have already relocated staff from London to Frankfurt or Paris.

In practice things look a bit different: Many German companies say it is too early to make any decisions. For example, Siemens UK, the local subsidiary of the German engineering firm, and candy maker Haribo declined to make a statement about their Brexit strategies. A Bosch spokesperson said the world’s largest car-parts maker was evaluating several scenarios, but it had not made any decisions yet.

“There may be areas where Britain’s departure from the EU will open up new market and business opportunities.”

Spokesman for consultancy TÜV Rheinland

Brexit is a headache for most companies, regardless of whether they supply British customers or local subsidiaries from mainland Europe, or ship products or parts made in the UK to the continent. If the country leaves the EU it may no longer be part of the customs union, which could trigger import and export duties and unleash new regulations on those companies’ products. That is why BMW, which owns the British brands Mini and Rolls-Royce, is vocal and critical of Brexit. With four UK-based plants, which export half of their vehicle output to the rest of Europe, the carmaker could become one of Brexit’s losers without new customs rules.

For other German companies, namely those whose local production goes to British customers, Brexit could actually strengthen their competitiveness. “There may be areas where Britain’s departure from the EU will open up new market and business opportunities,” said a spokesman from the British subsidiary of consultancy TÜV Rheinland, which has no current plans to make big changes in the face of Brexit. “This is possible, for instance, in the areas of assessment or regulatory approval of products if new rules would apply to the British market.”

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Just like TÜV Rheinland, German companies with local, British production are looking at the possible benefits of Brexit. “They are looking at the supply chain coming from mainland Europe and have now already started searching for potential suppliers in Britain,” said Ulrich Hoppe, head of the German-British Chamber of Industry and Commerce in London.

Sortimo, which generates a fifth of its international sales in the UK, is also looking at its options, its boss Reinhold Braun said. The company could actually benefit from a hard Brexit, where Britain would no longer have a customs union with the EU after its departure. In such a scenario, the pound might lose more value against the euro, making it even more attractive to move production to the UK. Brexit has even prompted Sortimo to speed up the development of new products lines. These new wares contain components, of which production can be easily shifted to Britain, making the company less vulnerable to unpredictable political developments.

“We will never give up on the British market, it is simply too attractive for us,” Mr. Braun said. “We have therefore decided that when the conditions change, we will accept them and make the necessary changes.” If more German companies think alike, Brexit might not be the big stumbling block it is perceived to be.

A version of this article appeared in business weekly WirtschaftsWoche, a sister publicatin of Handelsblatt. Sascha Zastiral writes for the publication. To contact the author: unternehmen@wiwo.de

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