Brexit’s Impact on Business and Ecommerce Shops: How To Sell With Brexit
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On June 23, 2016, United Kingdom voters sent shockwaves around the world by voting to leave the European Union in the Brexit vote referendum. The vote has already had a major global impact, likely to grow once the UK’s withdrawal becomes official later in 2019 — particularly impacting cross-border ecommerce.
This is significant because the UK is seen as an ecommerce powerhouse in the EU. Online shoppers in the UK lead the EU in ecommerce usage and purchasing goods online, with 86% of internet users shopping online as of 2017.
With the EU’s leading ecommerce market preparing for its impending departure from the supranational political union, uncertainty has set in for online merchants, online shoppers and businesses not only in the United Kingdom, but throughout the world.
How will delivery lead times be affected? Will UK customers have to pay higher tax and duty amounts for imported goods? Will merchants be forced to find new suppliers?
Here’s a closer look at Brexit’s impact on global ecommerce, including the impact of Brexit on UK businesses and the UK economy overall.
What is Brexit?
Brexit is the unofficial name for the United Kingdom’s impending departure from the European Union.
The UK’s membership within the EU has always been a source of controversy in the nation. Plans for a formal referendum on whether to remain within the EU or leave eventually emerged, taking the form of the European Union Referendum Act 2015.
After months of politically charged debate, UK voters narrowly opted to leave the European Union in the June 23, 2016 referendum.
The primary reasons cited by Leave voters were for greater UK sovereignty and independence from the EU. Specifically, many voters felt that important decisions impacting the United Kingdom, particularly with regards to trade and regulations, should be made by the country itself rather than in Brussels, where the European Union is headquartered. The desire of many Britons to more tightly control immigration also played a major role in the referendum vote, as fast-rising immigration from the EU provoked a backlash in many parts of the country as some Britons sought to stave off cultural changes and employment competition.
Article 50, the formal procedure for member states to leave the EU within a two-year timetable, was invoked on March 29, 2017. A tentative official withdrawal date was later agreed upon by UK and EU negotiators for October 31, 2019.
On July 24, 2019, former London mayor and UK Foreign Secretary Boris Johnson was named the new Prime Minister of the United Kingdom. A longtime Brexit advocate, Johnson has vowed that the United Kingdom will adhere to the October 31, 2019, deadline to leave the European Union with or without a formal Brexit deal in place.
Currently, the specific details of the United Kingdom’s departure from the EU are still being negotiated.
What is the Impact of Brexit?
We don’t yet know the full impact of Brexit, economic or otherwise, especially since the UK’s formal withdrawal from the EU has been delayed until October 31, 2019. Depending on how negotiations proceed in the coming weeks, a number of possible scenarios may unfold.
1. No-Deal Brexit.
A No-Deal Brexit scenario would involve the departure of the United Kingdom from the European Union without any sort of formal agreement between the two entities in place about their future relationship.
Such a development would have considerable and far-reaching consequences for both EU and UK businesses. Under this scenario, the United Kingdom would immediately revert to World Trade Organization (WTO) rules on trade. Although this would free the country of EU regulations, the UK will also have to face the EU’s own tariffs.
Likewise, the UK government unveiled a temporary tariff plan in March 2019 to be implemented in the event of a No-Deal Brexit, which will likely produce higher prices on many consumer products imported into the UK, including food and automobiles.
Some UK-produced goods may also be restricted or prohibited from entering the EU while some manufacturers may relocate from the UK to the EU in order to avoid any shipment delays or complications when shipping to other countries still within the European Union.
This option is widely seen as the most economically and politically risky of all outcomes, and negotiators representing both the UK and EU have been working feverishly for months to avoid this scenario. But it’s not outside the realm of possibility that it may ultimately occur if no deal is reached.
2. Brexit Deal.
Under a Brexit deal, the UK will have a transition period to withdraw from the EU in an orderly manner, but will also have to pay 39 billion pounds to leave the political union.
Additionally, complex issues like trade regulations and tariff rates between the UK and the EU, immigration laws, Britain’s adherence to the European Court of Justice, and more must be addressed. The issue of tariffs on goods being shipped between the Northern Ireland–Republic of Ireland border has also emerged as a key sticking point in negotiations.
This scenario is generally viewed as the most ideal for both the UK and the EU, though many specific details remain unresolved.
3. Brexit falls through.
In this scenario, the lack of a Brexit deal and ongoing negotiations would theoretically result in Brexit being cancelled due to ongoing delays that have not produced a mutually agreed-upon solution.
Likewise, Brexit could also be cancelled if Article 50 is revoked by the UK government or a second referendum with binding results is held and ultimately overturns the 2016 Brexit vote results.
While unlikely, the odds of Brexit falling through have increased in recent weeks as negotiations continue with limited progress.
Which Ecommerce Merchants Does it Impact?
Brexit will impact ecommerce merchants across the world, particularly British companies selling globally, British companies already selling in Europe, and foreign brands currently selling in the UK and across the EU.
1. British companies selling anywhere.
British companies that sell cross-border outside the UK will be subject to new regulations when shipping outside of the United Kingdom and vice versa, which could possibly lead to restrictions or prohibitions on their products, new tariffs and import duties, and other trade barriers.
2. British companies selling in Europe.
British businesses selling cross-border to the EU will be forced to reckon with new tariffs when importing into the EU and various shipping restrictions and regulations when selling cross-border to EU countries. This could raise the prices of their products being sold and cause potential delays when shipping to EU customers.
3. Foreign companies selling in Britain and Europe.
International companies who sell to both Britain and the European Union will need to adjust their shipping and selling policies considerably to account for an independent UK in a post-Brexit world. This will likely entail the creation of separate, UK-specific shipping and selling rules.
What Are Potential Impacts on Businesses from Brexit?
The specific fallout of Brexit largely depends on whether a deal between the UK and the EU can be reached before the October 31, 2019, deadline. However, Brexit will likely impact businesses in a number of ways, regardless of the exact terms of the withdrawal.
1. More customs.
In a post-Brexit world, Britain will exist outside of the European Union’s single market, meaning it will no longer benefit from the open borders that have allowed unimpeded trade between other EU nations.
One of the most consequential Brexit impacts will be the stricter customs regulations for parcels entering and leaving both the United Kingdom and European Union. Specifically, these additional regulations could see some British products restricted or, in some cases, outright prohibited, depending on the details of a potential Brexit deal.
2. Longer shipping and transit times.
Stricter customs regulations between the UK and the EU will likely mean parcels being shipped between both entities will endure longer shipping and transit times.
3. Different tariffs.
Both the United Kingdom and the European Union will be free to impose tariffs on each other’s imports, likely raising prices and potentially sparking a trade war between the two entities.
4. VAT changes.
VAT, or value-added taxes, are consumption taxes charged to consumers when value is added at each stage of the production process of a good. Brexit will likely change VAT laws in both the UK and the EU. Indeed, VAT laws have emerged as a major point of contention during Brexit negotiations recently.
Should the UK leave in a No-Deal Brexit scenario, UK businesses would no longer be obligated to collect any VAT on products sold to EU customers. Though this may lower prices, Britain will also no longer, in all likelihood, be able to utilize the EU VAT refund system currently in place.
5 Steps for Preparing Your Ecommerce for Brexit
Businesses both in the UK and abroad should take proactive steps to prepare ecommerce operations for a post-Brexit world. By preparing in advance, your company is less likely to be caught in a disadvantageous position and cede ground to your competitors.
1. Update policies.
If your business is engaged in cross-border ecommerce with both the UK and the EU, you should update your shipping and tariff policies to reflect specific Brexit details once they are known. Tailor the policies to conform to both the new United Kingdom and European Union regulations, making a point to differentiate between them in a post-Brexit world.
2. Check on suppliers.
Identify some additional suppliers to avoid any complications that could arise from Brexit’s impact on tariffs and customs.
For example, if your online store is based in the UK but your manufacturer is located in France, be sure to explore other options in case tariffs are too high to effectively turn a healthy profit. In addition, consider relocating your inventory to warehouses closer to your customers before Brexit.
3. Look to sell outside of the UK and EU.
Brexit’s impact on ecommerce will likely cause considerable disruption for the short and potentially long term. As a workaround, online merchants should explore other robust markets outside of the UK and the EU to avoid dealing with trade barriers, including tariffs, more stringent customs and import regulations, and longer shipping times, to name a few.
4. Stay informed.
Pay close attention to the news to better assess Brexit’s economic impact. Keeping tabs on Brexit news can help you stay up to date and prepared for its implications when it finally occurs.
5. Keep currency options open.
Although Britain doesn’t use the euro, be sure that your site can accept multiple currency options, including pounds, euros and U.S. dollars. Having numerous currency options can hedge against any Brexit-induced confusion and accommodate online shoppers who move between the UK and the EU.
Optimizing your checkout process for a global audience by offering customers multiple shipping options can also go a long way in accommodating UK and EU customers.
Changes We May See Due to Brexit
Brexit’s impact will lead to major changes in global ecommerce, especially regarding trade with the UK. Regulatory changes will likely force some companies like Nissan and Sony out of the United Kingdom, while imports and exports will probably be impacted considerably, especially depending how trade is specifically affected by a potential Brexit deal.
1. Companies leaving the UK.
Brexit’s impact, along with the relative instability of the pound and the prolonged period of economic uncertainty facing the UK, may force at least some companies to move their operations elsewhere. This is already happening on a small scale with financial firms and could happen with online merchants in the future, especially if high tariffs and stringent customs regulations are imposed between the UK and the EU.
2. Fewer imports coming to the UK.
New tariffs and customs regulations, along with the depreciation of the pound, could potentially reduce imports into the United Kingdom. This development, in turn, could lead the UK to become more economically independent and rely on its own domestic manufacturing in the future. Likewise, British consumers could also turn to domestic ecommerce merchants to cope with the likely results of Brexit’s impact, including higher prices, increased shipping delays, and fewer cross-border product options.
3. Fewer exports leaving the UK.
Exports from the United Kingdom to the European Union single market will also likely be hampered by Brexit, specifically due to longer waiting times for products and higher prices due to the likely imposition of tariffs. These trade barriers may even result in some EU consumers avoiding UK-based online merchants altogether.
Brexit’s impact on global ecommerce and UK businesses is still unfolding, as the exact details of the United Kingdom’s EU departure remain in flux.
However, that doesn’t mean online merchants should simply adopt a wait-and-see approach and hope everything works out. Instead, the best plan of action, in addition to keeping close tabs on the news, should be to take proactive steps to plan for a post-Brexit future. Update your policies, coordinate closely with your suppliers, look for cross-border sales opportunities outside of both the UK and the EU, and keep your online store’s currency options open.
The truth is that no one can fully predict Brexit’s outcome and subsequent impact on ecommerce and businesses in the UK. However, you can become better prepared with careful planning for the future.
Build the effects of a global post-Brexit landscape into your long-term ecommerce business plans and invest in a shipping platform like Easyship to help you compare courier shipping solutions, automate taxes and duties, and track cross-border shipments accurately. With these measures, your business will be better prepared to withstand Brexit’s global geopolitical repercussions.
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