Brexit: a rosy scenario

The tumbling pound signifies a widely held belief that the UK’s impending break with the European Union is more bad news than good for the British economy. Evidence is already visible on Tesco’s website, where a number of Unilever’s familiar brands are unavailable in a tussle over who eats the 10% price increase driven by unfavourable exchange rates. Plus, a Treasury report that was leaked to The Times projects a dent in GDP of up to 9.5% in the event of a complete withdrawal from the EU.Is there any light at the end of this tunnel?

Three supply chain trends that could help

Brexit is in large part a populist rejection of globalisation. To economists and most big business leaders this is madness, and in the short term it looks like the British will pay dearly. But in the long run it could work out if three trends evident to supply chain leaders fall the right way.

Trend 1: Localisation of manufacturing – Reshoring is happening in the United States as companies like Nike, Stanley Black & Decker and General Electric find ways to produce domestically for reasons including marketing appeal, shorter supply chains with lower risks and quicker time to market for new products. China, meanwhile, is shifting aggressively away from export-led growth to domestic consumption, as companies like Xiaomi, Huawei and Haier make in China, for China.

Consumer products, especially in developed markets, are finding more growth in micro segments like craft brewing and organic foods than in traditional CPG categories. Fast fashion icon Zara succeeds with thousands of short-lived styles made close to customers in Spain. Harley Davidson and BMW make one bike or car at a time.

And manufacturing technologies including advanced robotics and 3D printing offer even small workshops a chance to compete in everything from bicycles to aircraft parts. The “maker movement” is all about micro-manufacturing on a bespoke basis.

It may take a while, but companies like Gtech in Worcestershire, Andrew James in Durham, and Designer Habitat in Manchester could end up making many or all of their products in the UK.

Already, famous brands like Burberry and Bentley succeed in making products in Britain not because they’re cheap and abundant, but excellent and rare. How much more of this is possible in a local-for-local, technology-enabled manufacturing future?

Plenty.

Trend 2: Rising value of intellectual property – Data collected by financial consultant Ocean Tomo shows a massive shift in market values of public companies away from physical assets and towards pure IP assets. It’s obvious for businesses like Disney or Lego, but it’s also true for pharmaceutical, semiconductor, aerospace and engineering businesses.

Technology matters here too, since digital supply chains “ship” IP with essentially no marginal cost. This means pure content like artwork, formulations, algorithms and software can be worked on anywhere the brains are. This will of course include places like Cambridge, Oxford, Bristol and Leeds.

English is the dominant language of business and London is still the crossroads of the world. Britain’s future in an IP-dominated world could be very bright indeed.

Trend 3: Global trade rollback – Global trade has slowed dramatically in recent years. Economists see this as a clear negative for economic growth, but perhaps there is a silver lining.

Globalisation has meant commodities booms in Brazil, Australia and Russia and building booms in China and the Middle East, but it has come with a hefty environmental bill in terms of climate change. Is it possible that we’re better off resisting the urge to extract, transport and consume materials from half a world away?

Free trade makes sense, but is it sustainable if it’s based on labour arbitrage? Social justice cuts two ways, with losers both among the exploited in Bangladesh and the displaced in Britain. Shoppers are also voters and they may understand this better than we think.

Back to the Shire

The transition would take a generation, but Britain could end up looking smart for having hit the exit before everyone else. The end game may be a simpler, smaller, more local economy that consumes fewer resources and rewards creativity over industry.

Who’s to say Brexit couldn’t turn out like this?