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Does Brexit Spell Mass Factory Relocation?

10th April 2018

IES provides a world leading factory relocation service, transporting production lines and complete factories as part of a seamless, integrated, end-to-end solution. From the moment the UK voted to leave the European Union, factory relocation has entered the spotlight as businesses weigh up the benefits of taking their operations outside the country.

A February 2017 report from ‘Big Four’ consultancy firm KPMG underlined just how real a consideration relocation is for many firms in the UK. Looking at the plans of UK businesses in the eventuality that the UK leaves the Customs Union with no EU-UK Free Trade Agreement, the Rethink Manufacturing survey conducted by KPMG found that one third of industrial manufacturers are considering relocating at least some aspects of their operations abroad, in order to “boost productivity or reduce costs”.

Coming to the crunch

In April 2017, confectioner Nestlé announced one of the highest profile relocations when they relocated their production base for the Blue Riband chocolate bar to Kargowa, Poland. The move away from their Newcastle plant ended an 81-year stretch of UK production for the bar. While the Swiss company partly attributed its motives for the move to the Polish factory being a “centre of excellence for this type of wafer-based product”, they also hinted that Brexit was a factor, saying it wants to “operate more efficiently and remain competitive in a rapidly changing external environment”.

Pulling away

Witter Towbars, a leading towbar manufacturer which supplies Land Rover, was another to announce it will join the ‘Brexodus’. The firm will move production from its plant in Flintshire, Wales, to Romania, as it seeks to adjust to the UK’s economic future. Witter Towbars did not take the decision, which was confirmed in October 2017, lightly. It undertook a full consultation process, and even turned down help from the Welsh government to keep its manufacturing operation in the UK. When push came to shove, the company, which will keep its Engineering and Commercial wings in the UK, explained that it is seeking to “align its manufacturing costs with the market economics in the UK and create a sustainable business that will continue to serve the important UK market”.

Those are two of the highest profile relocation cases; both are firms which have decided to take action before we have seen the full picture of a post-Brexit UK. Many companies seem to be biding their time to gauge where exit negotiations place the UK market, but there is always room for a back up plan. The Irish Times reported that as many as 100,000 British firms have registered in the Republic of Ireland in the wake of a Brexit ‘D Day’, readying themselves for any worse case scenarios which a new trade agreement, or lack of one, could throw up. 

Key considerations

As Brexit negotiations proceed, many manufacturers find themselves in a ‘weighing up’ period in which there seems to be more questions that answers. Many conundrums which organisations with large manufacturing operations face cannot be fully resolved at this time. These include the extent of tariff levels which UK customers would have to pay following a relocation, as well as the nature of any regulatory advantages which could be brought into play by reshoring. There is also the question of the pound – a return of the sterling to its previous strength could be a game changer when it comes to the viability of UK-based plants, depending on the financial model of a specific organisation.

Reasons to stay put

One thing which is certain is that factory relocation will not be the answer for every manufacturer. Taking the Nestlé move as an example, it should be noted that the UK is Europe’s biggest consumer of snacks. How much will it cost for the company to import Blue Riband bars back in the UK to feed its biggest market? Again, post-Brexit tariffs could determine whether these costs outweigh the reduction of overheads thanks to a factory relocation. Then there is the long term consideration of how strong the EU’s Single Market can remain after the hit to its GDP and the ‘shifting of sands’ in the politics of many countries.

There is no ‘one size fits all’ solution when it comes to deciding location in the post-Brexit era, but manufacturers can feel reassured that in the future there will be more information upon which to base critical decisions.

If you would like to discuss your options for factory relocation, call IES today on +44 (0) 117 938 0600.