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Deloitte Brexit Briefing | 10 Brexit and the German economy: Risks, expectations and strategies as stated by German companies March 2019
Deloitte Brexit Briefing | 10
Brexit and the German economy: Risks, expectations and strategies as stated by German companies
March 2019
2018 Deloitte 2
The current edition
Perspectives on Brexit
Deloitte Brexit Briefings
Deloitte Brexit Briefings Series
In our current edition ‘Brexit Survey: Risks, expectations and strategies as stated by German companies’, we, in cooperation with the Federation of German Industries, analyse the perspective of German companies on the impact of Brexit and the Brexit process.
Our focus is on the assessments of companies on the Brexit negotiations, the implications, risks and opportunities emerging from Brexit for Germany as a location for business and for the companies themselves as well as on the political consequences.
This study is based on a survey carried out from 7 to 15 February 2019, where a total of 262 large German corporations with economic relationships to the United Kingdom were surveyed.
The United Kingdom’s decision in June 2016 to leave the EU will have a far-reaching economic and political impact. For German companies, Brexit means a fundamental change in the business environment.
In this context, the Deloitte Brexit Briefings examine the core Brexit themes and risks from economic, strategic, taxation and legal perspectives, and are intended to provide orientation about the complex effects of Brexit and the Brexit process.
Feb 2017
March 2017
May 2017
June 2017
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Executive Summary
Brexit and Germany as a Location for Business
• The German companies see opportunities for Germany as a location for business in a boost of the financial community and an increase in foreign direct investments.
• A decrease in the trade with the United Kingdom and the danger that the European Union will disintegrate are considered to be the biggest risks.
Brexit Negotiations
• Only about a quarter of the companies expect that an exit agreement between the EU and the United Kingdom will be achieved by 30 March 2019. The major part (36%) anticipate a no-deal Brexit. Every fourth company expects the negotiation deadline to be extended.
• If an exit phase with a transition phase until 2020 comes into effect, most companies again expect this phase to end with a no-deal Brexit (42%). For the future of the European Union, nearly three quarters of the company would like to see an enhanced cooperation or integration.
Brexit Strategies of German Companies
• The damage caused by an disorderly exit of the United Kingdom is considered to be high or very high by almost half of the companies. So far, the Brexit process has resulted in planning uncertainties and the postponement of investments. More than 50% of the companies have so far drawn up a contingency plan in the event of a no-deal Brexit. A quarter of the companies would cut jobs in Germany in the event of a no-deal Brexit.
• Overall, in their Brexit preparations the companies resort to a wide variety of measures, such as contract amendments, relocation of production sites, increase in warehouse capacities, or replacement of British suppliers / service providers (e.g. 60% in the automotive industry).
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Brexit Negotiations
Expectations and Outlook
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Every fourth company still believes in the conclusion of an exit agreement with a transition phase – by contrast, more than one third anticipates a no-deal Brexit
Brexit Negotiations | Short-Term Outlook
Question: Which is the Brexit scenario for your business planning immediately after the official exit date on 29 March 2019?*
28%
25%
36%
6%
5%
Exit agreement with a transition phase
Extension of the negotiation deadlineNo-deal Brexit
Withdrawal from Brexit
don‘t know
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41%
34%
22%
3%
32%
44%
22%
2%
Feb 19 Jun 18
Most companies advocate the indivisibility of the four freedoms, while many companies value the unity of the EU single market higher than the free movement of persons
Brexit Negotiations | Negotiation Targets
Question: Which negotiation target should be pursued by the EU in your opinion?
Maximum preservation of the EU single market with the United Kingdom, even if this means the abolishment of
the free movement of persons
Complete exclusion of the United Kingdoms from the EU single market, if the four fundamental freedoms (free
movement of persons, goods, services and capital) are not accepted
Free trade agreements as with other countries (e.g. CETA agreement with Canada)
Don’t know
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Nearly three quarters of the companies would like to see an enhanced European cooperation or integration among the remaining EU members following Brexit
Brexit | Future of the EU
Stronger general integration and centralisation (joint finance minister of the Eurozone, Eurozone budget, shift of responsibilities to the EU)
39%Stronger integration in selected policy areas (foreign policy, migration policy )
35%
Restitution of responsibilities to the member states and stronger decentralisation
13%Maintaining the status quo
11%
* Replies “don’t know” (2%) are not shown.
Question: In your opinion, which target should the EU pursue in the post-Brexit era?*
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Brexit and Germany as a Location for Business
Risks and Opportunities
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Nearly every company sees risks due to Brexit – above all, a decrease in trade and the danger of EU disintegration cause concern
Germany as a Location for Business | Risks
Danger of EU disintegrationDecrease in trade with the United Kingdom Danger of increased competition of locations through new fiscal incentives in the United
Kingdom
More centralised approach of the European economic policy
General de-concentration of the close UK-German economic relations
I don’t see any risks
Question: Which risks does Brexit involve for Germany as a location for business? (multiple answers possible)
51% 35% 35%
30% 27% 3%
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Many companies anticipate a boost for the local finance industry and an increased appeal to foreign direct investors
Germany as a Location for Business | Opportunities
Question: Which opportunities does Brexit involve for Germany as a location for business? (multiple answers possible)
53% Boost of the German finance industry
50% Higher attractiveness of Germany for foreign direct investors
49% Relocation of existing companies / business units to Germany
38% Increasing appeal to highly qualified foreign talents
32% Boost for Germany as a location for research and development due to relocations
23% Increasing appeal as an European hub to foreign start-ups and high-tech companies
Compared with June 2018, now many more companies see opportunities due to higher foreign direct investments (Jun 2018: 35%, Feb 2019: 50%)
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Brexit Strategies
Concern and Preparations
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9%
38%41%
10%2%
Nearly half of the companies assess the damage caused by a possible no-deal Brexit to be very high or high
Brexit Strategies | Affectedness
Question: What, in your view, is the future damage of a possible no-deal Brexit to your company?
Very high High Low Very low Brexit does not affect us
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45%
35%
30%
26%
16%
16%
11%
The Brexit process complicates planning UK business and makes companies postpone investments
Brexit Strategies | Impact to Date
Question: In what respect has Brexit affected your company to date? (multiple answers possible)
Difficulties in the long-term planning of business in the United Kingdom
Postponement of investment decisions due to high uncertainty
Exchange rate fluctuations
Distraction from core business due to resources employed for Brexit planning
Loss of orders
Incentive for higher investments in the United Kingdom because of future potential trade restrictions
Brexit has not affected my company so far
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Affectedness Industry Insights
Difficulties in the long-term planning of business in the United Kingdom
More than half of the companies in the automotive industry (55%) are facing difficulties in the long-term planning of their UK business.
Postponement of investment decisions due to high uncertainty
Nearly half of the companies in the consumer goods industry (48%) have postponed decisions on investments in the UK so far.
Exchange rate fluctuations38% of the mechanical engineering companies are already sensing the fluctuations in the exchange rate between Pound Sterling and Euro.
Distraction from core business due to resources employed for Brexit planning
A third of the trading companies (33%) are distracted from their core business due to the resources employed for Brexit planning.
Loss of ordersA quarter of the companies in the automotive industry (25%) are already sensing the loss of orders.
Incentive for higher investments in the United Kingdom because of future potential trade restrictions
Every fourth technology company (26%) has used the pre-Brexit period to increase investments in the United Kingdom.
The automotive industry in particular is suffering from planning uncertainty; the consumer goods industry is postponing investments
Brexit Strategies | Impact to Date
Question: In what respect has the Brexit affected your company to date? (multiple answers possible)
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Most companies brace themselves selectively for Brexit; only a good third of the companies have set up their own Task Force
Brexit Strategies | Preparation
Question: How does your company prepare organisationally for Brexit? (multiple answers possible)
9%
58% 37%
26%
Selective analysis of Brexit implications (e.g. taxes or supply chain)
Setup of a central Brexit Task Force
47% of the automotive companies and more than half of the banks have set up a Brexit Task Force.
External consulting In no way
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52%
31%
13%
3%
More than half of the companies have drawn up a contingency plan in the event of a no-deal Brexit – nearly one third plan to do this in a timely manner
Brexit Strategies | Contingency Plans
Question: Has your company drawn up a contingency plan in the event of a no-deal Brexit?
73%
56%
54%
48%
48%
45%
43%
41%
15%
26%
23%
42%
33%
50%
35%
53%
8%
18%
15%
6%
10%
5%
13%
6%
4%
8%
3%
10%
9%
Banking industry
Mechanical engineering
Other processing industry
Technology industry
Trade
Automotive industry
Consumer goods indutry
Transportation
Yes No, but will be drawn up timely No Don‘t know
*Values might deviate from a total of 100% due to rounding
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It is particularly the operating divisions of Sales & Marketing as well as Logistics that are affected by changes due to Brexit
Brexit Strategies | Measures
40%Sales & Marketing
33%Logistics
32%Procurement
30%Finances
28%Production
• It is particularly in the mechanical engineering sector(50%) and in the other processing industry (54%) that Sales & Marketing is affected.
• Nearly three quarters of the companies in the transportation sector (71%) would face particular strong impacts.
• The logistics operations of trading companies (52%) would also be affected.
• More than half of the trading companies (57%) and transportation companies (47%) would face strong impairments by Brexit in their procurement operations.
• In addition to banks (85%), trading companies (38%) also complain about problems in their financing operations caused by Brexit.
• More than two third of the companies in the automotive sector (70%) see problem in these operations.
Question: Which divisions in your company are most affected by changes due to Brexit? Top 5
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The measures taken by companies range from contract amendments to relocation of production sites and replacement of British suppliers
Brexit Strategies | Measures
Question: Which measures have you taken so far in your company with respect to Brexit or do you plan to take soon? (multiple answers possible)
Ø Mostly taken or planned by:
Amendments of existing contracts / new contracts with respect to Brexit (data transfer, cost sharing, minimum notice periods, compensation claims, etc.)
33% 42% banking industry
Analysis of alternative transport routes 31% 48% consumer goods industry
Relocation of production sites 30% 45% automotive industry
Increase in warehouse capacities 30% 57% trading sector
Stop in investments in the United Kingdom 29% 39% consumer goods industry
Replacement of British suppliers / service providers 27% 60% automotive industry
Preparation for customs and customs controls 23% 39% other processing industry
Verification of the work/residence permits of the British employees in Germany or of the German employees in the United Kingdom
21% 39% banking industry
Restructuring of the corporate financing (sources of financing, exchange rate hedging, etc.)
21% 39% banking industry
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Every fourth company would cut jobs in Germany in the event of a no-deal Brexit –in particular in the automotive, consumer goods, and banking sector
Brexit Strategies | Job Cuts
Question: Would a no-deal Brexit result in jobs of your company being cut in Germany? Percentage of the yes-answers
35% 35% 35%
32%
25%
18%
14%
12%
Automotive Consumer goods Banking Technology Total Mechanical
engineering
Trading Transportation
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Relocations offer new business potential – The biggest risks faced are differing regulations and reduced export opportunities
Brexit Strategies | Opportunities & Risks
Question: Which opportunities do you see for your company as a result of Brexit? (multiple answers possible)
49%
31%
26%
23%
18%
14%
49%
43%
30%
29%
29%
23%
Opportunities Risks
Question: Which risks do you see for your company as a result of the Brexit? (multiple answers possible)
Less competition from British companies in the European or German market
Outsourcing to the UK because of permanently favourable exchange rates
Import of intermediate goods from the UK because of permanently favourable exchange rates
M&A opportunities in the UK
I don’t see any opportunities
Higher complexity and costs due to differing regulations between the UK and the EU in legal and fiscal terms
Reduced export opportunities due to customs and differing regulations
Tighter financing conditions due to the London financial centre being excluded from the EU
Loss of orders
Restricted mobility of our staff members
Realignment of our value chains
New business potential through relocations to Germany /Europe
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Participant Structure
Company Size, Industry Classification, Economic Links
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Participant Structure
Industry classification of the companiesCompany size according to turnover
11%
18%
22%
24%
11%
14%
EUR 100 m to < 250 m
EUR 250 m to < 500 m
EUR 500 m to < 1 bn
EUR 1 bn to < 5 bn
EUR 5 bn to < 15 bn
15 Mrd. Euro und mehr
13%
12%
10%
9%
8%8%
6%
5%
4%
3%
4%
3%
3%
3%2%
2%1%3%
Mechanical engineering
Technology
Banking
Consumer goods
Trading sector
Automotive
Transportation
Other processing industry
Telecommunications
Asset management
Construction and real estate
Chemistry
Public sector
Insurance sector
Healthcare
Pharmaceutical industry
Energy sector
Sonstige
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Type of the economic links
Participant Structure
Question: Which economic relations does your company maintain with the United Kingdom? (multiple answers possible)
65%
48%
44%
32%
28%26%
Export Branch office Import Supplier relationships Financing Manufacturing
2018 Deloitte 2419
Dr. Alexander Börsch
Director Research
Deloitte Germany
Tel: +49 (0)89 29036 8689
Dr. Klaus Günter Deutsch
Head of Research, Industrial and
Economic Policy of BDI e.V.
Tel: +49 (0)30 20281591
Your Contacts
2018 Deloitte 25
Deloitte Brexit Task Force
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