If the UK withdraws from Europe, what will be the impacts on UK procurement prices and practices?

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Referendum

Since the Prime Minister’s announcement of his intention to hold a referendum on the future of the UK’s relationship with the European Union, questions around the impact of a possible change have seldom been far from the minds of businesses and the media alike. But what would the impact be on procurement?

Although it is possible that the UK will continue to benefit from a free-trade relationship with the EU – as non-members such as Switzerland and Norway already do – even in this case it is likely that over time the cost of doing business with the Union would increase and, as such, working with EU businesses will no longer be as risk-free as it has been in the past.

Clearly any major suppliers based in other EU countries may face additional costs which could be passed on, but it’s not enough to focus on these. Almost any UK-based supplier will have dependencies somewhere in theirsupply chain which link back to the EU, and should have strategies in place to seek alternative sources of supply if necessary.

Swings and Roundabouts

Whilst it is unlikely that a departure would require EU workers in the UK to leave immediately, even relatively generous terms would see their numbers decline by natural attrition, as those who return to their home countries or go elsewhere are not replaced by others. This will inevitably result in a tightening of the labour market, especially in the low-skilled areas where migrants from the “new Europe” countries have featured so prominently – at least in the eyes of the media.

Other areas may see price decreases. For example, the UK remains a net exporter of energy, thanks to North Sea oil and gas. If exporting this becomes more expensive then wholesale energy costs may decline, or at least stabilise. A larger impact in the medium term will be from economies of scale for those businesses which are able to grow by filling the void left where EU providers are no longer competitive. Finally, there is the oft-cited reduction in regulation which may reduce costs. For example airlines flying to non-EU destinations will no longer be obligated to provide compensation for delays.

Opportunities

Any major change to the environment in which a business operates should be seen as an opportunity for procurement, whether it be to achieve savings or mitigate price increases. There can be fewer changes which will have more wide- reaching consequences to the UK economy than an exit from the EU. Should such an event seem more likely, procurement professionals would be well-advised to make a detailed assessment of the opportunity- and the risk.

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