The world economy is so interconnected that it would be unwise to think that the Brexit move would just affect the economy in the UK or Europe alone. Brexit move could impact the UK procurement industry along with the procurement industry in many interconnected nations. It is still highly unclear whether the UK will leave with a trade deal in place retaining some part of the membership. The other option for the UK would be to fall back on WTO rules on Government Procurement (GPA) to undertake commitments and receive benefits.
Here are some of the ways Brexit referendum could impact the procurement industry around the UK:
Exchange Rate Volatility
Soon after the Brexit announcement, the value of pound sterling dropped to its lowest in 31 years on the foreign exchange market. Also, pound sterling has fallen by over 10% against the euro after a year of Brexit vote with further volatility expected to take place. The fluctuations in the currency will affect the import and export of goods and services. Procurement managers would have to reconsider their current set of suppliers as the prices of imported goods and services will be high. A weaker pound alongside driving inflation would also raise the cost of sourcing materials from the UK.
Impact on Labor Supply and Talent Management
Many studies cite anti-immigrant sentiment as the top reason for Brexit vote. The net migration rate from Eastern European nations has fallen drastically since the Brexit announcement. This limits the availability of low-skilled migrant labor for the procurement industry, adding more costs to the business. Apart from the low-skilled labor supply, talent management in the UK is also likely to suffer as businesses will have a smaller pool of candidates to consider for open procurement positions.
Laws and Regulations
Brexit decision gives the UK the freedom to decide the level of tariffs levied on imports and negotiate a trade agreement with non-members. Although it gives the UK the flexibility with laws and regulations, it also withdraws the free trade benefit with the EU members. The UK exporters would have to follow the EU rules and possibly pay increased tariffs.
Under EU laws all government bodies competitively tender major contracts which fetches them the best contract terms and conditions. Public procurement is a multi-billion-pound industry in the UK, and they expect to save few billion in procurement costs with the Brexit referendum. UK government would have the scope to simplify the rules regarding competitive tendering and post-award contract modifications.
As a result, procurement managers will have to assess the potential risks and costs associated with Brexit and devise contingency plans and revisit their supplier relationship.
To gain more insights on the impact of Brexit on procurement functions