Brexit’s Impact on Electronic Supply Chain

Brexit’s Impact on Electronic Supply Chain

The past week has been truly eventful for the global markets. On June 23rd, the result of UK’s EU referendum surprised the global markets by voting OUT with a majority of 52% to 48%.

As the vote was casted, British pound dropped almost 8% on Friday June 24th and the falls continued on Monday June 27th, hitting 30 year lows. Worldwide stock markets also responded with a sharp fall, DJI dropped over 600 points on Friday and over 200 points on Monday.

Although the UK exit won’t happen immediately, the uncertainty created by Thursday’s vote has impacted and will continue to affect various industries across the globe, including the electronic industry.

The biggest influence comes from uncertainty. The first thing a population will do when facing uncertainty is preparing for the worst and that usually mean less spending on non-essential, which includes consumer electronics such as tablets, phones and personal computers. The devaluation of British pound will significantly increase the price for importing electronics and components, hampering demand.

On the business side, big technology manufacturing companies are holding cautious views. UK CEM Texcel Technology Commercial Director Peter Shawyer said in an email conversation with Evertiq that “the eventual outcome of the recent vote, for Texcel and the electronics sector in the UK is uncertain, but in the short term we are preparing for high volatility of component prices as this can cause CEMs great difficulty and we need to manage this carefully.”

Companies from other EU countries and other continents also feel the impact. Acer, a Taiwanese electronic company who has about 30% of its revenues from Europe has already seen some impacts on exchange rates, which will affect the company’s operations in Europe. Thilo Brodtmann, Chief Executive of German Engineering Association (VDMA) says, “Great Britain’s decision to leave the EU is a warning signal for companies. The Brexit will cost Europe as an industrial location a great deal of confidence among investors. It won’t be long before our machinery exports to the UK start to fall off noticeably. It is completely unclear what will happen to companies with UK subsidiaries” and “For export-oriented companies, fragmentation of Europe would be the nightmare scenario.” Jim McDonald, chief investment strategist at Northern Trust, commented that “any U.S. company that has got significant operations in the U.K. selling into Europe has to be worried about changes in the business climate.”

Another concern companies in UK have about Brexit is the impact on qualified workers. Shortage of qualified workers will leave thousands of manufacturing and high-tech jobs unfilled and will slow down the production line, which will impact companies’ bottom line. Moreover, the renegotiation of trade and export agreement between UK and other countries following its departure from the EU may increase tax and the cost of logistics services, which will impact the global electronic industry.

On the other hand, according to David Allen Green’s blog on Financial Times, no legal provision was included in the EU referendum legislation that requires the UK Parliament to act in accordance with the outcome of the referendum. This means that the Brexit may not happen if the UK Parliament chooses to ignore the result of the vote. Even if the UK Parliament did choose to start the process, it will take at least 2 years to complete. However, the uncertainty and market volatility has already happened and we should keep a close eye on the development of Brexit.

As a global distributor of electronic component and supply chain service partner, Advanced MP Technology always keeps up with the global news to evaluate the impact on the electronic industry to adjust our strategy, service and forecast to better serve our customers.