4th Annual Procurement Strategy Summit BREXIT : The impact on Procurement

Paul Gulston MSc MCIPS Supply Chain Specialist and Lecturer

Paul Gulston 2016

What really is Brexit ?

NOUN A term for the potential departure of the United Kingdom from the European Union (oxforddictionaries.com)

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The EU and the EU Procurement Directives Based on the Treaty of Rome, which was an initiative to reunite Europe after World War II, the purpose of the EU was to establish a single market to : • free movement of goods, labour and services

between member states • common agricultural and transport policies • customs union • free competition • harmonization of legislation between member

states • external tariffs to provide trade protection against

non-member countries

Chartered Institute of Procurement and Supply Paul Gulston 2016

Brexit Caveat

No contention with the enactment of the Lisbon Treaty Article 50 Not a For or Against forum on the Brexit matter

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• Procurement , caught in the middle or adapting to the change ?

• Brexit and the implications for UAE procurement framework

• Brexit and the role of the procurement professional

Session Focus

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Popular questions for CPOs and Suppliers Can UK contractors still access contracts within the EU? What do we do with the existing EU procurement laws ? Can we replace the current legislation ?

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The directive stays for now. Its has UK DNA. UK is a key contributor to its existence Its a corruption buster It’s a best practice model to benchmark It’s a standard and globally recognized template for buyers and suppliers to follow Paul Gulston 2016

The good the bad and the ugly : Adapting with the Pros and the Cons

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Good :Ease of business and entry for SMEs; new opportunities to establish business ties with other regions and countries ; Bad : Possibility of a smaller UK market which can reduce buyer leverage Ugly: Reduced attraction of UK Market can erode opportunities for supply chain partnerships .The supply chain may lose innovation

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BREXIT – Global Impact in a Nutshell : Applying Heinzmann (2016) Six Implications for Procurement

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Heinzmann (2016) - 6 Implications for Procurement 1. Companies Will Face Widespread Uncertainty — For a While

2. Supplier Relationships Will Need to be Re- Evaluated 3. Borders Will Become More Complicated 4. The Supply of Low-Cost Labor Will Shrink 5. Procurement Recruiting and Talent Management in UK Will Suffer 6. Increased Market Volatility

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• Brexit and the implications for UAE procurement

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The “Shock “

Like all other regions and economies, the news of Brexit did raise concerns for the UAE, as stocks came crashing down. The avalanche of falling stocks due to uncertainties may have since changed . FTSE and the USA Stock Market has risen since (Stock Markets, July 2016).

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Economic facts : UK and UAE

UK remains a large bilateral partner with UAE. So far, according to the Khaleej Times article dated June 25th 2016 the UK intends to invest up to 25 billion dollars by 2020. And according to the UK Department of International Trade (December 2014) Over 5,000 UK companies are doing business in the UAE. UAE imported, in 2014, 10.5 Billion dollars worth of goods and services from UAE according to the OEC. UK has ranked in the top 5 as a main trading partner and as a major import hub for the UAE according the UAE Imports and Exports Guide

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Economic facts : UAE

MAIN IMPORT GOODS 2013

Jewellery, Precious Metals 32.67%

Machinery 10.05%

Vehicles/Parts 9.43%

Electrical Appliances 6.98%

Aircraft & Parts thereof 4.20%

Articles, Iron & Steel 2.28%

Iron & Steel 1.96%

Plastic & Articles 1.96%

Copper & Articles 1.86%

Mineral, Fuels, Oils 1.48%

Total of remaining 27.14%

UAE Import Export Guide

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TOP 10 TRADE PARTNERS

INDIA 12.5%

ITALY 2.02

USA 7.4%

SOUTH KOREA 1.65

CHINA 6.6%

FRANCE 1.57

IRAN 4.7%

SINGAPORE 1.54

UNITED KINGDOM 4.4%

IRAQ 1.48

SWITZERLAND 4.3%

MALAYSIA 1.36

GERMANY 3.8%

KUWAIT 1.31

JAPAN 3.4%

THAILAND 1.23

SAUDI ARABIA 3.4%

QATAR 1.08

TURKEY 3.4%

AUSTRALIA 0.97

BELGIUM 2.67

BAHRAIN 0.85

OMAN 2.43

SUDAN 0.78

HONG KONG 2.29

Adapted from the UAE Import and Export guide

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Main import partners

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Porter's 5 Forces: The UAE CPOs Brexit Tool

SUPPLIER POWER – UK

machinery and equipment parts item availability and OEM obligations for power generation and other equipment

BARRIERS TO ENTRY

learning curve for new

and existing suppliers operating within an uncertain

environment and possibly a hybrid or no preferential

arrangement model

THREAT OF SUBSTITUTES -India remains the leading importation hub for UAE followed by USA and China. If the UK market is no longer a viable source due to Brexit trade consequences then other exporters to the region might easily replace UK goods with alternatives -Buyer inclination to substitute

BUYER POWER -UAE

Any reality of ease of business from the traditional EU model is likely to encourage

greater competition in the market, increasing , leverage can increase buyer leverage.

Buyer volume – UAE is UK’s 11

th largest

importer at 10.3 billion dollars reported and largest in the Middle East

Threat of backward integration with a

weakening supplier base in UK can exist. There is no guarantee that UK will be

afforded preferential treatment as many UK suppliers can be displaced

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Brexit and the role of the procurement professional

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The Non - UK and UK CPO’s : SWOT of Brexit

Helpful

Harmful

Strengths

Potential for ease of business, not having to contend with the bureaucracy of the EU regulations, at least in the future

Weaknesses

A steep learning curve and the element of caution is everywhere. For CPOs / buyers wishing to enter the UK market or vice versa, caveat emptor is in effect

Opportunities

At least for SMEs or buyers of SMEs wishing to access the UK market or vice versa, there is the potential opportunity for easier access. UK firms might be seeking newer markets as well.

Oliveira (2016) contends that with the changes to come, UK buyers may need to scan the market for wider sources in and out the UK. This might be seen as a challenge however it poses an opportunity to improve both competition and explore supply chain innovation in other regions

Threats

Suggestion by Oliveira (2016) that contractors may not extend the usual commitment due to uncertainties. This might be the reaction of UK based contractors being approached for sourcing deals

The lack of political will and commitment to afford a seamless transition and assure that trade within the UK or with buyers aboard wanting to access goods and services within the UK market are allowed to do so with ease

This SWOT matrix template was created by Lenny Zeltser, and is inspired by Wikipedia’s SWOT Analysis article. To learn how to

use this matrix for summarizing your perspective on security of an information system, see

http://isc.sans.org/diary.html?storyid=4939. You are welcome to adapt this template for your needs. Paul Gulston 2016

Want to share your perspective ?

Paul Gulston 2016