Deloitte Brexit Briefing | 10 Brexit and the German economy: Risks, expectations and strategies as stated by German companies
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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 Briefings
Perspectives on Brexit
Deloitte Brexit Briefings Series The current edition
The United Kingdom’s decision in June 2016 to leave the EU will have In our current edition ‘Brexit Survey: Risks, expectations and
a far-reaching economic and political impact. For German companies, strategies as stated by German companies’, we, in cooperation
Brexit means a fundamental change in the business environment. with the Federation of German Industries, analyse the
perspective of German companies on the impact of Brexit and
In this context, the Deloitte Brexit Briefings examine the core Brexit
the Brexit process.
themes and risks from economic, strategic, taxation and legal
perspectives, and are intended to provide orientation about the Our focus is on the assessments of companies on the Brexit
complex effects of Brexit and the Brexit process. 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.
June 2017
May 2017
March 2017
Feb 2017
2018 Deloitte 2
Executive Summary
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 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 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.
2018 Deloitte 60% in the automotive industry). 3
Brexit Negotiations
Expectations and Outlook
2018 Deloitte 4
Brexit Negotiations | Short-Term Outlook
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
Question: Which is the Brexit scenario for your business planning immediately after the official exit date on 29 March 2019?*
don‘t know 28%
Exit agreement with a
transition phase
5%
Withdrawal
from Brexit
6%
25%
36% Extension of the
No-deal Brexit negotiation deadline
2018 Deloitte 5Brexit Negotiations | Negotiation Targets
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
Question: Which negotiation target should be pursued by the EU in your opinion?
Feb 19 Jun 18
Maximum preservation of the EU single market with the 41%
United Kingdom, even if this means the abolishment of
the free movement of persons 32%
Complete exclusion of the United Kingdoms from the EU
single market, if the four fundamental freedoms (free
34%
movement of persons, goods, services and capital) are
not accepted 44%
Free trade agreements as with other countries
22%
(e.g. CETA agreement with Canada)
22%
3%
Don’t know
2%
2018 Deloitte 6Brexit | Future of the EU
Nearly three quarters of the companies would like to see an enhanced European
cooperation or integration among the remaining EU members following Brexit
Question: In your opinion, which target should the EU pursue in the post-Brexit era?*
39% 35%
Stronger general integration and Stronger integration in selected
centralisation (joint finance minister of the policy areas (foreign policy,
Eurozone, Eurozone budget, shift of migration policy )
responsibilities to the EU)
13% 11%
Restitution of responsibilities to the Maintaining the status quo
member states and stronger
decentralisation
2018 Deloitte * Replies “don’t know” (2%) are not shown. 7Brexit and Germany as a Location
for Business
Risks and Opportunities
2018 Deloitte 8Germany as a Location for Business | Risks
Nearly every company sees risks due to Brexit – above all, a decrease in trade and the
danger of EU disintegration cause concern
Question: Which risks does Brexit involve for Germany as a location for business? (multiple answers possible)
51% 35% 35%
Decrease in trade with the United Kingdom Danger of EU disintegration Danger of increased competition of locations
through new fiscal incentives in the United
Kingdom
30% 27% 3%
More centralised approach of the European General de-concentration of the close UK- I don’t see any risks
economic policy German economic relations
2018 Deloitte 9Germany as a Location for Business | Opportunities
Many companies anticipate a boost for the local finance industry and an increased
appeal to foreign direct investors
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%)
2018 Deloitte 10Brexit Strategies
Concern and Preparations
2018 Deloitte 11Brexit Strategies | Affectedness
Nearly half of the companies assess the damage caused by a possible no-deal Brexit to
be very high or high
Question: What, in your view, is the future damage of a possible no-deal Brexit to your company?
2% 9%
10%
41% 38%
Very high High Low Very low Brexit does not affect us
2018 Deloitte 12Brexit Strategies | Impact to Date
The Brexit process complicates planning UK business and makes companies postpone
investments
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
45%
Postponement of investment decisions due to high
35%
uncertainty
Exchange rate fluctuations 30%
Distraction from core business due to resources
26%
employed for Brexit planning
Loss of orders 16%
Incentive for higher investments in the United Kingdom
16%
because of future potential trade restrictions
Brexit has not affected my company so far 11%
2018 Deloitte 13Brexit Strategies | Impact to Date
The automotive industry in particular is suffering from planning uncertainty;
the consumer goods industry is postponing investments
Question: In what respect has the Brexit affected your company to date? (multiple answers possible)
Affectedness Industry Insights
More than half of the companies in the automotive
Difficulties in the long-term planning of business in the
industry (55%) are facing difficulties in the long-term
United Kingdom
planning of their UK business.
Nearly half of the companies in the consumer goods
Postponement of investment decisions due to high
industry (48%) have postponed decisions on
uncertainty
investments in the UK so far.
38% of the mechanical engineering companies are
Exchange rate fluctuations already sensing the fluctuations in the exchange rate
between Pound Sterling and Euro.
A third of the trading companies (33%) are
Distraction from core business due to resources
distracted from their core business due to the
employed for Brexit planning
resources employed for Brexit planning.
A quarter of the companies in the automotive
Loss of orders industry (25%) are already sensing the loss of orders.
Every fourth technology company (26%) has used
Incentive for higher investments in the United
the pre-Brexit period to increase investments in the
Kingdom because of future potential trade restrictions
United Kingdom.
2018 Deloitte 14Brexit Strategies | Preparation
Most companies brace themselves selectively for Brexit; only a good third of the
companies have set up their own Task Force
Question: How does your company prepare organisationally for Brexit? (multiple answers possible)
Setup of a central
Brexit Task Force
Selective analysis of Brexit
implications (e.g. taxes or 58% 37% 47% of the automotive
supply chain) companies and more than half
of the banks have set up a
Brexit Task Force.
External consulting 26% 9% In no way
2018 Deloitte 15Brexit Strategies | Contingency Plans
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
Question: Has your company drawn up a contingency plan in the event of a no-deal Brexit?
3% Banking industry 73% 15% 8% 4%
13%
Mechanical engineering 56% 26% 18%
Other processing industry 54% 23% 15% 8%
Technology industry 48% 42% 6% 3%
52% Trade 48% 33% 10% 10%
Automotive industry 45% 50% 5%
31% Consumer goods indutry 43% 35% 13% 9%
Transportation 41% 53% 6%
Yes No, but will be drawn up timely No Don‘t know
2018 Deloitte *Values might deviate from a total of 100% due to rounding 16Brexit Strategies | Measures
It is particularly the operating divisions of Sales & Marketing as well as Logistics that
are affected by changes due to Brexit
Question: Which divisions in your company are most affected by changes due to Brexit? Top 5
40%
Sales & Marketing
• It is particularly in the mechanical engineering sector
(50%) and in the other processing industry (54%) that
Sales & Marketing is affected.
33%
• Nearly three quarters of the companies in the transportation
sector (71%) would face particular strong impacts.
• The logistics operations of trading companies (52%) would
Logistics also be affected.
32%
Procurement
• More than half of the trading companies (57%) and
transportation companies (47%) would face strong
impairments by Brexit in their procurement operations.
30%
Finances
• In addition to banks (85%), trading companies (38%) also
complain about problems in their financing operations caused
by Brexit.
28%
Production
• More than two third of the companies in the automotive
sector (70%) see problem in these operations.
2018 Deloitte 17Brexit Strategies | Measures
The measures taken by companies range from contract amendments to relocation of
production sites and replacement of British suppliers
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,
33% 42% banking industry
cost sharing, minimum notice periods, compensation claims, etc.)
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
21% 39% banking industry
German employees in the United Kingdom
Restructuring of the corporate financing (sources of financing, exchange rate hedging,
21% 39% banking industry
etc.)
2018 Deloitte 18Brexit Strategies | Job Cuts
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
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 Trading Transportation
engineering
2018 Deloitte 19Brexit Strategies | Opportunities & Risks
Relocations offer new business potential – The biggest risks faced are differing
regulations and reduced export opportunities
Question: Which opportunities do you see for your company as a Question: Which risks do you see for your company as a result of
result of Brexit? (multiple answers possible) the Brexit? (multiple answers possible)
Opportunities Risks
New business potential Higher complexity and costs due to
through relocations to 49% 49% differing regulations between the UK
Germany /Europe and the EU in legal and fiscal terms
Less competition from British
companies in the European or 31% 43% Reduced export opportunities due to
German market customs and differing regulations
Outsourcing to the UK because of Tighter financing conditions due to the
permanently favourable exchange 26% 30% London financial centre being excluded
rates from the EU
Import of intermediate goods from
the UK because of permanently 23% 29% Loss of orders
favourable exchange rates
M&A opportunities in the UK 18% 29% Restricted mobility of our staff members
I don’t see any Realignment of our value chains
14% 23%
opportunities
2018 Deloitte 20Participant Structure
Company Size, Industry Classification,
Economic Links
2018 Deloitte 21Participant Structure
Company size according to turnover Industry classification of the companies
Mechanical engineering
Technology
1%3% Banking
2% 13%
11% 2%
14%
3% Consumer goods
3%
Trading sector
3%
Automotive
12%
11% 18% 4% Transportation
EUR 100 m to < 250 m
3% Other processing industry
EUR 250 m to < 500 m
EUR 500 m to < 1 bn Telecommunications
4%
EUR 1 bn to < 5 bn Asset management
10%
EUR 5 bn to < 15 bn 5% Construction and real estate
15 Mrd. Euro und mehr
Chemistry
24% 6%
22% 9% Public sector
8% Insurance sector
8%
Healthcare
Pharmaceutical industry
Energy sector
Sonstige
2018 Deloitte 22Participant Structure
Type of the economic links
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 23Your Contacts
Dr. Alexander Börsch Dr. Klaus Günter Deutsch
Director Research Head of Research, Industrial and
Deloitte Germany Economic Policy of BDI e.V.
Tel: +49 (0)30 20281591
Tel: +49 (0)89 29036 8689
k.deutsch@bdi.eu
aboersch@deloitte.de
2018 Deloitte 19
24Deloitte Brexit Task Force
Economic Research Risk Advisory
Volker Linde Anton David Schweizer
Dr Alexander Börsch Mark Bommer Julius Elting
Partner Risk Advisory Senior Manager Risk
Director Research Associate Manager Research Analyst
Advisory
Tel: +49 221 87722399
Tel: +49 89 29036 8689 Tel: +49 211 8772 4933 Tel: +49 89 29036 6486
Tel: +49 711 16554117251
vlinde@deloitte.de
aboersch@deloitte.de mbommer@deloitte.de jelting@deloitte.de
aschweizer@deloitte.de
Strategy &
Scenario Planning Tax
Markus Kircher
Dr Florian Klein Diana Imhof Claudia Sendlbeck- Dr Alexander Linn
Partner Transfer Pricing Schickor
Head of Center for the (Tax) Director FSI Partner International
Long View Cross Border Tax Director Mergers & Business Tax
Tel: +49 69 7569 57011 Acquisitions (Tax)
Tel: +49 69 9713 7386 Tel: +49 69 75695116021 Tel: +49 89 29036 8558
mkircher@deloitte.de Tel: +49 89 2903 68301
fklein@deloitte.de dimhof@deloitte.de allinn@deloitte.de
csendlbeck@deloitte.de
EU Customs Law Legal
Michael Schäfer Bettina Mertgen
Dr Mathias Hanten Dr Julia Sierig Christofer Rudolf Mellert
Partner Global Trade Director Global Trade
Advisory Advisory Partner Banking & Finance Partner Employment Law Partner Deloitte Legal
Law
Tel: +49 621 1590 1869 Tel: +49 621 1590 1869 Tel: +49 71 16696267 Tel: +49 211 8772 2947
Tel: +49 69 71918 8424
Email: Email:
micschaefer@deloitte.de micschaefer@deloitte.de mhanten@deloitte.de jsierig@deloitte.de cmellert@deloitte.de
Real Estate Consulting /
Financial Services & Banking Operations Location Strategy
Clive Laurence King Alexander Weber
Tilmann Bolze Thomas Peek Olaf Babinet
Director Financial Director Financial Services Director Finance & Risk
Director Financial Director Strategy &
Services Consulting Services Assurance Assurance Operations
Operations
Tel: +49 30 25468 325 Tel: +49 69 75695 6562 Tel: +49 89 29036 8912 Tel: +49 69 9713 7441 Tel: +49 211 8772 4592
tbolze@deloitte.de tpeek@deloitte.de CKing@deloitte.de alweber@deloitte.de olababinet@deloitte.de
2018 Deloitte 25This communication contains general information only not suitable for addressing the particular circumstances of any individual case and is not intended to be used as a basis for commercial decisions or decisions of any other kind. None of Deloitte GmbH Wirtschaftsprüfungsgesellschaft or Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/de/UeberUns for a more detailed description of DTTL and its member firms. Deloitte provides audit, risk advisory, tax, financial advisory and consulting services to public and private clients spanning multiple industries; legal advisory services in Germany are provided by Deloitte Legal. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s approximately 286,000 professionals are committed to making an impact that matters.
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