Following the UK’s vote to leave the European Union, multinationals have begun to take steps to mitigate against the potential negative impact of Brexit. Until now, most companies have held off making big decisions while negotiations continue between the UK and EU. But with the clock ticking and transition arrangements still unclear, companies are making decisions now.
Theresa May is still struggling to convince both hardline Brexiters and Brussels that the UK should remain closely aligned with the Single Market. The ongoing impasse has made multinationals increasingly pessimistic about the UK’s exit, according to a Bank of England report. It showed that many are cutting back on “discretionary or expansionary investment” due to the uncertainty. High profile warnings by BMW and Airbus of the danger that tariffs and customs hold-ups will bring to their ‘just-in-time’ operations have served to heighten the fear and tension
Business is now leaving
According to the Chartered Institute of Procurement & Supply, nearly one in seven EU companies with U.K. suppliers have moved part of their operations out of Britain. Their survey, which spoke to more than 2,000 supply-chain managers globally, showed nearly a quarter of UK businesses are planning to reduce their workforce to offset Brexit-related costs.
Some of the major firms relocating operations from the UK due to the EU divorce include:
Lloyd’s of London – Moving EU headquarters from London to Dublin.
JPMorgan – Moving hundreds of jobs from London to Dublin, Frankfurt, Germany, and Luxembourg.
Barclays – 150 jobs from London to Dublin, where it will set up EU headquarters.
Bank of America – Moving EU headquarters from London to Dublin.
The DTCC – The world’s largest derivatives repository, is to open an office in Dublin in order to service clients after Britain leaves the EU.
Wells Fargo is planning to use both Paris and Dublin as its post-Brexit hubs in Europe.
Foreign investment projects – significant decline
It is clear that FDI into the UK has been negatively impacted by the Brexit vote. As EY Chief UK Economist, Mark Gregory, points out, investment in the financial services and business services sectors – traditionally an area of strength for the UK – has declined significantly since the Brexit vote. In 2017, the UK experienced a fall of 26% in financial services projects from 106 to 78 – despite a 13% growth in this sector across Europe. Along with other EU countries, Ireland has benefited from this environment of uncertainty seeing an increase in its share of financial services projects over the same period.
UK headquarter (HQ) investments are also down significantly in 2017 – 25% – with an EY report in June showing a significant negative shift in investor perceptions of the UK. A key advantage for Ireland is the fact that so many funds managed in the UK are already domiciled in Dublin. Ireland is now the third biggest centre for fund administration globally, after the US and Luxembourg, with the value of funds based in the country rising from €363bn in 2003 to €2.4tn today.
Brexit fear – Funds risk
In recent months more than 40 large asset managers with significant operations in the UK have outlined plans to move parts of their operation to Dublin or Luxembourg, both major fund management centres. Even arch Brexiteer Jacob Rees-Moggs and chief executive of Somerset Capital recently domiciled two investment funds in Dublin – a move, he claims bears no relation to Brexit.
Advantage Ireland – attractive prospects
For Ireland, the relationship with our closest neighbour, ally and of course competitor is set to change fundamentally. As the opportunities and challenges of Brexit begin to crystallise, Ireland has become the location of choice for companies looking to relocate their European hubs from the UK.
Ireland’s close ties to the UK — not least its common language and time zone, as well as its comparable legal system and culture — give it a significant edge when it comes to attracting UK based multinationals. Across the UK companies are carefully considering how to restructure their operations to cope with Brexit disruption. Sectors for which common regulation across the EU is vital are now looking to Ireland as their new base in the EU.
A regulation headache
Leaving the EU’s Single Market is a major headache for many businesses who need to continue to comply with EU standards. One such firm, Kemdent, a UK based dental products company is setting up an office in Ireland so that can it hold on to the EU’s “CE” quality mark. This regulatory necessity has positioned Ireland as the obvious choice to serve as an EU outpost for many UK firms.
Why here? Why now?
Ireland’s position, post Brexit, as the only English-speaking common law country in the EU is certainly a valuable USP. Ciaran Cannon, Irish Minister of State at the Department of Foreign Affairs and Trade is hoping “countries worldwide from all across Asia, the Middle East and the US who want to establish a presence in the EU will choose Ireland”. Aligned with other advantages that the jurisdiction offers, it certainly makes a very strong case for firms looking to relocate.
Considerations for businesses looking at Ireland as a location:
- A 12.5% corporate tax rate for domestic and foreign firms
- The quality, flexibility and skills of an English-speaking work force
- A cooperative labour relations system
- Political stability
- Pro-business government policies
- Transparent judicial system
- Strong intellectual property protection
- The pulling power of existing companies operating successfully.
New jobs and demand for talent
Uncertainty for foreign nationals working in the UK may also present opportunities for Irish firms looking to attract global talent to Ireland. Following Brexit, London may also become less attractive for start-ups as access to the Single Market is restricted and immigration controls are put in place. It’s certainly an opportunity to attract fintech businesses into our already successful financial services sector.
As the Brexit fallout continues, Dublin has seen a number of the world’s leading corporate headhunting firms open offices here including, Odgers Berndston and Heidrick and Struggles. The economic recovery and the projected influx of Brexit-related jobs look set to fuel opportunities, and competition, in the Irish market.
The Irish economy is used to punching above its weight and it looks well positioned to strengthen its standing as a major European hub for multinationals. With so many of the world’s leading multinationals successfully based in Ireland it seems like the obvious choice.
Rodney shares insights from his 20 years’ experience working in the legal and accounting industries with both Irish and international companies. As Managing Director at Cafico International, Rodney regularly works with international companies in the technology, pharma, aviation and insurance industries that are seeking to establish operations in Ireland, assisting them with the management of their projects, and compliance with their fiscal and legal responsibilities.
To learn how Cafico International can help your business expand to Ireland, get in touch with Rodney today.