What’s been happening in the commercial world over the last two weeks? Read on to find out!
The transition period for Brexit comes to an end on the 31st of December. This means the UK’s current trading rules will expire. The Prime Minister is hoping to conclude a deal with the EU but there remains strong potential for a collapse in talks. Negotiations have stalled over the contentious areas of fishing rights, competition rules and the enforcement of any agreement concluded.
What happens if there is no deal? As of the 1st January 2021, the UK will begin trading under the World Trade Organisation (WTO) terms. The main significance of this is the application of tariffs and quotas to imported goods. In 2018, 53% of all UK imports came from the EU. Going forward, approximately 90% of the UK’s goods exports to the EU would be subjected to tariffs including 11.1% for agricultural goods and 35.4% for dairy products. It is important to note that the EU is the UK’s largest export market at 46%.
How have companies prepared for a no-deal Brexit? A CBI poll of 752 companies in June revealed over three-quarters of British companies are concerned about a British exit from Europe without a trade deal. The main worries concerned potential supply bottlenecks. As such, many British manufacturers have spent the latter half of 2020 stockpiling (as much as COVID-19 has permitted). Bentley, who sell 24% of its cars in Europe, has taken many extra measures, spending millions of pounds to prepare. The British car manufacturer has booked cargo planes to fly in car parts over the coming weeks. Owner Volkswagen Group has booked additional warehouses and planned new logistics routes in an effort to maintain trading in the event of disrupted supply chains.
Similarly, Essentra, supplier of plastic and fibre and Electrocomponents, an electronics distributor, both FTSE 250-listed, have been stockpiling for weeks and have built up inventories worth millions of pounds in their warehouses.
Talking point: Which industries do you think would be worst affected by a no-deal Brexit?
Only hours after retail giant Arcadia went to administration, putting 13,000 jobs at risk, rival Debenhams announced its collapse. In early December, after months of administration, Debenhams’ last-ditch attempt to find a buyer was announced as a failure. Frasers Group remains in talks however analysts are not optimistic. If this were to fall through, Debenhams would be wound down between New Year and Easter, meaning it will cease to exist as a company after that point. Restructuring firm Hilco entered stores last week to start the process.
Debenhams entered administration in April this year and had started to trim its portfolio axing around 20 stores and 6,500 jobs. Now, the British retailer faces a further 12,000 job losses and the eventual closure of its 124 stores.
There are uncomfirmed reports that Frasers Group pulled out of a potential acquisition on the basis of Arcadia’s collapse. Arcadia is Debenhams’ largest concession operator.
Talking point: Consider the wider impacts of the (potentially) 25,000 jobs lost in retail alone over the last week.
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Last week, the House of Representatives, currently run by the Democrats, passed the Holding Foreign Companies Accountable Act. The act was approved by the Republican-controlled Senate in May this year, meaning only the President needs to approve it now. The law will see Chinese companies kicked off US stock exchanges if they do not comply with auditing rules, and marks an increase in American pressure applied to China. Although the legislation will apply to all publicly-listed companies from any country, it has been made clear by sponsors and Republican Senator John Kennedy, the main aim is to target Chinese companies.
As of October, there were 217 Chinese companies listed on US exchanges. The US-China Economic and Security Review Commission, recently created by Congress, will continue to track possible security threats from China by monitoring these listings. It is important to note that the act will have little effect in the short term given the requirement for a three-year non-compliance with audits to meet the threshold of a ban.
What does this mean for the relationship between China and the US? The move comes as part of a wider late-administration ramp up in tension between the two superpowers. China and the US have engaged in tit for tat against one another in recent weeks. For example, the US government has accused China of Chinese currency manipulation and has imposed tariffs on a number of Chinese manufacturers notably of twist ties. The US is working to ban cotton imports from Xinjiang Production and Construction Corps, arguing that the Chinese cotton company is using the forced labour of Uighur Muslims.
Tech trade between the two countries has created the greatest tension. Since September, the US proposed adding China’s largest chip manufacturer to its government blacklist. This added adds to the Trump administration’s TikTok ban, forcing Bytedance to sell-off American operations to US firm Oracle. In response, this week, China introduced new laws restricting the exports of AI and military technologies.
Talking point: Do you think that the tech trade war will continue under a Biden administration?
This week, American cloud-based software company Salesforce announced its acquisition of the communication platform Slack in a $27.7bn megadeal, marking one of the biggest technology mergers in recent years.
4 years ago, Microsoft considered bidding for Slack but instead decided to develop its own platform: Microsoft Teams. Although Slack was popular, it quickly became clear that it could not compete with Teams, despite using very similar technology for the office communications platform. In 2016, Slack had 4 million users; in 2020, it has 12 million. Teams however has increased from 0 to 115 million users in the same period. The deal needs to be reviewed by Slack shareholders in the New Year but, by merging with Salesforce, Slack has the chance once again to compete against Microsoft.
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