How Brexit Could Affect the Electronics IndustryJuly 01, 2016 by Robin Mitchell
Britain's exit, or "Brexit", from the European Union has been a shock to the economy of the whole world. What will it do to electronics?
Britain's exit, or "Brexit", from the European Union has been a shock to the economy of the whole world. What will it do to the British and global electronics industries?
For those who may not be aware, the United Kingdom has just held a referendum on its membership to the EU. For months, the "remain" campaign (those in favor of remaining in the EU) was confident in the outcome with investors betting that the country would remain. But to their uttermost shock, the public voted to "leave”, triggering one of the most uncertain events in history!
With the EU referendum results in and the British pound’s sharp drop, people are unsure of the UK's future.
- Can the UK secure deals with the EU?
- Are immigration controls needed?
- Will countries such as the US and China form trade deals with the UK?
The effects on the electronics industry will be determined by the answers to such questions. Let's explore the three main areas that directly affect electronics post-Brexit vote.
CE and the Conformity of Products
All certified European products have a CE mark. This mark stands for "Conformité Européene” (French for "European Conformity"), and can be thought of as a “guarantee” that any product bearing it conforms to all regulations.
This mark is self-certified but requires documentation and tests to prove that a product conforms. These tests are very expensive for the individual (costing in excess of several thousand dollars), and knowing which regulations apply to a product can also consume time and money. CE certification is not a problem with larger companies, but can have a dramatic effect on smaller businesses.
Image courtesy of euronews.
Many argue that the EU regulations in place to receive the CE mark are too extreme and difficult to meet. The US has a similar system in place, the FCC, which is said to be more relaxed and easier to conform to. Generally, if a product conforms to CE, then it will conform to FCC but a product that conforms to FCC won't always conform to CE. So how will this affect the UK?
With the EU out of the picture, electronic products could be easier to sell in the UK if the new regulations put in place are more relaxed than those under CE. If the UK adopts the FCC regulations, then electronics would not only become cheaper but smaller companies, both in the UK and abroad, could begin competing against larger multinational companies.
But there is a flip side. With the EU out of the picture, it will be impossible for any UK product to be sold in the EU unless that product conforms to CE standards. This would not be an issue for large companies because they are already complying with regulations which allow them to sell in the EU market. However, small companies will be restricted to selling electronic goods within the UK unless they can find the funds to certify their products.
The UK government could take a different approach where they just adopt the current legislation involving CE which would result in small companies finding it just as hard to sell new products.
Trade is one of the most talked-about topics of Brexit. Will banks relocate to Europe or will the UK be able to secure a trade deal and remain in the European Economic Area (EEA)?
The European Economic Area. Image courtesy of Wikimedia.
If the UK can remain in the EEA, then trade should be relatively unharmed. The lack of tariffs will result in cheaper imports and exports and therefore act as a positive influence on the industry.
Further, if the UK can secure a trade deal with China, then this will open the electronics industry to a whole new market. China is the world’s biggest exporter of goods with the top few products being computers, broadcasting equipment, telephones, and integrated circuits. This means that electronic components will become cheaper with the reduction in tariffs and result in cheaper electronics in the UK. This will be a massive benefit to small businesses as they can reduce their production costs as well as product costs.
But what if the US and other countries refuse trade deals? No trade deals mean tariffs, and tariffs mean more expensive products (for both sides). Failure to negotiate trade deals with China and the US post-Brexit could seriously harm the industry in the UK as it would become more expensive to sell goods and services into other countries.
Large Companies vs. Small Companies
Companies such as Samsung have considered the possibility of moving their headquarters from London to the EU. This would be a problem for the many thousands of electronic engineers working the UK.
Fewer big-name employers mean fewer places to work and would result in causing the electronics sector in Britain to suffer. It is fair to say that, traditionally, countries shift their economic focus from agriculture to manufacturing to tech as they reach the global stage. A loss of high tech industries can be considered a serious step backwards for the UK as its manufacturing sector is only 12% of the total economic output.
Samsung UK's headquarters in Chertsey. Image courtesy of Gary Spracklen.
The loss of big companies, however, helps to generate fair competition between smaller companies. Just like chain supermarkets squaring off against small town shops, the larger companies can almost always out-sell most smaller businesses. With large companies gone, there would be a massive gap in an electronics market with plenty of qualified electronic engineers to hire.
However, the average wage of electronic engineers would likely drop as small companies typically offer lower wages than larger companies.
At the same time, assuming the free movement of labour agreement is lost, companies both big and small that hire abroad to perform EE-related labour tasks (such as soldering) would now have to raise their wages. This is because people abroad (depending on their country of origin) could potentially take work at lower rates than those who live in the UK, undercutting employment for British citizens.
For smaller businesses trying to compete in this environment, giving higher wages to their employees would likely reduce the amount a company can produce, which could increase the final cost of the product.
Will Brexit help independent developers bring their product to market? Will we see an increase in the electronics market in the UK or will it grind to a halt? Will the UK be successful in negotiating new trade deals? It is difficult to determine what will happen in the next few years but hopefully Britain's exit from the EU will benefit the industry with increased wages, reduced import costs, and quicker-to-market products.