Britain's decision to leave the European Union in the next 2 years will change the e-commerce ecosystem across Europe. Therefore, Ecommerce in Europe is at a real crossroads, as the new laws on payment and product geo-blocking are also in their final stages of adoption. That is why this time we want to analyze the consequences of Brexit implementation and its impact on e-commerce in Europe.
First effects of Brexit
It should be noted that as soon as the Brexit vote and the results were counted, financial markets reflected their stance on the decision and suddenly the pound sterling began to lose value against the euro. And when the pound lost value, purchasing costs in cross-border ecommerce increased for those customers who buy products outside the UK.
While it is true that those companies that focus on the United Kingdom could see a boost in the short term, as the pound increases its value against the dollar, international and US sales could become a new revenue generator for Ecommerce companies based in the UK.
It should also be noted that the The United Kingdom has one of the best developed ecommerce markets and that also the percentage of retail trade that e-commerce has is the highest in all of Europe. In fact, the UK is at the top of the list in terms of market size with € 157.100 billion, while the average spend per online buyer is € 3.625.
Competitive disadvantage
The UK has long been seen as the entry point from Europe for many companies. Once Brexit is complete, UK based Ecommerce companies will have a competitive disadvantage relative to Ecommerce companies based in other countries. As a consequence of the UK will lose its commercial appeal, Germany and the Netherlands could become the option for entry to the market, especially since they do not have a qualified workforce and are also located in the center of Europe.
What does Brexit mean for your ecommerce?
All the consequences of Brexit will be significantly different depending on the side of the channel in which your Ecommerce business is located and the amount of products or services you export, either in the European Union or in Great Britain. Ecommerce also has specific regulations regarding data protection and storage, aspects that will also have to be addressed.
Ecommerce businesses based in the EU and UK
For most of the companies based in the European Union and the United Kingdom, It will be a business that will run as usual, however, those most affected will be those with strong commercial ties to the UK. The advantage will be for Ecommerce companies based in the European Union that will still have 27 partners within the free trade agreement. Of course there will be an impact on both sides, but for companies based in the European Union, this impact might not be as strong due to the presence of the other 27 members. By contrast, UK-based companies may have to refocus on the domestic market.
Laws and regulations
For all those Ecommerce companies in the European Union, there is most likely a backup solution, especially since the remaining 27 EU members will continue to share the same standards in terms of products and business practices. Although laws and regulations can be changed in the UK, from a short term perspective, a transition period is much more likely.
This will result in the regulations will most likely begin to deviate after 4 to 5 years later Brexit has been implemented. In addition, taxes and duties when exporting products to the UK could be applied quickly if no agreement is reached. For their part, for companies based in the United Kingdom, the situation is even more complicated and, as already mentioned, those most affected would be those with strong commercial relations with the European Union.
Said companies Ecommerce will experience many problems as a consequence of the term of free trade. Outsourcing is anticipated to be a major problem as it is not limited solely and exclusively to publicly traded companies, but also to those small companies that outsource as well. Nowadays it is quite common to find a web agency that outsources some work to other countries or to a store that imports supplies from other regions.
What will happen to the supply chain?
Brexit will also affect the supply chain. To begin with, cross-border companies in the European Union have the possibility of subcontracting in different countries the manufacture of parts of their production, especially speaking of heavy industries such as the automotive, the pharmaceutical industry or the aerospace industry. If we talk about a specific example, it is very common to find Irish companies receiving some supplies on the other side of the border and vice versa.
At In the event of Brexit, these commercial relationships could simply be stopped from the first moment of their implementation as a consequence of border problems. Therefore, it is very likely that if your Ecommerce is located in the European Union, the most convenient thing would be to look for new commercial partners within the EU as a precautionary measure. Probably the biggest problems are in the auto industry and the financial sector.
Suffice it to say that in the UK, the automotive industry relies heavily on spare parts that are produced in other European Union member countries. In the case of the financial sector, many companies based in the European Union have been using the UK as their hub for some financial services, which means that with Brexit they will have to apply a different approach.
Business relationships
Of course the trade relations between countries in the European Union They will also be affected as a result of the implementation of taxes and tariffs, as well as the termination of passport rights for strategic sectors. It is also possible to see a decrease in UK exports and consequently a potential loss of employment.
Direct effects on Ecommerce
The physical industry will certainly be affected, but so will the e-commerce industry, especially in three specific areas that we detail below.
P2I data storage
La Data Protection Directive It came into force since May 2016, providing a much stricter framework regarding the rules that affect locations, as well as the rights to use the data that users provide on the Internet. This could mean the implementation of stricter regulations on the storage of this information as the UK will not be part of the European Union. Therefore, there will be an impairment in the sense of the treatment and analysis of personally identifiable information.
Cross border transactions
Another Effects of Brexit on Ecommerce are cross-border transactions since the United Kingdom would automatically withdraw from the common area of VAT in the European Union, as well as from the Customs Union. This means that in the case of a cross-border transaction, VAT will be paid in the country of supply, which could lead the consumer to pay for a product that would be much more expensive in the end.
Not only that, local rules may mean that the buyer has to pay additional money as a fee. Additionally, customs clearance fees may also have to be paid, so all these changes will end up affecting retailers like Amazon or other similar ecommerce businesses. Assuming a tax is levied by the government, this fee could actually mean that the product being purchased would be much more expensive than what you would pay for at the UK-based online store. This aspect will reduce the volume of e-commerce automatically on both sides.
Price fluctuations
Another A consequence of Brexit in e-commerce is price fluctuation. It will not be a surprise to find a devaluation or a revaluation of the currency after the implementation of Brexit, which could favor exports and imports. Not only that, currency devaluations and revaluations also imply a redesign in the pricing strategy in Ecommerce businesses.
This could make the products or services that are offered, end up being more or less attractive for buyers and that in the end, all this has an impact on the business. In any case and regardless of where your ecommerce is located, it is best to start seriously considering the options as the time for the implementation of Brexit runs out.