In this month’s Bird’s Eye View Linette Smith looks at the possible effects of Britain leaving the European Union (Brexit) on the UK’s Hifi Industry. TQBIRDSSPONSOR

There are just under two months to go before the polling booths open in the UK for the referendum on whether Great Britain should stay in the European Union or if it should leave. Christened the Brexit (which I did actually think was the name of some kind of breakfast cereal, when I first heard it) this topic is just one of those that you can’t escape from. Discussed endlessly on TV, radio and the internet and in homes, schools and workplaces across the UK, everyone has an opinion. People are divided on whether it’s “better the devil you know” or is a leap into the unknown going to turn out to be the best bet? Various campaigns, for and against leaving, sprang up but the official two are “Vote Leave”, fronted by the likes of Conservative cabinet minister, Michael Gove, Labour MP, Gisela Stuart, London Mayor, Boris Johnson and ex-Conservative MP, Iain Duncan Smith, whilst the official ‘stay’ campaign is “Britain Stronger in Europe” which is led by British prime minister, David Cameron.45106394_ml

So what, you may ask, has all this got to do with the hifi industry? One of the main bones of contention in the debate is how a vote to leave or stay with affect UK businesses and their trade, both inside and outside the EU. Even USA President, Barack Obama, has got involved, stating that he feels that the UK would would basically be too insignificant a nation for the USA to trade with straight away if it left Europe.

The UK has a long history of hifi companies. Brands that are respected and sought after the world over such as Linn, Chord, KEF and Harbeth to name just a few. Great Britain is a nation that prides itself in being at the forefront of new technologies and developments and there are many new hifi companies springing up to take their products to the global market. There are also distributors and dealers bringing EU and worldwide brands into the UK, so with hifi being an industry heavily involved in both import and export, any changes in the status quo are likely to have an impact.
I wanted to find out what people in the actual industry think about the subject, these are the people behind brands both big and small, manufacturers, dealers and distributors, so I asked a series of questions to a wide range of people. Before looking at what the hifi industry people that I questioned had come back with, I took a look at what the two main ‘leave’ and ‘stay’ campaigns had to say about the subject of trade. These quotes are taken directly from their official websites.

Vote Leave kick off their ‘Trade’ section with the claim that ‘Trade, investment and jobs will benefit if we Vote Leave.’ This statement is followed by four ‘facts’:
1. ‘After we Vote Leave, British businesses will trade freely with the EU. Many countries around the world trade with the EU without accepting the supremacy of EU law.’
2.’Only 6% of UK firms export to the EU and the EU has been a declining market for UK exporters over the past decade.’
3.’The UK is the EU’s largest export partner. It is overwhelmingly in the EU’s – particularly Germany’s – interests to agree a friendly UK-EU free trade deal.’
4.’EU membership means Brussels is in charge of UK trade and we have no independent voice in the World Trade Organisation. If we Vote Leave, we can negotiate for ourselves.’
Countering these statements, the ‘Business in the UK’ section of the Britain Stronger in Europe campaign say that ‘89% of businesses back staying in Europe’.Their four ‘facts’ are as follows:
1. ‘Over 80% of Britain’s small businesses see the EU as an important market.’
2. ‘61% of small business exports go to the EU.’
3. ‘70% of major businesses expect to experience ‘some’ or ‘significant’ damage if we left Europe.
4. ‘200,000 UK businesses trade with the EU.’

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So, on to what people involved in the hifi industry think. A Director of one of our large UK hifi brand’s, which trades globally, thought that a Brexit would have an overall negative effect on their business, saying “Potentially it could make it harder and more complex to export products into Europe increasing costs and leading to higher retail prices.” On the subject of how the end customer would be affected they said “I think overall there will be little change to the end customer. We could see an inflation in prices but this happens anyway and strong competition between products will tend to reduce this.”
Jonathan Billington, of UK manufacturer, Music First Audio, thinks that the proposed Brexit is perhaps being driven by issues other than the impact staying or going will have on British trade and industry. “Leaving the EU will have no effect on my business. The pros and cons will cancel each other out. I will vote to stay in. Most of the people who want to leave are only doing it because they don’t like foreigners. Not a great argument to use to make such a large change.”

Martin Boddy, MD of Entotem, a relatively new UK manufacturer who trade mainly within Europe says “I do not believe there will be an immediate effect as something that has been put in place over such a long period cannot be pulled down overnight. I think the pound may weaken against the Euro in the immediate aftermath which may help with exports in the short term.” He adds “Uncertainty drives fear. People can easily stop spending on what are seen as luxury items. So sales may be harder to achieve.” Thinking about whether a Brexit would have any effect on the popularity of UK brands in Europe and European brands in the UK, Martin said “Possibly but it may work in our favour in some countries and be detrimental in others. The bottom line is no one knows. If the UK is the catalyst to the breakup of the European Union, and trade barriers are put in place, a tit for tat battle could ensue and both sides loose.”

Yvonne Hawkey, who is one of the Directors at Sonata Hi-Fi, a London based dealer and distributor, who also deal globally, mainly with Europe, Asia and the USA, also thinks that there could be a negative effect on the British hifi industry, mainly due to to the trade barriers that could spring up between the UK and Europe. She thinks that the end customer could face issues such as “Increased prices, lack of access to certain brands (and) less support with servicing and repairs”

Harry O’Sullivan, MD of British brand,The Bespoke Audio Company, expands further on this point and thinks that the end customer would lose out. “In the worst case, the UK leaving the EU would lead to a reduction in the range of brands available and a weaker domestic manufacturing base.”He goes on to say, “The UK HiFi industry is world renowned and this means a healthy export market for UK manufacturers. Equally, there is a strong demand for imported brands from UK audiophiles. If the UK exits from the EU, these imports and exports can only become more difficult.” As a company that trades within Europe and worldwide, Harry does feel that there will be detrimental effects on his business with the EU. “Travelling and working around Europe is smooth and efficient and transfer of payments is straightforward. Helpful VAT arrangements make it easy to deal with European customers and suppliers. The isolation caused by the UK exiting the EU would have an immediate detrimental effect on our day to day transactions with other EU countries, overly complicating things which are currently simple. In the longer term, there is potential for it to damage the perception of the UK and our company by others in the EU because of the increased complexity in doing business.”

Geoff Merrigan, a Director at Tellurium Q, who sell their products worldwide, echoes the fact that the future is uncertain. “There would likely be a period of uncertainty which would affect consumer confidence EU wide and that will cause a dip in sales. Customer confidence is a key factor in a healthy business.” He adds, “Much depends on whether other countries leave the EU, if (the) UK actually leave. Nobody has the full information or can accurately predict the future from either outcome.” On whether he sees a positive or negative effect on his business, if the Brexit does happen, Geoff says “I do not see a major change apart from more administration because there is a little more paperwork dealing with countries outside of the EU. Either way, in or out there are problems that have to be addressed. There is no clear cut short term advantages to either path.”

Alan, who works for another major UK hifi brand, again which trades globally, gave us his personal view of the situation. He thinks there could be “Short term pain with EEC trading…no change globally…pound would drop making exports cheaper. Some input costs would increase….lots of our materials are made in UK so this would be positive. Long term (the) EEC is unstable and its future is looking less certain…..if it goes into meltdown in the future that will be a bigger mess and hurt UK Ltd more.” For the industry as a whole he suggests that, “Good guys will grow. The weaker and borderline guys will struggle and the vagaries of the change could accelerate their demise.”

A major UK distributor of products from Denmark, Sweden, Germany, Japan and the USA thinks that a Brexit would have a “very negative” effect on his business. “For the period immediately after the vote to leave there would be much supplier, customer and ultimately consumer insecurity. Import prices would rise owing to weakness of the pound (which can already be seen in the strength of sterling post Boris (Johnson) coming out for Brexit) Administrative policies re the EU will surely change increasing admin costs and most probably demanding additional working capital (VAT and duty advance payments on import). So my business will have to find further working capital, and suffer reduced profitability; or increase prices.” He thinks there will be a grave impact on the UK hifi industry, and industry as a whole in the UK. “In the event of Brexit as a whole the country will suffer and the hifi industry with it. This will happen because of a weaker currency, economic uncertainty, renegotiation of duties with trading partners and general consumer insecurity leading to less spending. It is to be expected that economic growth will falter for a period of time reducing activity and disposable income. On top of this it would trigger Scotland to probably seek independence and to rejoin the EU with all the uncertainty that will create.” He has strong feelings against the theory that a Brexit will actually lead to trade being easier for the UK “Brexit will NOT give rise to any improvement of economic activity but quite the reverse. Those who are outside the EU – Switzerland and Norway are obliged pay into the EU as all the EU members do; and they are also required (to) meet all the same criteria as the EU countries do as well such as laws, free movement of labour and so on. They have been obliged to do this even though they have no representation when the decisions/laws are being made. So obtaining access to the EU will cost the UK the same as before. On the subject of new trade deal negotiations between a non EU member United Kingdom, he brings up similar points to President Obama. “On any basis it is difficult to see that on Brexit that the UK will obtain any better terms with its trading partners than today, at the very, very best they will be the same and the expectation must be that they will be worse.”

Nadine Chaix, Export Manager, of French company, Waterfall Audio, gives us a view from Europe. She suggests that it may be harder to trade with the UK, from inside Europe, if the UK leaves. “Definitely higher prices as there will be a fixed charge for Customs documents and shipping will be higher in prices, as well as not as easy and fast. All my exports to Switzerland and Norway, take longer and are more “painful” in the EEC, it is easy!” She goes on to say “But it might also be good for (French brands) as UK products will have Import duty in France as well and become more expensive.” She does think that a Brexit could fuel a ‘British buying British’ surge. “UK customers might buy more UK brands as a “nationalistic” industry boost.”

The opportunity to comment on this subject was put out to a broad range of people involved in the hifi industry, I was expecting at least some to come out strongly in favour of the UK leaving Europe, after I had read the facts and figures on the ‘Leave’ and ‘Stay’ campaigns’ websites. However, it seems that there is a great level of uncertainty about what will happen if the Brexit actually comes about, the general feelings from the people that I spoke to seems to be in favour of the UK remaining in Europe, both from those in the UK and trading partners in other European countries. Whichever way things go when the votes are counted in June, one thing remains clear. The UK has a strong heritage of hifi brands and businesses, both young and old, that are respected the world over. The continued rise of consumer interest in hifi globally and the popularity of all things ‘British’ will hopefully see the industry continue to flourish, whatever the referendum result.

With thanks to everyone that gave me their opinions whilst I was writing this article.

Linette Smith

Read more Bird’s Eye Views with Linette Smith here.

 

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