_Brexit is blinding businesses from the bigger changes across Europe in 2018
I have been working in the location advisory world for nearly 20 years; prior to that I relocated 12,000 people out of London for British Telecommunications, a workforce planning and change challenge that was described in the national press as the biggest migration since Noah.
Over this time there have been constant winds of change driving offshoring, near shoring, north shoring or simply right shoring. But never have the winds been greater, and the Brexit bluster is just one of the headwinds that business leaders currently face as they navigate a future-proof course for their companies.
Neil McLocklin
When I worked at British Telecommunications we ran a marketing campaign “Geography is History”, the message being that the internet enabled businesses to work from anywhere.
On one level this is true, and indeed many companies are now only waking up to the opportunity that this presents.
From a strategic workforce planning perspective the organisation can be re-designed to locate different functions in different locations depending on the critical resourcing factors - whether it is to find the best talent at the lowest cost in Eastern Europe, to collaborate in clusters of knowledge, to drive market entry or growth strategies or to establish centres of excellence in design or analytics.
The one-size-fits-all, large corporate headquarter is becoming a thing of the past, or at least a much leaner and smaller operation in the future. The paradox is that whilst technology has enabled businesses to be far more footloose, geography has never been more important.
Many company executives will be preparing detailed plans for 2018 and beyond, and the geographical changes in Europe, whether driven by demographic, economic, political or technological factors, should be a key consideration moving forward.
Few people I talk to have a real understanding of the fundamental changes that are occurring across Europe. I summarise some of these change in this blog, diving into greater detail in the following series of posts.
1. Long term demographic changes
Many of Europe’s major economies including Germany, Italy, Spain and Poland are all facing long-term significant decline in population.
The fundamental problem is that these countries are only producing 1.3-1.5 children per female, where to sustain each country's population this figure should stand at 2.0.
Germany’s Federal Statistics Office estimates that the population of Germany will decline by 8-13 million by 2060. Only France and the UK appear to be producing children at a sustainable level. However, the situation is much more bleak in countries like Bulgaria and some of the Baltic states where outward migration is causing critical issues to the sustainability of those economies.
2. Knowledge clusters
As the pace of change in the world ever increases, companies recognise that they can no longer compete through their own innovation and must collaborate and partner with other businesses to survive.
This is resulting in the growing importance of clusters, often also working with academia. Across Europe and across sectors we see these clusters developing - which become self-sustaining as the talent seeking to work in these areas are attracted to the university-focussed research and courses; local support services such as legal and accounting services then start to specialise.
"The one-size-fits-all, large corporate headquarter is becoming a thing of the past, or at least a much leaner and smaller operation in the future'"
3. Death of the verticals
The strategic planning and location advisory world used to be relatively simple – vertical industry sectors were self-sustaining and independent such as car manufacturing or life sciences.
Digitisation of business across all sectors is turning this on its head. Cars are becoming more autonomous processing machines backed up by big data networks and then companies such as Uber and Google are transforming this market from a horizontal integration perspective.
The big focus in life sciences is about prevention rather than cure, and again this is big data and diagnostics tools redefining the market with companies like GE, Apple, and McDonald Douglas transforming the market.
4. Nationalism and Localism
As globalisation unifies the ‘You Tube’ generation and with ‘global culture’ using standards defined by identical products and services such as social networks, mass media and international businesses, there is a counter-drive to recognise local culture and identity - Catalonia, Scotland and Ukraine to name but three locations in Europe today.
5. City power
Related to the 'nationalism and localism' trend is the rise and power of cities. In the developed world, many cities stagnated for decades but now are on the resurgence. And even in countries with declining populations, cities across Europe are growing.
Again this is a global phenomenon, with the emergence of mega-cities - particularly in Asia - with Tokyo, Delhi and Shanghai being the three largest with over 30 million inhabitants.
Cities across the Americas and Asia dwarf European cities, with only London and Moscow making it into the top 50 cities in the world in terms of population.
The correlation between GDP and population rises is inextricable, and the growth and power of these cities, globally, regionally and nationally, should not be under-estimated.
In a European context, the importance of London - due to its size and commercial weight globally - is critically important for the rest of the UK and Europe. The London population is forecast to grow by 2.3m by 2031, a figure which is larger than most capital cities in Europe today.
The Brexit bluster is just one of the headwinds that business leaders currently face
6. Brexit
I had to mention it - and I'm sure many readers will be fed up with it. Fundamentally, Brexit is a short-term issue but we are currently facing some of the strongest headwinds down to the total lack of certainty.
UK growth is suffering - as was forecast - but if anything, given the additional election uncertainty and impact, the UK economy has shown remarkable resilience.
Business does not like uncertainty, and the current situation and lack of clarity is particular bad for the UK but also the rest of Europe. I am aware of food manufacturers considering opening up operations in the UK for fear of being excluded from the second largest and fastest growing market in Europe.
On the flip side, the impact on banking and other regulated financial services industries is well documented. The biggest risk is the encumbered Brexit negotiation process and the protracted lack of much needed certainty.
7. Regulation
In a post-Brexit world, there is an opportunity for the UK is to be regarded as a safe haven for effective - but not bureaucratic or punitive - regulation.
One could argue that the banks deserved 'everything they got' after the 2008 credit crunch, but perhaps the pendulum has swung too far the other way; some of the fines that have been levied are eye-watering.
New technologies such as Blockchain are transforming sectors such as banking and successful markets will be those that will strike a balance between between supporting digital advancement while providing effective regulation. I am convinced this will be an even more important location driver for businesses in the future.
"I can honestly say that not one single global occupier I had advised during the time of the previous administration had contemplated investing in France."
8. Technology
This is another area where too much has already been written. Perhaps the three most significant transformational areas are Blockchain, Artificial Intelligence (AI) and Internet of Things - expertise and knowledge in these areas will be essential for many businesses.
Many businesses from different sectors are targeting the same talent pools to help develop their businesses in this area.
Blockchain - 'the world's digital wallet', wants to create a more open, accessible, and fair financial system.
9. Politics
A year ago German, French and Dutch elections were taking place across Europe, with nationalistic politics a real threat to the stability and performance of European markets.
The good news is that the electorate voted with its head - Macron's victory has seen France's economy expanding throughout 2018.
I can honestly say that not one single global occupier I had advised during the time of the previous administration had contemplated investing in France.
Macron has some immense challenges ahead in changing the French economic structure but hopefully the En Marche! momentum can drive the necessary reforms.
10. Taxation
The UK government is driving a low cost corporate taxation drive, which has also proved successful in Ireland, Luxembourg and Switzerland.
The reality is that corporate taxation is very difficult to track and businesses can manipulate their own internal transfer charging to create the least tax liability. Whilst this is the case, taxation rates will continue to drive investment.
I will elaborate on all of these areas in more detail in future blogs and appreciate contribution and/or comments - you can email me here.
Just looking at this list highlights the complexity of strategic workforce planning and location strategy in the current world, and the importance of rigorous analysis and data-driven decision making.
Knight Frank's EMEA Strategic Consulting team works with large and small business helping them to align property to business goals and objectives and, in turn, making them more competitive and fast moving.