Overcoming the red tape and expense of Brexit
One UK-based business discovered that the best way to solve the riddle of Brexit, was to open a hub in Germany.
Brexit has undoubtedly created problems for many UK companies and especially those for whom Europe represents a sizeable part of their day-to-day operations. But here’s one heart-warming story about a Worcestershire company which found a solution to the problem, long before any issues arose.
Karndean, whose head office is in Evesham, has many years of experience in exporting luxury vinyl flooring to countries within Europe. But before Brexit became a reality, Karndean decided they would have to find a way to prevent the business from becoming swamped in red tape and unexpected new costs. Therefore, they opened a warehouse distribution base in Germany to serve their continental customers.
The managing director of Karndean, Paul Barratt, explains why the company had to make this decision as Brexit appeared on the horizon. He said: The UK government kept asking the same question: Is your business prepared for Brexit? But without offering any real advice on what you should do. And that’s because at that stage they didn’t know either.
Lots of businesses are being caught out by the issue of ‘origin of product‘. If they bring an item into the UK from the Far East, and then sell it in Europe, they have to pay double duty. In addition to these extra costs, we knew it would be a very bureaucratic, slow process. So it made much more sense to go early and be in charge of our own destiny.
Thus, the company opted to open a hub in Germany which would be used for storage and packing, and then outsource this operation to a third party. Yet it didn’t happen overnight, with Karndean having to undertake plenty of in-depth research before arriving at their crucial decision.
Paul added: You have to research that particular market, and understand the needs of the customer. Understand their buying habits, as well as the legislation that may impact the products you sell there. For example, in France, most flooring is installed by painters and decorators who have turned their hands to flooring. So they buy all their paints and flooring from what we would call builders merchants. These stores are not like the flooring stores in the UK. They are paint stores that have a flooring department.
And I’ll tell you why this is important. Primarily, those installing the product are painters who want an easy product to install. They don’t want something that’s complicated or messy, or something that can go easily wrong. They want something really straightforward. So, by carrying out detailed research, it will enable a business to understand which products are perfect for markets that concern them, and which ones are unlikely to sell.
Paul also says that companies need to look at the bigger picture, and this may mean using a third party distributor. He went on: A distribution partner will take on the burden and cost of the sale. With their own sales teams and existing foothold in the territory, they’re already established. The right distribution partner, with the right contacts, will promote your products in the right way.
And if they are happy to work with you as a partnership, it could cost you less than trying to go it alone ‘ especially in regions where you lack local knowledge. Your margin of profit may be less than back home, because of these additional layers, but on the flip side it’s probably cheaper overall to distribute to them. When entering a new territory, most businesses start with a distribution model. They select a partner, work with them, and then open it up at a later date.
Despite doing plenty of homework, the bosses at Karndean soon discovered that it wasn’t possible to mitigate every single business issue. Not all problems can be fixed. One area where the company faced unexpected additional costs was with sampling. Paul said: The warehouse in Germany isn’t setup to send samples out to consumers. So we still do that from the UK.
Even though they’re only samples, they have a value, and because of that value, you have to pay a duty on them. So the cost of sampling has doubled. Therefore, you just have to pay it. We are investigating options to have a third party fulfil our sampling requirements overseas. But only time will tell if this is a financially viable alternative.
This may sound obvious, but Paul said it is imperative to employ native speakers to work in the various regions. They need to be able to communicate easily with both customers and third party distributors. He stressed: We have native speakers in all of our territories. Our back office teams ‘ such as marketing and finance ‘ are UK-based, but in the warehouses they need to speak that country’s language.
The goods don’t come to the UK, they go straight into Rotterdam, and then travel down to our German warehouse. So you need to understand culture, attitudes and behaviours of your new market. We sent our Head of Customer service over there, a person who lives in the UK but is actually German. They trained local staff about working with orders. And don’t forget to take advice from many other groups, such as the local Chambers of Commerce. We’re connected to Vistage who have a network of peers at their disposal, all ready to assist.
This article comes courtesy of Vistage who offer a unique combination of resources for accelerating business performance. This includes one-to-one executive coaching and mentoring sessions; interactive workshops; a rich online library of content; best practices and webinars; plus words of wisdom from expert speakers. Vistage offer access to a global membership network of more than 22,000 business leaders.