 "A worker answers a telephone in the office of Brexit group pressure group \"Leave.eu\" in London")
Indian companies with operations in the UK and the European Union (EU), face an increased risk of losing market share, higher trade barriers and immigration issues if Britain votes on Thursday to leave the bloc, warn company heads.
Some of India’s top companies have widespread operations in both Britain and the EU. Such as Tata Motors’ subsidiary, Jaguar Land Rover (JLR), Tata Steel Europe (TSE), Motherson Sumi, Tech Mahindra and Bharat Forge.
Analysts said if the UK leaves the EU, it would result in its currency falling against the dollar by at least 15 to 20 per cent. That would be 25-30 per cent below its pre-referendum trading range of $1.50 to $1.60. This fall would mean JLR and TSE will earn less from sales in Europe, apart from facing a higher trade wall from the EU.
In a letter sent to employees on June 10, Ralf Speth, the JLR chief executive, said Britain leaving the EU would be “highly damaging” and make buying of components and sale of products in the latter more difficult — the EU is its largest market, taking a fourth of its products. “Remaining in the EU will increase chances to grow, create jobs and attract investment,” Speth wrote.
Similarly, TSE told its staff the relationship between the UK and the EU was very relevant for the company. “The EU is by far our largest export market, with over a third of our UK steel heading there... (and) access to that market is fundamental to our business,” said Tim Morris, head of public affairs there.
If Britain were to exit the EU, he cautioned, it would no longer be able to influence some of the major regulations which impact its UK operations, such as environmental controls and anti-dumping measures. “It is likely we would still need to adhere to EU rules to enter that market. The difference: We would no longer have a say in how they are set up or applied.”
Tata Steel UK is in the process of selling its UK business and is negotiating with the British government to retain part of its operations. “The EU does not only take; it also gives. The EU is a source of cash for the UK business — funds for environmental improvements, infrastructure development and R&D (research and development),” he said.
Some of India’s top companies have widespread operations in both Britain and the EU. Such as Tata Motors’ subsidiary, Jaguar Land Rover (JLR), Tata Steel Europe (TSE), Motherson Sumi, Tech Mahindra and Bharat Forge.
Analysts said if the UK leaves the EU, it would result in its currency falling against the dollar by at least 15 to 20 per cent. That would be 25-30 per cent below its pre-referendum trading range of $1.50 to $1.60. This fall would mean JLR and TSE will earn less from sales in Europe, apart from facing a higher trade wall from the EU.
In a letter sent to employees on June 10, Ralf Speth, the JLR chief executive, said Britain leaving the EU would be “highly damaging” and make buying of components and sale of products in the latter more difficult — the EU is its largest market, taking a fourth of its products. “Remaining in the EU will increase chances to grow, create jobs and attract investment,” Speth wrote.
Similarly, TSE told its staff the relationship between the UK and the EU was very relevant for the company. “The EU is by far our largest export market, with over a third of our UK steel heading there... (and) access to that market is fundamental to our business,” said Tim Morris, head of public affairs there.
If Britain were to exit the EU, he cautioned, it would no longer be able to influence some of the major regulations which impact its UK operations, such as environmental controls and anti-dumping measures. “It is likely we would still need to adhere to EU rules to enter that market. The difference: We would no longer have a say in how they are set up or applied.”
While JLR and Tata Steel Europe will be impacted negatively, few companies with production lines and customers in the UK said Brexit will not impact them much. “Currency will not impact us too much as British pound revenue is very small in our portfolio of companies. We have three plants in the UK and our customers all in UK. If Brexit does happen, we have the local boy advantage. If it does not happen, then it's business as usual,” said Motherson Sumi Chairman Vivek Chaand Sehgal.
“We are about to invest in a new plant in UK very soon and it is not stopping because of Brexit or no Brexit,” he said.
Another worry for Indian companies is the fall in the British currency's value could result in lower incomes for information technology services companies such as Tata Consultancy Services, which gets about 16% of its revenue from the UK, and Tech Mahindra, 15% of whose revenues are generated in the UK.
“Britain leaving EU will certainly affect Indian companies operating there. We must remember that several companies have taken their operations to the global level; and UK was one such pad used to access European markets. Depending on their scale of operations in this geography relative to domestic and other global markets, such companies could face challenges in terms of operations,” said D R Dogra, CEO of Care Ratings.
VOICES
“Brexit can be quite damaging if it happens. Of course, we have factored in some probability of it happening. If it doesn’t happen, you could see some significant rebound. We are preparing for it and monitoring the markets”
Raghuram Rajan, Governor, RBI, on June 20 in Mumbai
“The currency will not impact us too much, as British pound revenue is very small in our portfolio of companies. We have three plants in the UK... If Brexit does happen, we have the local boy advantage. If it doesn’t, it’s business as usual”
Vivek Chaand Sehgal, Chairman, Motherson Sumi, on June 21 to Business Standard
“A vote to leave the EU would have an immediate and dramatic impact on financial markets, investment, prices and jobs. A vote to leave could see the week end with a black Friday and serious consequences for ordinary people”
George Soros, Chairman, Soros Fund Management, wrote on June 20 in The Guardian
“One development that could shift investor sentiment is the upcoming referendum in the UK. A UK vote to exit the EU could have significant economic repercussions”
Janet Yellen, Chair, US Federal Reserve, on June 21 at the US Congress
“It’'s a concern not just for the UK; it’s a concern for the world. There have been significant benefits (for the UK) arising from being part of a single market”
Christine Lagarde, Managing Director, IMF, on June 17 to CNBC
“The UK, having large twin current account and fiscal deficits, may risk a sharp currency fall and a sudden stop of capital following Brexit. Brexit could stall the UK economy and tip it into a recession”
Nouriel Roubini, Economist, on June 21 (Twitter)
“Britain leaving EU will certainly affect Indian companies operating there. We must remember that several companies have taken their operations to the global level; and UK was one such pad used to access European markets. Depending on their scale of operations in this geography relative to domestic and other global markets, such companies could face challenges in terms of operations,” said D R Dogra, CEO of Care Ratings.
VOICES
“Brexit can be quite damaging if it happens. Of course, we have factored in some probability of it happening. If it doesn’t happen, you could see some significant rebound. We are preparing for it and monitoring the markets”
Raghuram Rajan, Governor, RBI, on June 20 in Mumbai
“The currency will not impact us too much, as British pound revenue is very small in our portfolio of companies. We have three plants in the UK... If Brexit does happen, we have the local boy advantage. If it doesn’t, it’s business as usual”
Vivek Chaand Sehgal, Chairman, Motherson Sumi, on June 21 to Business Standard
“A vote to leave the EU would have an immediate and dramatic impact on financial markets, investment, prices and jobs. A vote to leave could see the week end with a black Friday and serious consequences for ordinary people”
George Soros, Chairman, Soros Fund Management, wrote on June 20 in The Guardian
“One development that could shift investor sentiment is the upcoming referendum in the UK. A UK vote to exit the EU could have significant economic repercussions”
Janet Yellen, Chair, US Federal Reserve, on June 21 at the US Congress
“It’'s a concern not just for the UK; it’s a concern for the world. There have been significant benefits (for the UK) arising from being part of a single market”
Christine Lagarde, Managing Director, IMF, on June 17 to CNBC
“The UK, having large twin current account and fiscal deficits, may risk a sharp currency fall and a sudden stop of capital following Brexit. Brexit could stall the UK economy and tip it into a recession”
Nouriel Roubini, Economist, on June 21 (Twitter)
