Market Research
When deciding on whether Omniyat Establishment should stay in the UK or move (whether to Frankfurt or Singapore), the company should primarily evaluate the market situation, i.e. conduct properly structured market research. The first consideration is the economy: in its present location, the company’s net property space is 330,000 square feet, and it can be 15 percent more in Singapore and 7.6 percent less in Germany.
Moreover, the corporate tax rate in Liverpool is the smallest of all three options. Concerning infrastructure, JLL, a reputed company engaged in professional services and investment management, asserts that recent investments in infrastructure in Northern England, especially the transport infrastructure initiatives, allow expecting “[s]trong economic growth” (“Residential forecasts,” 2017, p. 4).
The company’s major competitors in the area include Stainless UK Ltd, a company that is involved in the civil engineering and geotechnical industry, and Barrett Steel Ltd, which is the largest independent steel stockholder in the UK. However, when participating in international projects in the US, UAE, or other countries, Omniyat face competition from companies from all over the world, which is why local competition can be disregarded in many aspects of the company’s operation, and the actual competition in international projects will not largely depend on the company’s location.
In terms of the availability of suppliers, the current location can be regarded as advantageous to the company because contacts, connections, and mechanisms of interactions with suppliers are already established in Liverpool. However, if the situation that initially caused Omniyat’s intention to consider changing the location affects its suppliers (which remains vague today), the supplier factor can become a decisive one.
Similarly, the current location provides benefits in terms of banking services because Omniyat has established banking connections in Liverpool. In summer 2016, the Bank of England took quick and resolute measures to respond to Brexit and “cut the bank rate to just 0.25% in August from its previous historic low of 0.5%” (“Residential forecasts,” 2017, p. 18), and several more measures were taken to bolster the economy and make the banking climate easier for the operation of UK businesses. JLL also notes that, in Northern England today, residential demand is outweighing supply to a remarkable extent.
In Liverpool, demand mostly comes from established areas, primarily in the city center, but the excess of demand relative to supply can be observed in other areas, too. At the same time, the demanded quality is growing in the city, which provides Omniyat with additional development opportunities.
As it was mentioned, the corporate tax rate for Omniyat is lower in Liverpool than in either of the two other options. Apart from the corporate tax and income tax, the company may also be subject to the Pay As You Earn tax, National Insurance Contributions tax, VAT, Insurance Premium Tax, and Stamp Duty Land Tax. Barrett Steel Limited (2017), one of the company’s major competitors in the area, states that eliminating tax risks in the industry is impossible and suggest a tax strategy based on risk assessment, control, and tax planning. In terms of access to capital, Omniyat’s conditions are favorable due to their current situation and the process of rental and capital growth in Liverpool, which is high and places the city “firmly at the top of many investor’s hit lists” (“Residential forecasts,” 2017, p. 17).
Growth in terms of various aspects of the market is the general trend and a major consideration in the process of deciding on relocation. Growth is expected, although, according to analysts, it will be “shallower … than would otherwise [if it had not been for Brexit] have been the case” (“Residential forecasts,” 2017, p. 2). The city’s sales market can be described as confident.
Brexit had a notable impact on the exchange rate and weakened the pound, which resulted in a rise in imported inflation and a rather unfavorable forecast for the CPI inflation dynamics (up to 1.6 percent per annum by the end of 2016). These forecasts, however, are expected to make consumer spending growth ease. GDP growth in the financial and business services sector in 2017-2021 is assessed to amount to 2.4 percent, and the rate is 1 percent for the manufacturing and utility sector.
Overall GDP growth is expected to slow by the end of 2017, but another rise is predicted to occur in 2018 and continue until 2021. Finally, it should not be overlooked that the economy will continue to be affected by Brexit throughout the following years. Measures to adapt to the changing conditions are hard to plan because the terms on which the UK will be withdrawing from the EU remain unclear. However, JLL predicts that the effects on the economy will not be too detrimental (“Residential forecasts,” 2017) in case efforts are made to maintain favorable trade agreements.
SWOT and PESTLE
Two instruments that can assist in assessing the feasibility and making the decision on either staying in Liverpool or relocating are SWOT and PESTLE analyses of each option. For the Liverpool scenario, the main strength is the availability of current connections and the established interaction procedures (e.g. logistics or reporting); many of these will need to be rebuilt upon moving to either Frankfurt or Singapore.
A major weakness is that certain deceleration of economic growth is expected during the rest of 2017 and in early 2018. At the same time, the excess of demand relative to supply in the industry presents many opportunities for Omniyat’s development. However, the threat component is possibly the most important one in the SWOT analysis: the main threat is the uncertainty regarding the impact of the completion of Brexit in March 2019.
The construction industry may be seriously affected in terms of taxes, suppliers, and business services (Gammon, 2017); this uncertainty made Omniyat consider relocation in the first place, and unless stronger analytical forecasts are provided today, the decision to opt for one of the relocation scenarios may be wise.
Figure 1. PESTLE matrix for Omniyat.
The PESTLE matrix presented in Figure 1 shows factors that are likely to affect the operation of Omniyat. Political and economic factors were summarized above (see Market Research); however, it has not been mentioned that such social factors as changing migration and age dynamics in the UK may impact on the company’s workforce; however, the impact can be estimated as lesser in comparison with the relocation scenarios.
Technological advancements in the industry may affect the competition, but this is not specific to the Liverpool scenario only. Other major factors include legal changes—the UK can adopt new laws upon leaving the EU and cancel laws associated with the European integration (Barnard, 2017)—and environmental regulations, especially in terms of the government policy on waste, emissions, and pollution, which will make Omniyat, in case the Liverpool scenario is accepted, adjust its operation to new environmental requirements, and it remains unclear what those regulations will be.
Limitations and Risks
Major risks are associated with the uncertainty of the consequences of Brexit. In this regard, Omniyat currently experiences limitations in terms of planning their future in the UK, and from this perspective, planning the operation in Frankfurt or Singapore can be easier due to the more predictable political climates there. More specifically, there is the risk that, upon the UK’s withdrawal from the EU, the taxation situation will significantly deteriorate the financial performance of the company. New environmental regulations, unlike existing ones that comply with the European standards, may impose additional burdens on manufacturers.
The main recommendations for addressing the risks and limitations include developing better forecasting analytics and actively engaging in the industry’s participation in current negotiations on the terms of withdrawing from the EU. The tradeoff in which Omniyat is involved is sacrificing predictability and stability to the advantage of operating in the location in which they have established connections and business processes.
Industry-specific reports and augmented market research efforts can help the company build a more successful strategy for adapting to the new conditions or, in case the relocation scenario is accepted, to move with minimum losses. Also, the company should be willing to contribute to the recommendations that the industry provides to the UK government in terms of the conditions of withdrawing from the EU.
References
Barnard, C. (2017). Law and Brexit. Oxford Review of Economic Policy, 33(1), S4-S11.
Barrett Steel Limited. (2017). Tax strategy. Web.
Gammon, J. (2017). The meaning of Brexit. Engineering Insight, 18(2), 35-36.
Residential forecasts: Northern England. (2017). Web.