Scotland & the EU

The EU is a Huge Economic Opportunity for Scotland and its SMEs

Screen Shot 2016-06-02 at 14.46.36Small and medium sized companies (SME’s) who make up more than 99% of Scotland’s businesses, employ more than half of our workers may have a lot to lose if we erect barriers to trade and immigration with Europe. For many SME’s, the EU is an opportunity which has not yet been fully exploited and access to this enormous market and its skilled workers is especially important to Scotland.

There has been much debate about how much membership of the EU and trade is worth to Scotland and the UK. Whilst it is difficult to get consensus on a precise number, it is not in doubt that it is significant. So significant that even the Leave campaign has gone to great lengths to try and reassure us that EU trade will not be damaged and we will ‘probably’ join a similar trading arrangement afterwards. One of my concerns with the debate is that it has been conducted in a vague, high level way which does not consider the impact on Scotland’s reputation or the opportunities the EU provides for small businesses.

In my 24 year career in the technology industry, I have lived and worked extensively in Europe and the USA. I have established businesses that trade globally and I now run a small European technology business. I admit my pride in being a proud Scot and EU citizen; my daughter was born in Munich, my son spoke German as a first language until he was nearly 8 years old. We were welcomed as immigrants by wonderful Bavarian neighbours in the village on the edge of Munich in which we lived. Our neighbours were always eager to help us integrate and learn how to deal with local rules and customs. When I see the embrace they have extended recently to the large numbers of refugees, I feel humbled and envious. I am certain if we were allowed, Scotland would extend a similar warm welcome and start to reverse the damage caused by generations of Scots leaving to become successful.

Leaving the EU would affect us on a much deeper level however. Politicians talk frequently about an immigration ‘problem’. From a Scottish perspective this is a nonsensical and misleading argument. Roughly 750,000 Scots work in London and the South East as well as a significant proportion of the 2.2 million British citizens estimated to be living in other EU countries. This is a major economic issue for Scotland and Scottish companies, with our most talented and capable citizens leaving to build other economies. Our country needs to be able to retain and attract young, intelligent workers to build a robust and diverse economy. In every country I have worked in, the recruitment of skilled staff is one of the biggest headaches for the technology sector who are in a perpetual competition to train, retain and attract the worlds most capable people. Leaving the EU will be a message to talent that ‘we are closing our doors’ and all of our companies will suffer.

The negative focus on risk however obscures the huge positive opportunity being in the EU presents for business in Scotland. I choose to live in Edinburgh with my family, it is one of Europe’s great cities and has trade and migration links with Europe which are older than our political Union with England. I run a software business and our company is incorporated in Hungary. We are an employee owned company with the goal that all employees become shareholders and participants in the company’s decisions at all levels. We trade across Europe, USA and Asia and we are a classic example of a modern company using technology which makes our physical location or nationality less important. What matters most to us is that we can reach our customers and easily trade with them. The EU’s harmonised trade environment enables us to live and work anywhere in Europe effortlessly. This reduced dependence on physical location presents huge opportunities for all businesses in Scotland as communications and trade become increasingly integrated.

As an EU company we can sell without restrictions in countries like Germany, the world’s biggest market for our products, with no disadvantage or barriers compared to our German competitors. For small businesses based in Scotland it is becoming as easy to sell products and services in Stuttgart as it is in Stirling. Many SME’s are still in the early stages of developing these markets and the EU is a massive opportunity for Scottish business. However the factors that matter in succeeding in this developing market have not been grasped by many politicians.

Debate seems to have focused on discussions about trade tariffs that may be imposed on UK companies if they leave the EU. Tariffs are not the main cause for concern for many small exporters trading outside the EU. The real difficulties and costs are hidden in the lack of harmonization of trade rules, business practices and tax regulations. If my company sells software to India for example, we are subject to tax withholding and the net result is that the Indian government retains some of our fees. We can usually recover these fees but not without penalties and risks. If we sell to the USA, then we have to complete US tax assessments, as a software company we must also provide evidence of export compliance. The list goes on; VAT, standards compliance, certification, tax laws, intellectual property rules, trade marks, dispute resolution, contract law etc.

When trading outside the EU we can (and do) deal with issues like these, but they often have significant costs, such as paying local distributors to handle trade barriers and regulations on our behalf. Leaving the EU will give EU based competitors a huge advantage over Scottish companies, regardless of any eventual political or trade settlement. This will raise the cost of our products and result in jobs and profits being exported to the EU. Leaving the EU will disproportionately affect SME’s who cannot afford to offset the costs of new trade rules and barriers and who will struggle to overcome the European market’s perception that UK companies have left the field.

Access to markets and labour however don’t capture the true value of the opportunity for Scots based SME’s in the EU. We have a reputation in Europe for excellence and quality; universities, food & drink, technology, hospitality and more, but most importantly our people. In my many years of travel I have been struck by how people identify Scotland with friendliness, inventiveness and warmth. Scots companies have a competitive edge based on the perception of a strong work ethic and willingness to collaborate. In a world where companies increasingly depend on collaboration and communities to be successful, no other EU nation is better placed than we are to be successful. To leave the EU not only risks that market opportunity but may portray us as insular and unfriendly by comparison to the warmth of our European neighbours. Trade rules and treaties can be managed, but damaging our reputation as a friendly, welcoming and collaborative nation could be significantly more costly.


You might also be interested in: Brexit – What Scotland needs to know before votingBusiness and independence: learning from Germany’s example


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About the author

David Brook

David is a technology industry veteran and owner of a small marketing company based in Scotland and also a senior partner in a successful Hungarian software company. He started life as an engineer, graduating from the University of the West of Scotland and later gained an MBA. David has developed a number of successful technology businesses whilst living in diverse locations such as Munich, Boston and Bristol over a period of nearly 10 years. Now settled in Edinburgh with his family, he uses his extensive knowledge of international trade to help technology companies break into new markets.


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