Monday, 18 August 2014

Viewpoint: Scottish Referendum

I was asked to write 450 words for the UK readers of Direct Commerce Magazine (the Trade Magazine that covers the dot com retail sector). I found the enforced brevity challenging but thought I'd share it here as an antidote to my normal rather stodgy and bloated posts

Viewpoint: Scottish Referendum

On the 18th of September the Scottish people will exercise their right of self-determination, voting either “Yes” to become independent or “No” to remain part of the United Kingdom. The Union has existed for 307 years and this is a one-way ticket: if the Scots vote for Independence there’s no going back.

Of course I have views as a Scottish citizen, but in this publication I’ll constrain myself to offering my perspective as founder and CEO of M8 Group (comprising and – two Scottish based online retail businesses).

These businesses have thrived serving the UK market from a Scottish base.  We employ 98 people, have featured as a Sunday Times Fast Track 100 company and are currently enjoying another year of record sales and profitability. Would Independence provide us with greater opportunities or present us with new challenges? 

A simple factual observation: if Scotland becomes independent then the remainder of the UK (rUK) becomes an export market; our addressable domestic market shrinks by 90%.  It is of course a corollary that for rUK based retailers the addressable domestic market will shrink by 10%.

Now I have no fear of export markets - I’m a shareholder and NED of Endura, a business that exports more than half of its sales – but export trade (particularly B2C trade) involves complexities and contingent risks that domestic trade is immune from.  Two obvious headline examples are currency and trade barriers (EU membership).

There isn’t room here to cover all the arguments but having researched in depth I can offer a fair summary: there is a risk that over time an Independent Scotland will end up using a different currency than rUK and/or that one of Scotland or rUK may be in the EU and the other out.

There are other issues (e.g. the loss of Royal Mail Universal Service Obligation) but you can guess where this is going.  To protect our businesses against these risks we would relocate our operations to where 90% of our sales go; jobs would move from an independent Scotland to rUK.  We are not unique in this regard; a recent Treasury report estimated that 10% of Scottish jobs dependent on rUK trade would be “in danger” (with Financial Services and Defence sectors particularly affected).

So these downsides for business and the Scottish economy are clear, but I’m an entrepreneur so I seek opportunities.  I was recently able to ask Blair Jenkins (leader of the Yes campaign) to describe the business opportunities that Independence would create. The best he could offer was to downplay the risks. It would appear that – like me - he is unable to see any tangible upside from Independence.


Anonymous said...

As a fellow Scottish entrepreneur, selling much into the South, I just have to call you out on the phrase: "unable to see any tangible upside from Independence".

I am afraid these are not the words of a true entrepreneur, you better get your thinking cap on quick or you will be left behind.

I am currently launching a new website with one of the aims being to service the re-invigorated Scottish market.

Kevin Hague said...

Bless you my Anonymous (of course) friend for explaining that I'm not a "true entrepreneur". Who knew?

To be clear (I had a word limit on that article):

There will of course be pockets of entrepreneurial opportunity created by independence: there will be lots of business relocation to facilitate, cheap industrial space to exploit following the flight of distribution activities, huge service contracts to be won for the new Scottish Government infrastructure required, civil service posts aplenty to fill, massive opportunities for specialists in international and constitutional law, HR advisory boosts as companies have to make local work-forces redundant as they relocate, arbitrage opportunities created by currency arrangements etc. etc.

My point is a rather more "macro" one - how does independence "re-invigorate" the Scottish market in a way that provide sustainable benefit to the Scottish economy?