Despite the uncertainties associated with Brexit and the Covid-19 pandemic, Irish medical device manufacturer Vitalograph is ahead of revenue targets.

‘In the medical device business in Europe,’ explains Frank Keane, CEO of cardio-respiratory device manufacturers, Vitalograph, ‘We have a perfect storm at the moment. There’s Covid-19, which is putting different demands on the sector, then there’s the uncertainty caused by Brexit, and meanwhile there’s the major changes due to new regulation – the impending  EU Medical Device Regulation.’

Vitalograph was founded in the UK in 1963, when founders Margaret and Dietmar Garbe developed a device that could test miners for ‘black lung’. A family-owned enterprise to this day, the firm is now a global leader in respiratory diagnostics, with facilities in Ireland, Germany, Japan and the USA. The company exports to clients across the world and has recently cornered the cough analysis market in clinical drug trials.

In Ireland

Since 1974, Vitalograph has performed all of its manufacturing and R&D in Ireland, from a facility in Ennis.

‘We’ve had a lot of support from Enterprise Ireland over the years,’ says Keane. ‘We have had R&D support, a job expansion scheme, a LEAN initiative, marketing support…. the practical supports are fantastic. For example, they recently helped us to get very good distributors in South Africa and Zimbabwe.’

This year, management has attended several Enterprise Ireland seminars and, more recently, webinars, to find out how best to prepare for Brexit. ‘That’s been a great help for understanding the implications for customs. That’s where we have been getting the majority of our knowledge on customs changes – they’ve kept us informed as much as is possible.’

While the pandemic is dramatically altering the market and even affecting the supply chain, the sector is already experiencing the financial impact of Brexit, which will likely create obstacles in the near future. To address these challenges, the company has broken down Brexit-related issues into four categories: regulatory approvals, finished products to the UK, components from the UK, and transport.

Regulatory challenges

Regulatory changes are already proving very expensive for the company.

‘Both our Irish facility and our UK facility are accredited by the British Standards Institute (BSI), headquartered in Milton Keynes in the UK,’ explains Keane. ‘The effect of Brexit is that BSI UK has lost its certification as a notified body. That means that any company accredited by them can no longer sell into the EU.’ BSI’s solution was to set up a Dutch subsidiary, and Vitalograph is now accredited by BSI in the Netherlands. The change has had huge financial implications for the company.

‘All our products have to be labelled with the notified body’s registration number. And that number has changed. We had two years to make the change, but it’s a huge job. We have 16,000 mouldings and labels that needed to be changed. That became a major cost for us. We’ve had two full-time staff working on it for two years: one new hire and another transferred from another position.’ He estimates that this has cost the company about €500,000 in personnel, tooling and design changes.

Another issue, and one that is causing real uncertainty for the company, is that once the UK leaves the EU regulatory system, they are going to set up their own medical device approval system. The difficulty for a company like Vitalograph, is that legislation is still stuck in the House of Lords, and changes are still being made to it. ‘So, we don’t know what it’s going to be or how quickly we are going to have to act,’ explains Keane. ‘It’s out of our control. All we can do it sit on the side-lines and wait.’

Tariffs

Although Vitalograph exports to Europe and the USA, the UK is one of their biggest markets.

There are two aspects of Brexit that are going to affect sales to the UK. The first is that products sold into the UK will have a tariff for the importer. ‘The tariff is about 6% according to WTO rules under a no-deal Brexit. It is paid by the importer, but actually, the importer is us in this case,’ explains Keane. ‘It’s our headquarters that will import the devices.’

There is also an issue with bringing material into Ireland. Vitalograph Ireland sources some of its components from the UK. After 31 January, in the case of a no-deal Brexit, there could be tariffs coming into Ireland. ‘Our overall policy is to source as much in Ireland as we can, but Ireland has a very small supplier base,’ says Keane. ‘We will try to switch to countries other than the UK where possible, but some components are quite bespoke and difficult to source elsewhere.’

Landbridge

Transport routes are a major concern. Over 90% of Vitalograph’s products are sent through the UK to mainland Europe, by road. At the moment, there is no way for the company (and other Irish exporters) to bypass the UK.

With the UK leaving the EU, it is anticipated that goods coming through the UK will be subject to checks, delays, and costs. ‘This is our biggest worry,’ explains Keane, ‘because half our business is supplying products and services to clinical drug trials and we need to be able to deploy very quickly.

Weathering well

Despite the various upheavals in Europe, the company is ahead of its revenue targets this year. ‘But,’ says Keane ‘it’s been very messy.’

‘While the demand for hygiene devices and remote monitoring has gone up, a lot of more usual clinical testing isn’t happening – so other areas are down. Our direct sale model is obviously down too.’

One reason that Vitalograph has coped so well through this turbulence, is that they have built up a very strong business with devices and services for clinical drug trials. They began to develop the area about 15 years ago, and it is now growing by 20% per annum. Something that has been particularly successful, is cough measurement in clinical drug trials.

‘The project was actually initially partially grant-aided by Enterprise Ireland,’ says Keane, ‘and it has been so successful, creating many, many jobs and bringing in a revenue of over €50 million.’

Uncertainty ahead

For now, Vitalograph is expecting just to ‘swallow the 6%’ tariff’ and adapt to the new approval legislation. But they are aware that it may become necessary to start manufacturing products for the UK market in England.

‘That’s not something we want to do,’ says Keane, ‘and we have no plans to do it now. But we might have to.’

For years the words Brexit and ‘uncertainty’, have gone together. While there is still much that is unknown about what future trade arrangements with the UK will look like, some things are certain.

On 31st December 2020 the current EU/UK transition period ends. It will not be extended because the agreed deadline for doing so, 1st July, has passed.

For now the EU and UK are continuing to negotiate their new relationship, including how trade will be done from 1st January. If there is no agreement by that stage there will be a ‘no deal’ Brexit.

Regardless of whether or not a trade agreement is reached, there will be change.

All change

Irish businesses that import from, or export to, the UK will have to contend with new checks and administrative procedures, including customs declarations.

Understandably the pandemic has seen many businesses switch focus, and resources, from Brexit to managing the Covid-19 crisis. However, as the UK will leave the EU’s single market and its customs union on 1st January, businesses must now prepare for it.

“Everybody is focused on Covid but this is happening on 1st January. Because talks are still going on, people might still think ‘they will sort something out’. They won’t,” says Carol Lynch, a partner at professional services firm BDO.

Even though businesses already have “enough on their plate”, they have to get ready, she says.

Supports to help

There are a number of supports available to help, including the information available on this website and dedicated Brexit grants, advice and training from Enterprise Ireland and Local Enterprise Offices.

These include Enterprise Ireland’s Be Prepared Grant, which is worth up to €5,000 and helps businesses to avail of external expertise to develop action plans.

This can be used to investigate the potential to diversify into new markets, invest in innovation, improve operational competitiveness or enhance strategic financial capability. “All that help is there so sign up and start learning, and working out what you need to do,” says Lynch.

The fact that customs clearance agents are in short supply makes it even more important that business owners and senior managers have as much customs knowledge in-house as possible. “Don’t panic, you have four months left, just don’t leave it to the last minute,” she says.

Revisit relationships

Don’t let uncertainty around tariffs stop you either. “In the absence of certainty, look at compliance principles,” recommends Dr Andrew Grainger of Trade Facilitation Consulting.

“At the moment, the EU is in a transition period so there is nothing to comply with. It will never be as good as it is now, with as few hurdles. Normally the direction of travel is towards trade facilitation, making trade as easy as possible.”  Brexit has reversed this long term trend.

He recommends businesses start by revisiting their commercial relationships, to see how much of the customs burden might be taken on by suppliers. For example, some may consider establishing a base in Ireland, which would help.

Getting up to speed on Incoterms, the international commercial terms published by the International Chamber of Commerce, is vital. “If you are to revisit your commercial relationships, it is going to require informed conversations,” he explains.

Expanded horizons

As a market of more than 65 million people, right on our doorstep, the UK will remain an important trading partner for Ireland’s businesses.

However, they must now consider trading further afield too, to make the most of EU membership.  “From the Netherlands to Germany or Sweden, there are opportunities galore, as members of one of the world’s largest markets,” he says.

In the meantime, to facilitate UK trade, decide how you will clear your goods, either in-house or through a third party. If the latter, you need to find and appoint a customs intermediary, agent or freight forwarder.

When you do, be clear about your instructions and about where responsibilities and liabilities lie, he recommends.  Be ready to introduce performance monitoring systems and make sure all data, such as invoices and transport documents, which form the basis for customs declarations, is accurate, says Grainger.

Look at ways to derive advantageous customs treatment, either for yourself or via your agent, such as through the use of deferment accounts, customs warehousing or inward processing relief, for example.

Firm deadline

The fact that previous Brexit deadlines came and went, leaving some Irish businesses overstocked, may leave some reluctant to prepare again. “But this is a firm deadline,” cautions Ronan McDonnell of The Logistics Consultant.

Moreover, with the UK able to determine its own trade policy, it is “highly unlikely there will be any soft landing” come 1st January, he says.

While the Northern Ireland protocol has sorted many issues for those businesses trading with NI, “for businesses trading with GB, it’s going to be a whole new world,” he says. Getting to grips with issues such as customs classifications and commodity codes will be key.

“Most businesses know now it’s inevitable. We don’t know whether or not tariffs will apply but the paperwork will be there regardless,” he says. “Even if we have a trade deal, that doesn’t mean you won’t have to process customs declarations.”

It’s why businesses that haven’t done so already should talk to Enterprise Ireland and the Local Enterprise Offices. They don’t have to go it alone. “There is help available,” he says.