Brexit and Its Impact on Global Business

A lot of buzz has been going on around the Brexit and its impact on global business these days. Well, it has finally happened, the famous Article 50 was triggered as promised and negotiations started.

As with any other ‘divorce’, the two parties involved claiming their share, only in this case the two entities are not individuals, are countries. How will the ‘family budget’ be affected and what will be the impact on business remains yet to be seen. However, what is obvious in this clash of the titans is the tension hovering above the EU and the UK alike, where each embraces a different view of the ‘common good’ (their common good, of course).

While the EU desires this separation done and over with, the UK asks for parallel discussions. The EU demands a severance payment of €60bn from the Royal Albion as part of the severance program, which triggered a wave of discontent in the country. (click to get more business book summaries on getabstract).

Analysts caution about the necessity of “a positive Brexit deal” for both parties. This would be indeed desirable for global business in point of harmonious trade relations between the EU, the UK and the rest of the world given that 44% of UK’s exports head towards the EU, which as in a chain reaction, creates jobs and generates revenues and incomes. This movement is not left without response from the EU’s side, with more than 50% of the country’s imports coming from the EU. Therefore, any embargo should the outcome of the negotiations turn out that disastrous, would cause price hikes for British consumers and businesses. In turn, any negative result impacting the country will also backfire against the EU, as UK is a huge market for Europe and the Eurozone.

One thing is definitely certain – politics will continue to remain the main driving power of economics, at least in the early stages of the negotiations. This will bring about uncertainty for European and global business alike. According to UK surveys, the predominant sentiment among businessmen and investors is caution when it comes to expanding their connections with the UK. Should the discussions around the oval table not have a positive outcome for the UK, commercial focus will shift from the country and slowly but surely, the Sterling will depreciate.

However, for the time being though, foreign businesses do not exclude Great Britain from their investment decisions, keeping in mind that the country continues to have a stable economy.

The Road Ahead for Global Business

Whether we like to admit it or not, London continues to play a pivotal role in global economy, serving as the main financial hub in Europe. Therefore, the Brexit vote puts a lot of pressure on London-based investment and financial service firms, who will face serious difficulty in point of planning ahead. Although planned to take two years, as laid down by the now famous Article 50, the negotiation process already underway, raises significant challenges for business. Here are a few of the main challenges that lie ahead and how to overcome any potential negative impact that the Brexit may bring about for the Brits.

Challenges:

1. Passport system: The late 1990s brought about an integration of financial services in Europe, with the European Union removing any legal barriers and creating a common set of rules for banking, insurance and investment. Based on that, the passport system facilitated operations between any Europe-based business and any and all other EU member states using one and the same set of financial rules. Britain’s departure from the EU may result in a restriction of UK businesses to the passport system.
2. Relocation resolutions: Britain’s exit from the European Union may limit the possibility of London-based companies to assess the EU markets. Therefore, the next unavoidable for them to stay afloat is relocation to the EU zone. The costs of move of that magnitude and potential business disruption may be huge.

Over two million people worldwide work in UK’s financial services industry. The financial services industry is the largest tax-paying sector in the country’s economy and at the same time the largest business exporter. This dramatic change may be a great blow to the British economy as well as to the rest of Europe.

    3.  Economic qualm: It does not come as a surprise that Brexit supporters have caused anxiety among     Brits. Numerous multinational companies based in or doing business with the Great Britain lack a roadmap to plan their operations. For instance, if a British company has EU customers, or if it purchases goods from the EU, there is no clarity as to how to do business post the Brexit vote. That is why many companies regardless of their size, may feel daunted to continue operating with Britain and the EU until European officials set a clear direction to be followed in every line of business.

Solutions:

1. Monetary stability: One big variable that international trade faces is currency exchange risk. For instance, let us say a London company manufactures and sells furniture to a number of stores based in France (EU). In this case, the British company will need to convert British pounds into Euros. The risk the furniture company faces is that the pound may not be as valuable as it was against the Euro at the moment the deal was made and money left French accounts. To avoid incurring any currency exchange losses, both the UK and the EU should take measures to maintain currency value between the Sterling and the Euro.
2. Relocation: Great Britain and the EU should strive to reach a consensus with regard to allowing British operations with EU member states without requiring relocation to continue long-term business cooperation between the two regions. This will not only reduce cut costs, but it will also encourage British companies to retain most of their staff in the country. Hence, less disruption can stimulate trade relations between the European Union and the UK.
3. Clear regulations: Ultimately, the UK and the EU should agree on a clear set of rules to regulate business between London and the EU (meaning any country in the European Union) and harmonize it across the EU area. To stimulate trade and smooth out operations between the EU region and the British isles, officials should ideally avoid having a separate set of regulations for each EU member state.

Support and implementation of these progressive ideas can contribute to the smooth continuation of commercial rapport between Britain and the EU.