International business, as the name suggests, is a business that involves two or more countries trading goods, services, technology, resources. It involves cross border transaction, multinational companies, overseas business and global marketplace. In other way, international business can also be described as the study of the process by which multinational enterprises become internationalized. Brexit is the abbreviated form of British Exit. It refers to the withdrawal of UK form the European Union to become an autonomous territory, on 23rd June 2016. A decision of this magnitude is bound to effect on the country’s economy and politics. The political and economic changes of a country bring change in the business relationships between that country and other countries, which further change situation for that country’s foreign trading. This essay is prepared to discuss the vastness of the effect that the Brexit has brought to the international business in UK.
When a company deals with companies from other countries to export or import goods, services and resources, it falls under the category of international business. The forms in which international business works are quite diverse. Other than exporting and importing goods; opening franchises in other countries, giving contractual licenses to firms to use a countries resources; researching, developing, manufacturing and distributing products in foreign countries are also considered as a part of international business (Shenkar, Luo and Chi 2014). In order to understand the impact of Brexit on international business in UK, one must understand the factors that are related to international business and what are its benefits. Making a business successful on foreign soil depends on recognising the correct opportunity and scope in the market. Market recognition includes full knowledge on the diversity of the market and understanding of how to handle that diverse market demand. In the context of the benefits that can be gained from international business, comparative advantages have crucial part to play. The concept of comparative advantage comes from the advantages that a country possesses, in comparison to other countries, to get lands, labours, capitals and resources on a very affordable price. International business gives a country the opportunity to utilize both the resources and markets in other countries. In addition, it creates a better competition in the markets within a county and motivates to be innovative in products and services. International business also has its own challenges to face.
There are four environmental aspects, on which the success of international business depends – economic environment, political environment, cultural environment and competitive environment. The economic environment includes economic stability and the economic structure of the country, as in whether the country has a free market or a centrally planned market. The free market economy interferes less in the activities of international business, whereas the centrally planned economy is controlled by the government and hence gives less opportunity to companies from other countries to trade in their country (Internationalrelationsedu.org 2018). Economic stability of a country supports the organizations of that country to create a strong business outside the country as well as invites foreign investors to invest in their market. The relationship that a government has with the business of its country is the political environment of that country. This factor also includes the political risks regarding that country. The political structure of a government plays a crucial part in international business, as a politically stable and friendly country will let foreign firms to grow in their land. When a country is going through a political structural change, it evidently is taken as a risk for foreign organizations to grow their business in that country (Brink 2017). Both domestic and international legislations have an important role in international business for they govern how an organization will do business in a foreign country. Cultural environment is probably the most difficult factor to understand, as it covers various dynamics of a country such as the history, location, geography, language, religion, education, and other. Therefore, a thorough cultural analysis of a country before trying to do business there is evidently significant. The most interesting factor is the competitive environment, as this factor depends on the other three factors. Based on this factor, it is possible to determine the relationship between the buyers and the suppliers as favourable or adverse. As the other three factors changes with time, the competitive environment also changes with that.
Among the British electorates who participated in the election, 52% voted in the historical referendum of 2016 to leave the European Union (Convery, peterson and wincott 2017). There were multiple reasons that lead Britain to withdraw their country from the EU. The failure of the EU to recognise the economic problems that were present in the union made their economy stagnant. Britain did not want to be a part of such a stagnant economy. Britain also could not freely decide on foreign trading as the EU was making it difficult for the countries in the union to make their own business decisions (Hannan 2016). The voters who supported the leave were from both the Conservative and Labour parties of Britain. The parties were in favour of remaining in the union. Yet many of their members opposed them and voted for the withdrawal, as they saw both parties to be incompetent to control the financial system and protect the interest of the people of Britain (Mauldin 2016). These were the major reasons why Britain decided to leave the European Union. As an immediate effect of Brexit, the value of the British pound fell to a large degree. UK, for several years, had been catering as a country that provides the best opportunities for starting a business. Brexit brought uncertainties to those opportunities. Experts were divided in two halves, one saying that Brexit could bring betterment for the international business in UK, and the other half saying that the decision of Brexit was a historical blunder.
As the impacts after Brexit, consumers were putting less trust on the British market. On one hand the value of British pound decreased to the lowest in last 31 years ; on the other hand, prices were rising in various fields such as the manufactured and food products, petroleum products, transport materials, and many more (Market-inspector.co.uk 2017). There was a noticeable rise in the price of imported materials. These were the results of the sterling depreciation. The falling of the value of the British currency was effecting largely on the market and production. Foreign companies, which were manufacturing in UK, became unwilling due to this inflation. On this context, during the inflation, countries outside the European Union were more interested in exporting to UK than the countries In the European Union.
Brexit alters the relationships between Britain and other countries. European Union has one of the largest markets in the world. In the field of business, the EU represents its states to make sure that they have fair business agreements with other organizations (Pollack 2015). The EU acts on the best interest of its member states. As Britain has become an independent country now, it cannot enjoy the advantage of bargaining power that the union has. Moreover, it has to make new trade agreements and legislation with other countries (Miller 2016). After Brexit, the EU intends to take strict actions against Britain by making the trade agreements more protectionist for the country in order to make it less appealing in the terms of international business. On the other hand, this punitive action of the EU may consequence into a stronger trading bond between Moscow and UK that has the possibility of making the EU diverge from its position (Cumming and Zahra 2016).
According to World Trade Statistical Review, 2016, the UK ranks as one of the top ten countries in the world, which deals in merchandise and service exporting and importing. The major portion of merchandise and service was being exported in the EU. After Brexit, the UK lost its major market of export. The Direction of Trade Statistics, 2017, shows that before Brexit the UK had seven countries from the union as their major global trading partners. With the exception of Germany, this scenario changed after UK left the EU, as the growth of trade in those EU countries became slow. Currently, UK’s major export markets include countries outside of the union.
Immigrants from several countries of the union fill up a major portion of the skilled and unskilled workers in the UK. In fields like IT sector, healthcare, engineering, these immigrant employees had been providing a significant amount of labour. As an effect of the Brexit, these immigrants’ leaving the UK will create a huge void in these services (Portes and Forte 2017). As a huge political change, Brexit will make the political environment of the UK unstable for a substantial period. Unstable political environment means there will be risks in investing in that country’s market. Brexit will increase the tariffs and costs too. Moreover, the EU was the source of major part of the FDI stock of UK (Oehler, Horn and Wendt 2017). Brexit will make future trading with countries from the union uncertain and hence, reduce the FDI stock of UK. Thereafter, these reasons will affect the foreign investors to invest in the unstable and uncertain environment of the UK (Dhingra 2016).
One of significant reasons behind UK’s withdrawal from the EU was that the union had excessive obligations regarding international trading. Brexit will provide UK the opportunity to save a large amount of money, as it no longer has to comply with the EU regulations and membership cost. The country has the scope of using the money on new foreign ventures. UK is now free to do business with any country, among which China and Australia have the most priority. With the new Free Trade Agreement with china, UK can now grow its banking and insurance industries there, and exploit China’s market and resources. Brexit also heightens the possibility of an UK-US tie up (Nytimes.com 2017). There is a scope for the UK to make a Free Trade Agreement with the US. US were the largest market for exported goods of the UK. IT also was the second primary source of imported goods in the UK. After losing the EU single market, the role of the US has become significant in UK’s business. The UK is now trying to explore ways to grow a market in the US for its service industry. In this new scenario, where UK has the ability to make independent choices and negotiations regarding international business, it is facing a quite dynamic situation in the process of bargaining with the US.
International business can be seen as the way of growing domestic businesses. Trading in another country depends on various factors. Among those, the political stability of a country plays the most crucial part in doing overseas business. Political balance of a country determines how flexible the workforce and work environment will be in that country, and how much willingly it will let foreign firms and investors to do business with them. The regulations regarding foreign trades, the economical balance also play a crucial part as the factors of international business as these say how much a country can utilize the resources and markets of the foreign country. Brexit, Britain’s exit from the European Union affects all these factors and therefore has an impact on the international business of the UK. It hampers the trading relation between the UK and the countries within the EU. Hence, the UK is facing global challenges to do foreign trade as it is seen as an economically and politically unstable country. However, this withdrawal from the EU also gave the UK liberty in making trading deals and agreements with foreign companies. Through new independent business policies, the UK now has the scope to venture more in the countries outside if the union, such as the US, Australia, China. With the strict EU laws not abiding anymore, the UK, in future, can bring more prosperity in its international business.
References
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