The Brexit is the event where Britain has been voted to leave the European Union. The referrendium was initiated in June , 2016. The EU memebership benefitted United Kingom from several aspects. The UK regions voted to leave EU custom union are expised various risk. The Brexit though is much of a political event it has long standing implication for econonomic, political, legal and regulatory framework. Following Brexiy Uk has accouned a decline in the measured growth rate. Losing tne support of EU, UK busineeses face a much weake position in the international market. The Brexis event brings some major chnages in economic, political, legal and cultural environment in which the businesses operate (theguardian.com 2018). Domestic as well as UK international busineeses face uncertainty from the Brexit referendum.
Interantioanl busineeses are adversely affected from a fluctuating currency, complicated legal and regulatory framework, delay in delivering goods services due to kegal and trade barriers. The supporter of Brexit argue that Brexit also has some positive consequences. The septration of EU, offers UK a greater political and economic freedom. In the short run though Brexit seems to have only adverse consequence, in the long run UK can stregthen its postion in the world market (Glencross 2015). The essay critucally evaluates the potential changes in UK interantional environment after Brexit.
Economic, political, legal and cultural environment are important determiants of business operation and success (McAleese 2004). The economic envitronment influencing businesss related to money, goods and services. There are both micro and macroeconomic factoraffecting business. The external economic environment mostly depend on the macroeconomic environment. Exchange rate, interst rate, inflation, demand and supply scenario are some of the major indicators of economic enviornment (Aliber and Kindleberger 2015). An impressive GDP growth over the last few years offers a provides busineeses a favorable envirnment of doing business in the domestic and internatioanl market. Economic shocks like that of global financial crisis in 2008 and event of Brexit marks a change in performance of different economic indicators afecting business.
Business operating internationally has to bear the cost of production in terms of loca; currecy in which the business operates. A relatively strong position of domestic currency thus reduces the effective cost of busineess. If currency deprciates then companies have to a higher price for inputs in terms of foreign currency (Sloman and Jones 2017). From the immediayte next month of Brexit, the value of pound has reduved sugnifucantly. This has become a matter of great concern for internatioanl business. The figure below shows the sterling exchange rate after Brexit.
Figure 1: Movement of sterling exchange rate after Brexit
(Source: .independent.co.uk 2018)
As shown above the value of pound has reduced significantly after Brexit. The trading partners of UK are anticipating that the withdrawal of EU support to UK can put the nation at a disadvantageous position. The pessimistic view about potential impact of Brexit pushes down the value of pound .The difficulties also arise from a disruption in the supply chain restricting expansion of business. UK has already accounted a subdued business investment in 2017. The Bank of England has forecasted that Business investment is expected to 25 percent lower by 2019 as compared to the pre – Brexit period (independent.co.uk 2018). The threat to business operation actually possess a threat to the productivity growth of UK in future.
Figure 2: Percentage change in Business investment
(Source: independent.co.uk 2018).
A more critical fact to be discussed is the potential benefits and losses of being a member in EU. The two most significant benefits are single market operation and benefit from EU custom union. The single market operation ensures free flow of goods and services to the entire EU market without any internal or external barriers. In the absence of any barriers the domestic markets of member countries appear as a single EU market. EU membership helps the member nation to quickly expand trade in the absence of any external cost. Under the single market operation business does not need to face any form of cross border taxes, barriers in form of tariff and other custom checks (Wall, Minocha and Rees 2009). Any business in UK thus can easily expands its operation to any nation within EU. UK service industry was particularly benefitted from single market access to EU. The benefits of single market access extend far beyond the benefits generated from free trade, custom union or any trade deal.
The EU members are committed to eliminate all the obstacles to free trade such a tariff and non-tariff barriers and implement a broader range of competitive law with greater coordination in product regulation (Schiereck, Kiesel and Kolaric 2016). During EU membership UL businesses reap several benefits from free exchange of goods and services. Not only goods and services, there are free cross border movement of labors as well. The UK business thus can hire skilled laborers from other EU nation without any hurdle. After joining EU, UK trade has been flourished with trade volume accounting more than 50% increase (theweek.co.uk 2018). Apart from free movement of goods, services and labor UK businesses enjoy access to EU supply chain. Various industries in UK offered intermediary input to other EU nations. With a membership tag of EU, UK businesses have signed 30 trade deals by which they can enjoy access to a broader market valued approximately $24 trillion.
In addition to single market access, UK prior to Brexit referendum reaps the benefit from its position in EU custom unions. Trade agreement by means of a custom union group specifies a uniform custom checks and tariff rate on goods and services move within EU. Not only tariff and non-tariff barriers custom union also eliminates regulatory and financial barriers in the exchange relation. In the custom union, all member nation agrees to allow free movement of goods and services within EU internal border (Hunt and Wheeler 2017). Globally, custom union formed by EU nation are the strongest custom union. The membership of a powerful custom union thus helps to secure position of UK businesses.
After Brexit referendum UK business lose access to EU single internal market. Ceasing access to EU market imposes a cost equivalent to £36bn in a year to the entire UK economy. The sector most vulnerable to such impact is the financial service. The sector has lost nearly 10,500 jobs in various position from the very first day of Brexit (independent.co.uk 2018). Some eminent financial groups such as Citigroup, Daiwa, Morgan Stanley and Sumitomo Mitsui financial group have declared to relocate from UK to EU. Financial service is one of the main pillars of UK economy. A weak financial sector can bring a credit crunch for UK business firms (Oehler, Horn and Wendt 2017). The financial services alone account for one third of the loss generated from losing access to single market.
Prior to Brexit, London holds the position European technical capital. The position has been threatened after Brexit. One of the biggest threat of Brexit to UK business environment the possibility of UK based companies to serve clients on European counterpart. The creative service industry accounted a value of £4bn in the European Union. Most of the creative service pertaining to export of graphics design, fashion, film and videos. The business goods and services have now come across considerable barriers to enter single market of UK. Previously, the friendly relation with EU benefits UK businesses in terms of a lower transport cost, quick delivery of services and support of a standard technology (Schoof et al. 2015). Apart from financial and creative service industry businesses operates in automotive, pharmaceutical, aerospace and chemical industry loses their favorable position in the international market.
There is however another side of the story as well. Along with the obvious adverse consequence Brexit can have some positive influence on the UK economy. The regulation of EU customs unions previously prevents UK to trade with nations outside EU. All the benefits of free trade agreements to UK businesses thus limited to the EU boundary. UK attains status of a free state after Brexit. It can now involve in beneficial trade or business agreement by its own choice. This provides supporters of Brexit to provide argument of Brexit. The Brxit gives UK business leader a greater flexibility to conduct business operation across the globe. UK firm now can enter to a more vibrant market (Simionescu et al. 2017). The existence of double tax earlier would have restricted many business deals. Additionally, EU regulation imposes several restrictions on entrepreneurs. The freedom from complex regulatory framework offers UK firms a greater opportunity for doing business internationally.
Coming to the political environment, Brexit has brought change in the political decision making and functioning of political parties. The important political factors for business includes employment laws, political decision related to trade and tariff, framework of tax and laws affecting consumers’ and producers’ decision. In the post Brexit period, the result of UK general election already has a disastrous impact on businesses in UK (Portes and Forte 2017). The uncertainty regarding future political environment imposes uncertainty on future of the business. The UK business houses have expressed their concern that the general election distract government from their responsibility towards businesses. The business firms in UK requires a well-defined policy to improve business infrastructure and development of skills. Only positive outlook in politics is the possibility of establishment of a good relation between UK and US. After US’s withdrawal of Transpacific Partnership and disputes in North American Free Trade Agreement weakens the relation between EU and US (ft.com 2018).. This opens up a new gateway for UK businesses in US signaling friendly relation between the two nations.
In order to do business outside the domestic boundary businesses need to consider the legal environment of the nation. By Brexit referendum UK based law firms can no longer present their clients to the hearing in EU courts. After Brexit, significant changes have been occurred in the migration law. Being a member of EU custom union UK previously cannot prevent immigration of laborers from other member states of EU (Sampson 2017). The business in UK thus were under the pressure of hiring immigrant labor force. Reform in migration law release such unnecessary burden on UK firms. Apart from immigration policy, reform has also taken in trade policies. The impact of change in trade laws is more prevalent in automotive sectors of UK. The automobile companies depending on other EU member for outsourcing and distribution are more likely to suffer from sudden change resulted from Brexit (Schiereck, Kiesel and Kolaric 2016). In the long run, the regulatory framework is expected to account a drastic change as UK now needs to construct its own regulatory framework guiding international trade and businesses. Previously, UK needs to follow the uniform law designed by EU.
The culture of UK business is characterized with way of business communication, etiquette in general business meeting, balance in work life and such other business related attitudes. Brexit has not brought nay change in the interim culture of businesses. The changes in external environment has affected some functioning of business (Oehler, Horn and Wendt 2017). For example, change in migration policy often causes a shortage of skills by preventing cross border movement of labors. The innovation in UK businesses is hampered by lack of investment from large scale banks in European Union.
The discussion so far made has revealed a mix consequence of Brexit on business environment in UK. The UK business after Brexit loses their right of access in EU single market. The free trade agreement with EU previously provides several benefits to UK businesses. Some sector like financial and creative service, automobile, chemical and pharmaceutical is already facing a tough time because of EU and UK separation. The nation has recorded a decline in economic growth along with a depreciation in currency. In addition to economic environment, political, legal and cultural environment of business have undergone with some degree of change. Despite the projected adverse consequence, the UK the supporters on Brexit have claimed that a greater economic and political independence can strengthen UK economy in future.
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