Current And Future Effects Of Brexit

Introduction

A historical start point of the EU was in the 1950s by preventing repeat of world war to foster economic co-operation, with the idea that countries which trade together were more likely to avoid going to war with each other. After many events occur related to EU membership and finally a referendum was held on Thursday 23rd June 2016 to decide about the UK, whether to leave or remain in the European Union. The referendum turnout was 71. 8%, with more than 30 million people voting. Leave won by 51. 9% to 48. 1%. Whether this deal will happen or not will come to know on the 29th March 2019. There is still suspense about the UK’s decision on the referendum, but it has affected many areas of the economy. During the campaigning of Britain’s general elections in June, issues like care for elderly and national health services were focused by the voters. It will affect the economic growth, international trade, domestic trade, remittances and aid, all this will depend on what will the UK agree in coming months. In this essay we overview about the risks and opportunities by the Brexit to the multinational companies operating in the UK. Perspective of this essay is to discuss about the impacts since the referendum and present some predictions about the future.

First some of the risks that are faced by the different companies due to Brexit are discussed. Before the referendum many of the forecasters predicted the negative development about immediate aftermath of the Brexit. Since this event there was fall in sterling pound and it results to inflation as import prices were also risen. Decline in value of the sterling relative to US dollar could have been harming the Global business which ultimately can affect the multinationals of the UK. As fall in currency lead to increase in the cost of products that affects the demand. The FTSE 100 index has gone up about 10 percent since the close just before the referendum vote on June 23. The steep fall in the value of the currency has changed merger calculations for companies around the world. Stocks, however, have been more resilient. Having fallen just after the referendum, the FTSE 100 – Britain’s benchmark share index – is now comfortably above where it closed on the day of the vote. It will also be affecting the European Union citizens who are working the Britain as well as Britons who work in the other European Union countries.

Multinationals in the UK will also face difficulty in doing business with MNCs of the other countries as their will be delay in their entry due to Brexit. Some of the companies are concerned about their Profit margins as it is declining since referendum so they are having thought of relocating their business as they are not sure about doing their business in the UK. The problem of insolvency might be faced by some of the companies in the future, so it will also lead to reform their existing business or leave them and create new. Labor mobility and unemployment is one of the most experienced risks in the present situation companies are dealing with. Companies are thinking to reduce their production work and layoff their workers or employees. Specifically, Financial times (2019) present evidence of the relocation of the Japanese multinational company SONY to shift from UK domicile to European domicile due to brexit risk. Moreover, financial and technological uncertainties created by the Brexit also cause companies to relocate their business elsewhere in the EU.

However, Paula Conconi (2018) examined in her blog that due to hard brexit MNCs wants to pull out from the UK as she expressed that MNCs operating in the UK favors “soft” brexit. More importantly, exit from the customs union would mean that multinationals may face high tariffs if they want to serve EU customers from the UK. Companies like Nissan and Honda have used UK as their base to serve the European customers but after brexit as there might be high tariff charges so they will be facing difficulty in trading. British multinational Next plc’s chief Lord Wolfson (reported rise in the results of their online sale but warned about brexit risks. He describes that risks include higher tariffs on goods imported into the UK. He argued that no deal brexit is better option as there will not be material threat to ongoing operations and profitability.

Currency and political fluctuations are seen in the companies as a result of referendum. Evidenced by Financial times (2019) that several companies, including the printer and copier maker Ricoh, have changed the currency of their European financing departments from sterling to euros. Others have warned of massive disruption to operations and several, including carmaker Honda, have warned they could face huge administrative costs. The share price of the companies was also fallen due to brexit turmoil. Most important effect of the Brexit is to focus on the role of Multinationals in the contemporary economics. Sometimes due to political influences on these companies will lead to encouragement to unacceptable activities eg: unfair labour practices, ignorance of the environment etc. will affect the reputation of the companies as a result their goodwill be decreased. Other than multinationals, fear of Brexit is also spread in small companies for new venture start-ups. As countries develop their own approaches to address these issues, multinationals are likely to face greater uncertainty that affects their opportunity. But it is not all about risks. Many of the companies identified opportunity on the horizon. Whilst these varied by company, the types of opportunity mentioned included faster take up of automation to meet a potential skills shortage, and incentivised inward investment with the depreciation of sterling. Firstly, UK companies will be directly negotiated by the UK government. Moreover, tariffs, regulations and barriers imposed by EU will be removed or streamlined. This might result in decrease in the cost of operations of the multinational companies. Trade flow will be easier and fast as barriers imposed by EU will not be there. In addition, decline in the value of the sterling could encourage the international expansion through increase in the number of exports. One of the benefit received by the companies were their increase in number of the exports. This was evidenced by highlighting the initial fall from 2011 led to limited improvements in export performance as many companies used lower pound to raise their margins rather than expand overseas sales. In this digital world, many multinational companies run their business digitally so they may innovate technology to do trade overseas by which UK’s creativity and innovation might be develop more.

Conclusion

In this essay we have highlighted about the opportunities and challenges regarding the Britain’s decision to leave the European Union and arguments given by the different sources on its implications to the Multinational companies operating in the UK. From over all arguments given it can be concluded that there are more risks associated since the referendum of the Brexit to the multinationals. Before the referendum, warnings about corporate profits were dire. The reality since the vote has been more nuanced. Businesses in a variety of sectors have predicted that leaving the European Union will take a bite out of profits and could lead to job cuts.