The EU (European Union) was created
after the Second World War, as a masterpiece of some of the visionary leaders
who had the aim of creating a unique economic and political platform for 28
European countries, as a barrier to further conflict and a medium to instill
greater cooperation among the countries. It was believed that the countries
would stop waging war only when they get involved in trade with one another and
become interdependent economically. The result was European Economic Community
(1958) that initially increased economic cooperation between six countries:
Belgium, Germany, along with Italy and Luxembourg as well as Netherlands. With
gradual passing of time, EEC, which was more of economic union got transformed
to political Union or EU (European Union), revolving around works of policies,
climate, environment, health, international relations and security. EU has
allowed for one internal market, free from border controls for people to roam
about freely throughout the continents. The single internal market is the main
aim to promote free passage of goods and service.
Relation between UK and EU since 1973
has mostly been the time of dispute and disagreement on various issues (Obstfeld, 2016,
p.360). Ten years after the attempt made by Britain to join the single
market. Britain was finally allowed into European Economic Community under
Prime Minister Edward Heath in 1973. Within one year Britain asked for major
amendments in the Agricultural Policy and solution to monetary problems. In
1975 Britain was on the verge of exit. Prime Minister Harold Wilson put forward
a referendum for the nation to stay and the referendum went in favour of
Britain with 66% vote. In 1987 a Single European Act was signed, to promote
internal market without barriers to promote free movement of goods and
services. In 1991 the Maastricht Treaty was signed which implied one single
currency to challenge the dominance of dollar. Britain was against the clause
and PM John Major opted for ‘Go out’ for Britain, not wanting to continue with
the single currency. In 1992 EU exit from the Exchange Rate Mechanism. The
major issue was the selling of sterling to devaluate the pound within the ERM. The
then Prime Minister John Major refused to increase the rate of interest.
Nevertheless bank of England continued to buy sterling. According to Kierzenkowski et al. (2016, p.14), the then chancellor Norman Lamont
increased the rate of interest from 10 to 15%. Bank of England continued to
stop buying but the selling continued which led to Britain’s suspension from
ERM. In 2011, the next dispute issue arose with the imposing of levy on banks
and restricting London’s financial sector. In 2016, with the rise of migrant
crisis, disturbed European zone and victory of UK Independence Party, the final
referendum was put forward by James Cameron on Britain’s exit from EU (Refer to Appendix 1).
The impact and challenges that Brexit
has presented to UK have been uncertain. Reviews from people are mixed,
consisting of positive and negative ones (Kierzenkowski et al. 2016, p.5). The bank of England claims that most
risky part of the business is the Brexit. As stated by Dhingra and Sampson (2016, p.321),
after the launch of Brexit, many trade deals has stopped already and more than
70% of the businesses wants to stay with the EU. While some other business
owners support Brexit as they do not get indulged in export or import practices.
The most affected parts are the deals made with America, youth unemployment.
The financial centre for Britain, which is London, is highly affected.
According to Dhingra
et al. (2016, p.27), studies
and surveys suggest that the export of business items from Eu to Britain is
more as compared to others thus promoting the free trade. The economy disaster
of Greece was more affected by the Brexit. There is no single current
practitioner found in favour of Brexit. The financial condition is said to be
affected in the long term controversially. Some even have the idea that
post-Brexit the sterlings can fall at a rate of 20-30% (Strokes, 2014,
p.23). Britain also suffered a loss of
judicial protection.
There are reports that with the
departure of Britain EU, there are other countries which want to follow the
footsteps of the departure may be Germany, France, Netherlands, Italy as these
countries are threatened by the departure. According to Ebell and Warren (2016, p.123), findings
suggest that there would be a high risk in next general elections as the
European Parties would occupy major parties in those countries.Italy wanted the
Euro currencies to split up into Euro 1 and Euro 2. This generally shows that
they think so high about the EU. The reason for intention to leave the EU of
France may that it is very much similar to Britain. They follow the same
objectives and also there is majority of people who oppose the powers of
European Union.
As stated by Oliver (2016, p.1324), There is
also some news which would probably follow the footsteps of Britain would be
Netherlands, Austria and Hungary. The most probable cause of their intention to
departure would be gaining their national sovereignty. Different leaders of
different political parties mainly wanted to stay within the EU and UK as there
is a fair trade between them and they are highly dependent on the UK-EU
trade.Netherlands would use Brexit to leave EU next as it wants to prevent the
Islamization of the country. Austria is threatened about the fact with the exit
of UK from EU, the poorer countries which are already economically stressed
would outnumber the countries of Germany and Austria.
As per MacShane (2016, p.151), studies
suggest that there are millions of in UK from Britain. According to their
rights who has the EU citizenship and living already for more than five years
can stay in the EU. For people who wish to stay in EU can also enrol in the
“associate citizenship” and be a part of EU. This could emerge as a beneficial
prospect for those who rely completely on trade practices and would be highly
affected if moved out of the EU.
As mentioned by Hoadley (2016, p.11), Brexit posed a threat to
the small businesses and startups. People had mixed reviews on this particular
topic. Some were very much positive and some equally negative. Small businesses
like toy factories, travel agencies, car manufacture companies and so on
suffered from huge losses due to this reason. These companies usually take
order from various parts of the EU and the basis of their business was these business
deals. For an example, toy factories took deals from specific sellers and
retailers who contributed to the main part of the business. After Brexit, these
toy factories has to set up their whole new business in a new way and engage
with new dealers.If we study the business process of Britain, we will see that
there are more products exported to EU from Britain as compared to any other
place.
The euro or pound exchange rates also
would affect the currency. It has been reported that already there is a certain
loss of currency for high exchange rates. Reintroduction of the trades means
that there would be another set of rules and regulations to follow about
customs and other policies. While some E-commerce companies which are
optimistic about their growth and are very much confident, the Small business
owners are threatened by the inflation of prices and higher rates of export.
As stated by Anderson et al. (2016, p.17), some business persons are following the
policy of fixed exchange rates and this policy or process is proved to be
beneficial for certain businesses. People are also using some E-commerce
platforms to export or sell their items. The win-win situation of these
E-commerce platforms is they use a certain rate for the shipping or export and
provide a wide range of business opportunity. But export by this process is
limited to a particular set of exporters. The startups like restaurants and
food cafeterias are affected widely and their owners said that they need almost
more than 2 years to settle. Some business people are suggesting to make
business contacts and deals to expand out of EU like to China and Dubai. These
can give opportunities for free trade.
As a result of Brexit, online
businesses got at a higher demand and flourished but also faced relevant
competitions. Last but not the least, business people who are affected by the
Brexit, should be clear about their terms and conditions. To prevent the loss,
they can opt out for different personal processes like keeping a track of
export cost and keep it fixed as per dealers. They should also globalise their
business when needed and to where there is greater demand for their goods.
People who are already benefited must be sure and keep a track record of their
export rates, policies and products to meet even higher demands.
As a result of Britain’s exit from
EU, Britain will develop an individual trading policies with respect to goods
exported from other countries, including the other European countries. The free
movements of goods across the nation will not be applying here; as a result,
importers and sellers will face greater government restriction. High amount of
tax will be levied on imported products, which will lead to greater loss for
outside companies. Even Small business operating in UK will be affected because
of the similar reason of EU trade policy of free movement of goods across the
European countries will not be applied for Britain, subjecting thereby to
various trade restriction including the restriction in their free passage to
the rest of the Europe (Wright et al.
2016, p.690). Brexit, politically has brought major amendments in Britain’s law.
On June 23rd Britain decided to leave EU and end the age old interference in
the British law. As stated by Wadsworth et al.
(2016, p.39),
Figure 1: Factors affecting business
environment
(Source: Wilcock and Miller, 2016,
p.211)
Theresa May announced the great
Repeal Bill which immediately ends EU’s supremacy over Britain’s by including
some of EU laws into British laws and deleting the rest that does not fit well.
Justice Secretary Liz Truss talked about the replacement of Human Rights Law to
the British Bill of Rights that will protect human rights in a better way.
Terrorists and migrants have used the argument of human rights law in case of
their deportation, stating that it is against their rights. The basic
foundation rule of EU has been the free movement of people across the European
countries, but with Brexit that has reached an end. According to Richard
Thomas, Employment law Specialist, UK is likely to introduce an immigration
system, similar to that available for non-EU citizens, whereby skilled workers
can live in UK for a limited period of time. (Refer to Appendix 2). This could have an impact on the business if
restrictions are put on the ability to recruit workers from EU (Cumming and
Zahra, 2016, p. 690).
Unemployment rose at the rate of 8.5%
and the unemployment rate has reached to the level of 5%. Before the crisis
nominal wage and productivity have been 4% and 2% respectively, which reached
down considerably after the crisis. With the devaluation of pounds, inflation
rose, because imports became much more expensive. On a positive note, migration
level has reduced almost to half, as fewer Europeans arrived because of the
restriction in free movement of people to Britain. (Jensen and Snaith, 2016,
p.1306)
According to Zack (2014, p.345),
Porter’s model suggests that there are five possible factors which can influence
the survival of a business and also affects their sustainability.
The first factor is the “supplier
power”. Suppliers through this power can rise and reduce their prices according
to their will and very easily. It depends on how well the products are doing in
the market, their uniqueness and demand. If the suppliers, which are popular in
demand, raises their prices as per need, the other businesses suffer a loss.
The market price also rises with the supply price hike. This generates a sense
of competition among certain businesses which are alike in certain ways.
Figure 2: Porter’s five forces model
(Source: Zack, 2014,
p.123)
The next part is the “buyer power”.
Buyers are actually responsible for any growth or downfall of the business.
Businesses gain their popularity on the basis of a number of buyers, their
purchase rate and bargain rate. Switching of buyers from one product to another
can affect heavily on the business rate and pricing of products. If there are
number of buyers, suppliers tend to lower their prices a bit if they prefer and
vice versa. Buyers prefer the products with reasonable rate with uniqueness.
Companies or brands meeting these demands reach the top of the business graph
posing a threat to other competitors.
The next part of this business model
consists of the “competitive rivalry”. We generally know that there are a lot
of brands or companies which create almost similar products, like those of food
materials, electronic tools and so on. These create a clear sense of competition
as buyers clearly choose the one which has a good quality, liability and unique
features. Some people prefer the old trusted brands but mostly the youth
generation keeps searching for new features and quality. This can affect the
market prices of some products. Some products get shadowed by those companies
offering more features with standard trusted quality.
“Threat of substitution” which states
the fact there are a number of products in the market which are completely
relatable with same features and almost same prices. In this situation, the
companies tend to raise their price to compete and gain. But in this race, they
lose buyers, who are attracted by alternative products, which their needs and
demand. This creates an unattractive situation for markets.
The next one is “threat of a new
entry”. New entrants try to gain entry in a profitable market and gain higher
demands. This reduces the profitability of a business by lowering the business
rates. The new entrants can be restricted by strong government policies, higher
rates.
Examining the business types that can be affected most by
this change
One of the major consequences of
brexit has been the devaluation of pound. According to Wilcock and Miller
(2016, p.217), British Airways suffered from difficult trading and business
environment, which is why it suffered a major profit reduction. Easy jet was
badly affected with CEO Carolyn McCall stating that the company is doing its
bit to keep UK within the EU Aviation Market so that planes can freely travel throughout
Europe. Banking sector suffers a setback with shares going down to 20%
(Barclays) and 21% (Lloyds Bank), along
with thousands of employee losing job. US banks get the effect as a result of
special UK-US relation. Some of the American banks include Morgan Stanley with
10% fall of share, Citigroup (9%) and Goldman Sachs (7%). Invesco, an
investment firm in US has been the worst performer.( Alfono et al. 2016, p.55)
Apart from banks, automakers,
manufacturers, food producers in UK can suffer from high trade barriers and
lesser export amount. Some of the other companies include drug makers and telecom firms. Companies making car parts
have suffered a major hit like BorgWarner and Delphi Automotive.
Sports Direct has been a loser
because of Brexit. Failure to cope up with the devaluation of pound will make
the products purchasable in dollar, making it more expensive and lesser in
demand. The clothing sale got down with its sale, specially with Marks and
Spencer, as it was facing a tough environment since the Brexit. (Kingston, 2017, p.6)
While Brexit is certainly concluded
as a disaster for Britain and some other countries which oppose Brexit, but
there can be some possible solutions to certain problems. UK can deal with new
countries outside EU and actually in a more amount if they want. Business
people who are suffering from lower deals and exposure can use some E-commerce
websites to have a global exposure and gain back their demand. For startups
like some restaurants and food cafeterias which are not able to gain market
popularity can either negotiate with EU customs and can keep a fixed export
rate if they are allowed or they can set up their supply where the demand is
more. Exporters can also reach out to those places which allow free trades like
China, Dubai and so on. People who are residents of EU and has the EU
citizenship, they can continue to stay there as per their rights and people who
are staying in EU for less than 5 years, can opt out for the option “associate
citizenship”.
From here, it is to be concluded that Brexit
caused an unchangeable effect on business, trade, employment, and livelihood
and so on. But people who are willing to use this as an advantage can take
their own way to create solutions.
No comments:
Post a Comment