Post-Brexit: Implications for Multinational Companies
An old Chinese proverb (or curse) says ‘May you live in interesting times.’ One of the most interesting and biggest political shocks to come out of Europe in well over 5 decadeswas the news that the United Kingdom had voted to removeitself from the European Union.
One does not have to be a seasoned political analyst to know that this will have far-reaching consequences not just for Britain and the EU, but for the rest of the world as well.
We will be looking at the consequences of Brexit on multinational corporations. Most experts agree that we can group the consequences of Brexit into three major groups, namely economic, financial and legal, and mobility of labor.
We share this view and will look into what sort of impact Brexit will have on multinational corporations and how you can best prepare yourself to protect your corporation from the worst of the situation. Let’s take a look.
Financial Brexit Implications
Whenever there is uncertainty around a situation, the perceived risks dictate decision-making. This, in the world of finance, can lead to many troubling consequences. A common example that is used in this situation is that of war.
If war seems to be looming around a country, businesses will obviously worry about the investments they’ve made there.Multi-national corporations will worry even more so because their dominance in each region cements their position as leaders of the business world.
Furthermore, multinationals rely on the supply lines in all their locations. In conclusion, war would mean that multinationals would begin to worry about the long-term prospects of their business in that country.
The UK is not at war, and yet the scale of the decision to leave the EU is nothing short of that. There will be plenty of items on the agenda over the next couple of years and the long-term consequences of Brexit are anyone’s guess.
There are a few straightforward things that we can already see.First, economic uncertainty surrounding a country affects investor confidence. This has several effects, such as reduced investment in the country’s economy.
Uncertainty also makes the market more volatile which destabilizes the currency. We’ve already seen this play out with the sudden drop in the pound Sterling’s value. This can have enormous consequences down the road. Investors don’t particularly like suddenly losing a ton of value on their investments, and as a result may decide to move to a more stable location for a few years.
Investments by retirement funds would be the most critical of the entire move since these represent the lifelong savings of society’s most vulnerable people.
Legal Brexit Implications
There are compliance costs to consider as well. Leaving the single-market is not going to be without consequences on the legal side of things. The EU single market is a complex beast,but it works because there is a shared vision and understanding that underlies the whole situation.
With the UK leaving the EU, they are also essentially saying goodbye to the single market. One legal consequence of this is obviously that all trade agreements are now null and void. The UK will now have to go through the process of individually renegotiating these agreements and treaties.
What could this mean? Well, in an ideal world, they’d simply revert to the original terms. However, the European political feeling is not very sympathetic to the British cause at the moment, which is understandable given the vision of unity that was the goal of the common market.
This means that new agreements may prove to be more costly for the UK. A deeper issue is the problem for multinationals.The single market allowed companies to set up shop in multiple EU countries without a lot of complexities.
This new arrangement will have to unfold properly until a decision can be made but the outlook isn’t very good. Costs may rise, which may affect bottom lines which we know won’t be very welcome. In the end, each multinational will have to weigh the consequences of Brexit against the potential rewards and make the determination for themselves.
Mobility of Labor
One of the biggest advantages of the single market was that labor could essentially move from one country to another without a hassle. This allowed all nations to enjoy a diverse and highly skilled talent pool to be shared among everyone.
It was particularly useful for multinationals as hiring across borders can be a rather tricky legal and financial process. There are many UK citizens currently working across Europe and many European citizens working in the UK. Brexit implicationswill determine what will happen to all these individuals. In addition, we could be looking at labor shortages in Britain as immigration restrictions have a negative impact on the supply of workers from the continent.
What does this mean for multinationals? Well in the short-term they will have to work hard to retain employees by calming their nerves. Uncertainty isn’t loved by anyone and employees need to feel that they won’t simply be abandoned as a result of the changes.
Multinationals will also need to plan for worst case scenarios with regards to changes to the labor laws. If there are major changes, corporations may have to relocate several employees.
It’s certain that the post-Brexit world is still a while away. Many of the effects won’t be felt until a few years down the road. The best way to deal with them is to keep your finger on the pulse.You can also consult us and let us take help you take care of all the nuances of your situation.