Last updated on June 29th, 2016 at 11:59 am
Nothing says good morning like waking up to videos of Trump endorsing Brexit. The 51.9% leave to 48.1% remain result has triggered David Cameron to resign, the pound to spiral, and Scotland to restate its intention to hold another referendum on its separation from the UK. Boris Johnson and Nigel Farage finally got their Independence Day, but what does the new status of the U.K. mean if you are looking to do business with companies there? With markets and currency exchange reacting dramatically and uncertainly, we asked B2B leaders for their opinions on what just happened and what’s to come. Here’s the new reality.
When UK parliament proposed the European Union referendum act in 2015, no contingency plan was put in place. Therefore, there is a lot of uncertainty when it comes to the future of the relationship between the UK and the EU. Complexity in business travel, tariffs, currency volatility and a changeable investment climate are all outcomes of the democratic decision for qa Brexit. According to Miriam Gonzalez, Co-chair of Dechert’s International Trade and Government Regulation practice, there will now be a period of extreme legal uncertainty in business.
SAP hopes the uncertainty will be mitigated by an orderly exit. “SAP fully respects the democratic decision of the UK voters. SAP hopes that all parties in the UK and in Europe can reach a positive exit settlement quickly, minimizing the uncertainty to business, as the UK moves from valued member to valued partner of the European Union,” said a spokesperson to B2B News Network today.
Vicki Saunders, founder of SheEO, is approaching this uncertainty with optimism. In a Facebook post, Saunders reminded us that “62 people have the same wealth as 3.5 billion people”, and “Brexit [could be] the beginning of the end of our broken aggregation model.” We are reminded everyday through events such as the U.S. election and the U.K’s separation from the EU, that people feel they are unable to get ahead with the current system in place and they want a change.
2. Increased Complexity in Business Travel and Risks for Migrant Workers
The UK joined the EU on Jan 1, 1973. For almost half a century, traveling between the U.K. and other European countries has been virtually seamless. Even though a passport is needed to get into the Schengen states, once a citizen of the EU is in those states, no identification is required. One might start to question how business travel may change in the coming months, not to mention the obvious increase in price to travel with a forecasted recession for the U.K. market.
Another unavoidable subject in travel is the fear of terrorism. Adam Froman, Founder and CEO of Delvinia explained to B2BNN that “the fear of the unknown is very scary, but it is indicative of the turmoil occurring throughout the world primarily driven by the threat of global terrorism.” One of the reasons for the isolation that the U.K. is placing on itself is due to wanting immigration to be controlled on their own terms and not on the terms of the EU. The idea is the more control the U.K. has on travel and immigration, the safer they will feel about people entering and exiting their country. Ironically, with greater complexity travel will likely become less secure, particularly for vulnerable workers.
“The anti-immigrant sentiment that is feeding so many decisions on both sides of the Atlantic shows that we have been confusing tolerance and acceptance as “a nice thing” without accounting for how much Western economies are underpinned by cheap, precarious migrant labour.” Says Saadia Muzaffar founder of TechGirls Canada. “Brexit is an example of myopic having-the-cake-and-eating-it-too – except this sugar-high will cause a massive, irreversible crash for anyone whose majority career and life is ahead of them in the region. All of this shows the dark underbelly (no pun intended) of how far too many in developed countries view racialized people in 2016.”
3. Tariff Implications on Deals in UK and EU
One of the luxuries of being in the EU, was that the U.K. had a free trade agreement with other countries in the union. It was easy to have materials from various parts of the supply chain from different countries. Furthermore, the US was the U.K.’s largest trading partner, accounting for 14.5% of total UK exports.
With the UK no longer being part of the EU, a trade ministry needs to be established and a lot depends on what the UK government can negotiate on independent terms. Will there be a UK/ EU free trade agreement established? Only time will tell, which takes us back to the subject of uncertainty. Obama expressed that a Brexit trade deal with the U.K. could take upwards of 10 years, and the U.K. will have to get at the back of the queue for a U.S. trade deal.
“The long-term impacts are still unclear, but on the short-term, it’s clear how the markets feel about the result of the Brexit vote. For B2B businesses, we’ll see increased trade barriers,” says Dana DiTomaso, President of Kickpoint.
A question on the top of a majority of Canadian’s minds is what will happen to the Comprehensive Economic and Trade Agreement (CETA), which removed most tariffs on Canadian goods entering Europe. Ditomaso says “Working with the UK just got a lot more complicated and unclear, and if there’s one thing that businesses try to avoid, it’s complicated and unclear business arrangements.”
ITAC is taking a consultative approach. Robert Watson, President and CEO told B2BNN that the association will “engage with members to hear their concerns as things develop following Britain’s vote to withdraw from the European Union, and continue speaking with government on their behalf.” Watson stressed to Canadian tech companies that “ITAC is prepared for open consultations with the Canadian government to ensure the best possible outcome” for trade in tech goods and services with the UK.
4. Currency Complexity and Volatility
Mark Carney, the governor of the Bank of England is confident that his institution is ready for a new economy. Carney promised that “the Bank of England will continue to peruse relentlessly [their] responsibilities for monetary and financial stability.” He made this announcement after the pound hit a 30 year low on Friday morning.
“The markets are reacting negatively, and I think this makes the entire EU very fragile”, said Froman. The volatility makes it “too early for me to determine what if any impact it will have on our business or the Canadian economy in general.”
As the pound weakens, imports will become more expensive, likely creating higher inflation. The impact of high inflation in the UK on global business is yet to be determined. CEO of Tucows, Elliot Noss, predicts a minimizing effect: “global markets are more likely to move even further to a low growth, low/no interest rate environment. Capital will be plentiful and companies that can deliver growth will be rewarded.”
5. Very British Long Term Outlook
The leave campaign goes against everything that the next generation of leaders of the U.K. believe in. Millennials are a group known for being open to diversity, travel, and having entrepreneurial spirit. The two years it will take for the EU to leave the UK after article 50 is invoked is sure to be a time of questioning of the decision Cameron made to call for a referendum in the first palace.
“The historic vote brings a host of issues from legislative, economic, trade, immigration as well as security. While we wait for the dust to settle on how things are going to be addressed as the separation plans start, it’s important for marketers to not over react,” says Ryan Phelan, VP of Marketing Insights at Adestra. “Laws like the GDPR and other regulations will be sorted out in due time and with the timeline being 2 years, it’s hard for any estimates to hold true at this point. The world is not falling apart, it just got a bit more complex. In the words of the British, Keep Calm, and Carry On.”