Global Economic Environment and Marketing-Free-Samples for Students

Question: Analyse potential impact of the Brexit on a company trading on the EU market in the UK and other EU market. Answer: Introduction British people voted for the exit of Britain from EU on 23rd June 2016 in a historic referendum. This incident of Brexit led to celebrations for Eurosceptics and it also sent shockwaves to global economy[1]. Under Article 50, the UK will leave the EU by the end of March 2019. After the incident, the price of pound fell to the lowest point and free trade between the EU and the UK will no longer be possible, therefore the cost of supplies will increase. On the other side, the UK companies that do businesses in the EU countries need to reassess the contingency plans as the cost will increase for UK-EU trade. In this study, the potential impact of Brexit on a company trading on the EU market and the UK market is analysed. Benefits and threats of Brexit on that company are assessed. In the initial section, the theory behind economic integration is explored giving evidence from EU-27 and the UK. Possible models of the economic relationship between the UK and EU-27 are identified. In the later section of the study, theoretical opportunities and threats posed by Brexit on a company are highlighted. In the final part, a strategy is designed to exploit the opportunities and avert the threats. Identifying and describing theory behind the economic integration Economic integration is the merger of economic policies among various states through the full or partial abolition of trade and tariff restrictions before the integration. The decision of economic integration is taken to lower the price for consumers and distributors. This also helps to increase the welfare of the country through economic productivity. The best option of economic integration is free competition, free trade and no trade barriers[2]. However, free trade can be referred to as idealistic option and economic integration is taken as the option for international trade where barriers of free trade already exist. Brexit can be seen as the symptom of social disintegration in European section and it is the influence of globalisation. Economic integration has many stages and members' countries may have the preferential trade area. In order to complete economic integration members of the countries must be integrated. Within a geographical area, a regional bloc can be a group of s tates that protect themselves from other non-members countries and from imports. These regional trading blocs are called for as regionalism. Preferential Trade Areas exist when states agree to eliminate the trade barriers on some of the goods or products imported from the members' areas. Agreements are created among several countries as multi-lateral. On the other side, Free Trade Area is created when some of the states decide to reduce the barriers to trade on all products or goods coming from members' states. The EU is a Customs Union as here it is involved to the removal of trade tariff barriers among the members having the acceptance of unified tariff against the non-members. Countries those export to the CU need to make a single payment when the products pass through the borders. Free movement of services, goods, capital and people has always been primary principle of the EU; however, intensive harmonisation is required in-laws of economic integration to grab the openness in practice of continuous exercise. Cutting the barriers from the trade can increase free movement of service and goods that can stimulate the trade. Eliminating the barriers of trade can increase the competitiveness faced by the firms. EU applies 9.8% tariff on motor vehicles those are imported from outside the EU and it can be argued that EU diverts more trade than it makes[3]. In addition, free movement of people and capital can increase the efficiency that enhances the production process by allowing the labour force. In a single market, where domestic market is open for foreign services and goods, prices can be raised to consumers. The EU was the UKs largest trading associate and in the year 2016, the UK exported to EU approximately 236 billion (almost 43% of overall the UKs export). In addition, the UK imported from the EU approximately 320 billion in the year 2016[4]. The UK also faced the overall trade deficit in the year 2016 of 80 billion and the UK has a trade surplus of 38 billion from the non-EU countries. Apart from goods, the UK exported 38% of the services to the EU in the year 2016; these services are included with financial services and overall business services. The East side of the UK has always been the highest proportion of goods imports from the EU. EU tariffs on agricultural products were low. Exports Imports Balance billion % billion % billion EU 237 43.1% 319 53.3% -82 Non-EU 313 56.9% 271 46.1% +39 Total 530 100% 590 100% -43 Table 1: UK trade with EU and non-EU countries in 2016 Source: [5] Figure 1: UK trade with EU and non-EU countries in 2016 Source: [6] Identifying possible models of economic relations between the UK and EU-27 after the Brexit The UK was the part of the EU and it has been dealt with trade deals. There are almost 22 trade agreements between individual countries and the EU. There are five multi-lateral agreements also. After leaving the EU, any UK trade business with the EU will need adherence to EU policies and standards regardless of any agreement adopted. The ongoing regulation in the UK that facilitates single market entry may not change. Only WTO and CETA agreements would observe an end towards direct financial contributions to the EU budget. In case of the free trade agreement, it will depend on the agreement or deal that is negotiated and completely based on the CETA model. Some of the services or goods may exclude from the agreements. Under any agreements, the UK cannot influence the laws of the EU, only EEA (European Economic Area) by Norway can provide some consultation to EU. The UK can follow the Norway Model as Norway has full right to access single market and they accept the EU laws. Norway nee ds to oblige to provide a financial contribution. Individuals from the EU countries can work and live in Norway; however, Norway does not follow fisheries, home affairs and agriculture and justice rules of EU. In case of Switzerland Model, Switzerland is a member of EFTA (European Free Trade Association) and it has access to EU market as they have more than 121 bilateral agreements. Switzerland has to make a financial donation and it does not have a duty to apply to EU laws. Moreover, Turkey Model explains that Turkey is neither in EEA nor in EFTA; however, it has a tiny agreement in San Marino or Andorra[7]. Turkey does not face any tariffs or quotas for industrial goods when it sends the products to EU countries[8]. Turkey has to respond to bear the tariffs on goods import from non-EU countries. There are mainly three types of agreements; one is Custom Unions where countries can eliminate the customs duties in bilateral trade. The members' countries can create a joint customs tariffs for importers from other countries. Second types of agreements are Association agreements, stabilisation agreements, Free Trade Agreements and Economic Partnership Agreements, in which the countries can remove or decrease the customs tariffs in bilateral trade. In the third type of agreement, Partnership and Cooperation agreement, member countries need to provide a general framework for bilateral economic relations and they leave custom tariffs as the countries are. EFTA is a free trade area consisting of Norway, Switzerland, Iceland and Liechtenstein[9]. All the four members participate in European Single Market. CETA (Comprehensive Economic and Trade Agreement) is an agreement of trade between Canada. Identifying theoretical opportunities and threats posed by the Brexit After the incident of Brexit, currency fluctuation has been happening. For instance, the pound fell to the lowest point in the 30 years. Therefore, exporters will be an advantage if the pound falls and importers will experience the rise of the price of the products. British farms may trade in the global market if the market price rises; the products' price automatically rises in the UK market. In case of the agricultural products, farmers may have the opportunity to sell the goods and services in the European market; however, at this situation, the UK and EU both are trying to reach to an agreement. In case of the online business, these companies are in threats of rising costs as most the technologies come from the US. These will be more expensive. Another threat for the business organisation, after the Brexit, trade barriers hinder Dutch exporters and importers doing the business directly with the UK, it is an important link to the value chain. Free-trade agreements between EU and t he rest of the world no longer apply to the UK, therefore, UK based companies will see the trade barriers[10]. In addition, EU personnel in the UK working in the other EU based countries might have to leave from the UK, therefore, UK based companies will lose the European talents. British based businesses do not find the management time to continue business in overseas as overseas legislation and regulation are getting changed. The UK had done the Brexit because of to mitigate the disruption, companies are facing major challenges from non-EU countries as there no legal clarity[11]. The UK based businesses can try to apply the trade preferences after the UK has left the EU as there is no legal clarity and documentation needs change. For instance, EU business may import the UK goods may encounter an import tariff. British competitors supplying the EU27 are less completive due to trade barriers. The companies that have in-house expertise or services that can help other businesses cope with Brexit. For the EU based companies, they need to find out the alternative of the UK as other EU countries sell more to the UK than the UK sells to them. In the year 2016, the EU based countries sell almost 80 billion in goods and exports touched to the 240 billion. Therefore, the companies will find the other open market for business; it will open up the opportunities for the companies to try Netherlands and Germany economy. Figure 2: UK share of exports of goods and services to EU countries Source: [12] On the other side, the UK based companies need to find the trade opportunities apart from the EU based countries. In the African region, countries like Nigeria and South Africa are starting to moving and maturing to develop as emerging markets. The UK based companies are trying to open up the opportunities in this market by building the infrastructure. The UK farming and agricultural sector is also trying to make improvement in the Russia and Turkey. The UK has been facing the mini-recession and recession always open up the way to innovation for the businesses. As unemployment increases, that could be an advantage for retraining employees to pursue new ventures. This means proactively teaching skills that are relevant to the new economy, such as programming, entrepreneurship. GDP decreases, public spending will also decrease[13]. This means theres an opportunity for co-operative-like work on infrastructure and other public services that may diminish. The companies will be beneficial if they do Financial-technological investment as people are less rusting the Bank, it will be an opportunity for technology to grab this. Designing a strategy which could exploit potential opportunities and avert threats Businesses need to understand each aspect of the business in which Brexit can impact. The businesses need to consider if the companies can terminate certain supply chain as the trade designing is changing. The UK can predict now a free movement of goods, service, people and capital. Business needs to understand the business tariffs and consumers may face the import duties. Business management should calculate the costs and if it is possible, they can raise the price of the products. In absence of the EU, the UK will be responsible for making trade relationship with other countries and the companies can negotiate freely with the countries as well. In this situation, Brexit issue can be handled by the companies through keep going and keep growing at the same time. The company needs to invest in business as crucial time always provides a chance to introspection. Companies need to build for all weathers as delivering the growth in the sneaky economy is always challenging. In this scenari o, the leadership is important to exploit the opportunities and averts the threats of future and trade relationship. Companies can take the strategy of making subsidiaries in the EU countries for trading advantages. Leaders of the business can calculate the costs and if they think it is worth continuing the business, they can establish a subsidiary in the EU based country. If the company does not have an office in Europe, they will definitely feel the risk to set up a subsidiary in the EU jurisdiction. The company can transfer some of the staffs to the EU based country and they can wait for the UK and EU agreement. This will help the company to be profitable enough to weigh the partial relocation and costs of the business. After the Brexit, the companies need to protect the skills and people so that the staffs do not leave the companies. The companies can send the staffs to the subsidiary to understand the legal and trade relationship. The subsidiary can be defined as an incorporated entity made by the host country in accordance with the national business legal form[14]. The foreign company can ful ly own the subsidiary or controlled through collaboration. The legal structure will define the statutory provision and advantages to the subsidiary. The company can understand the economic volatility and competitive advantage through the behaviour of the markets. Conclusion It has been observed that Brexit has made a breach to the UK from EU based countries. A new model of economic integration is necessary for the UK now to continue their trade and business. Loss of momentum is mutually problematic for both EU members and the UK as both know the value of partnership. In addition, the UK has to follow no longer need to follow the agreements of the EU and they can trade with any other countries freely. However, the UK has to follow the models of economic relationships in order to trade with EU based countries. The UK can follow the Norway Model or Switzerland Model. The UK has to contribute a financial proportion in order to trade with the EU countries. For a company, Brexit has posed opportunities and threats as trade and legal relation now in dubious condition. The companies have to face the risks of trade, working conditions, supply chain and financial measures. For the UK based companies, they need to find out the opportunity from the different parts apart from Europe. The decision to leave the EU is a bold measure for the UK and it has made a climate of uncertainty. Companies need to plan for the growth as it is a crucial decision from the alternative. The companies can take risk of setting up of a subsidiary to manage the transition Reference List Allan, G., Comerford, D. (2017). How might Brexit impact the UK energy industry? Journal of International Relationship. 34-45 Baier, S. L., Bergstrand, J. H., Feng, M. (2014). Economic integration agreements and the margins of international trade.Journal of International Economics,93(2), 339-350. Bailey, D. (2017). Brexit, the UK Auto Industry and Industrial Policy.Regions Magazine,306(1), 4-5. Dhingra, S., Ottaviano, G. I., Sampson, T., Reenen, J. V. (2016). 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Retrieved 16 February 2018, from https://www.instituteforgovernment.org.uk/explainers/options-uk-trading-relationship-eu Dhingra, S., Ottaviano, G. I., Sampson, T., Reenen, J. V. (2016). The consequences of Brexit for UK trade and living standards. International Journal of International Relationship, 02-14 The options for the UKs trading relationship with the EU. (2018).The Institute for Government. Retrieved 16 February 2018, from https://www.instituteforgovernment.org.uk/explainers/options-uk-trading-relationship-eu Kreindler, R., Gilbert, P., Zimbron, R. (2016). Impact of Brexit on UK Competition Litigation and Arbitration.Journal of International Arbitration,33(7), 521-540. Five models for post-Brexit UK trade. (2018).BBC News. Retrieved 16 February 2018, from https://www.bbc.com/news/uk-politics-eu-referendum-36639261 Kenward, M. (2016). Brexit leaves UK scientific research community in uncertainty.MRS Bulletin,41(12), 946. Franks, J. R. (2016). Some implications of Brexit for UK agricultural environmental policy.Centre for Rural Economy. 23-25 Bailey, D. (2017). Brexit, the UK Auto Industry and Industrial Policy.Regions Magazine,306(1), 4-5. Nathan, M., Pratt, A., Rincon-Aznar, A. (2015).Creative economy employment in the EU and UK: A comparative analysis. National Endowment for science, technology and the arts. Jeffery, C. (Ed.). (2015).The regional dimension of the European Union: towards a third level in Europe? Abingdon: Routledge. Allan, G., Comerford, D. (2017). How might Brexit impact the UK energy industry? Journal of International Relationship. 34-45 Petria, N., Capraru, B., Ihnatov, I. (2015). Determinants of banks profitability: evidence from EU 27 banking systems.Procedia Economics and Finance,20, 518-524.