Possible Changes To The External Environment For UK International Businesses After Brexit
Economic, political, legal and cultural business environments of UK after Brexit
In business and economics, the term environment gets construed as the atmosphere and conditions of the surrounding that necessitate business existence (Hillary 2017). As such, knowledge and understanding of the business environment is crucial for organizations and people planning to venture into business. Examination and evaluation of these factors and how they change are a worthwhile consideration in the world of business. No business operates in a vacuum so do all enterprises require an environment in which to operate. This paper, therefore, seeks to illuminate possible changes in the external environment in which international businesses are operating in the UK, preferably after Brexit. Also in the discussion is the current trading arrangements for international trade in the United Kingdom.
Business environment can be narrowed down to external and internal business environment. For the convenience of this essay we shall underscore the former, a factor that is beyond control by the organization or rather business. Such elements that comprise external environment, as in the acronym PEST, including but not limited to political environment, economic environment-including economic resources, social and cultural context, technological environment, regulations and policies of the government, and demographic environment among other factors. The external environment encompasses all the outside conditions that affect the performance of a business (Hillary 2017). The external environment is further categorized into two: direct and indirect interactive. The former, direct interactive, has an immediate and original impact on the business while the latter has a secondary but more characteristic effect on the organization.
Of particular interest is Brexit, this is a blend of two words meaning British Exit from EU. It is a decision that the UK made on 23rd June of 2016 referendum of which the vote defied the speculations which did not augur well with the global market (Greenwood 2018). Currently, on trade arrangement, UK has an opportunity to build a stable country that is bound to prosper. This is evidenced in the 7th November trade bill that shows a crucial step in making preparations to exit EU. The bill will provide essential legal powers and structures that will enable the country to conduct independent trade policy. To begin with, political factors affecting international businesses in UK, the state is known to be a constitutional monarchy that operates under the control of the parliamentary system.
It is said that the country is relatively stable politically with numerous opportunities for people who operate internally and in the nation at large. Among the changes concerning political factors include internal stability of the country whereby the public will have a massive influence on internal operations. Secondly, the government shows symptoms of being a proactive one hence it shall deal with any uncertainties in advance. The administration has also been divided into Local and national. This localization of administration will make it easy to reach to even small businesses operating within the country. While positive changes in political aspect are evident, negative factors that affect private businesses remain uncured. There are some cases of concealed corruptions and lack of surety as for whether to stay in EU or take exit door.
Impact of Brexit on internal businesses operations in the UK
There have been looming stories that the British vote to leave the European Union has come with a lot of harm than good to the United Kingdom’s economy. This comes after a bleak outlook of UK after Brexit (Hunt and Wheeler 2017). While these claims could be true or false, other people maintain contrasting views that the economy is performing just like the International organization based in Washington as had been postulated before the EU’s referendum in the previous year (Blackaby 2018). Even though quantifying financial cost of EU membership is not cumbersome, economic benefits from divorcing EU solely depends on Brexit model and resultant bargain between the UK and the rest of the EU.
Brexit’s impacts on internal businesses operations in the UK are dependent on what models that result from negotiations between EU and UK (Hunt and Wheeler 2017). This would lead in significant variations in the effects across the United Kingdom whereby some areas will experience gains while others losses. For a while, the UK has been known for its strong economic position as compared to other nations. Its diverse economy marks the fifth highest GDP in the world seconded by Germany. Because of its changing large population, small markets shall experience relatively better profits. The diverse economy will also harbor both public and private sectors. Again there is an increasing foreign direct investment (FDI) that makes businesses in the country for thriving. Despite all the positive economic factors in domestic enterprises in the UK, there are also the negative sides which are prevalent. The state has witnessed sluggish recovery from the economic recession which occurred back in the years 2008 and 2009 (Hunt and Wheeler 2017). Besides, fortunes are spent on the provision of free services to the general public as well as financial aids to downtrodden families and even migrants.
After several months of bargains and inside wrangles, the EU and the UK have decided to roll out the second phase of article 50 of British Exit process. However, there are uncertainties still standing for both British and multiple businesses operating internally in the United Kingdom (Hunt and Wheeler 2017). Reports have shown that there is a significant loss of employment since many jobs are threatened, coupled with this are questions that remain unanswered concerning tariffs and investments shortly. Demographic-wise, the number of migrants seeking work outside the UK has significantly been on the rise since UK’s unanimous vote to exit the EU. Statisticians have records indicating that the rate of unemployment in the UK is promising to hit about 6.6% because of massive withdrawal (Hunt and Wheeler 2017). This recession can be equated to about half a million jobs. Most recent figures indicate that there are about two million European immigrants apparently working in the UK. Shortages of experienced laborers are reported in many industries including Information Technology, engineering, and construction industries. These voids are getting filled by skilled personnel from EU, a factor that contributes to the unskilled labor in the market.
Social and cultural factors in the UK after Brexit
Closely related to the economy are social and cultural factors which are equally important to consider. The United Kingdom is not an exception to the case of changing social factors whereby these factors lead to improved situations. There have been instances of providing free public services such as national health services. The dense population of about 65 million people provides a conducive environment for international businesses (White 2017). Openness to migration is yet another social factor that leads to demographic adjustments. Changes in the population have made UK city a cosmopolitan environment which provides relatively large and affordable workforce (Kalcik and Wolff 2017). However, there are also possible adverse changes regarding social factor. High rates of dependency ratio are expected to be on the rise while social unrests due to migration and blend of ethnic groups may also occur. Variation in population has pushed the costs of education, as well, on a constant rise.
Immigrants from EU also contribute significantly to the healthcare industry on matters employment. Suppose they quit the UK, a massive void between demand and supply of skilled laborers is bound to exist. This would substantially put at stake international talent recruitment (Bratton and Gold 2017). Moreover, report publishing has been continued regarding probable effects of new tariffs and regulations of migration of people. With the Brexit, significant changes have occurred that have an impact in business sphere this year and many more years to come. Firstly, regarding the economy, it was reported that the Bank of England had increased the rates of interest, which was the first occurrence within a decade since iPhone surfaced. This was the time when Gordon Brown was in the government as the Prime Minister.
Considering stagnation in salary growth, it was admissible that the economy would be heading to a state of devastation in a few years and the rates of interest would further increase in a couple of years. Governor Carney reportedly submitted that the vote on Brexit had already retarded the economic growth in the United Kingdom. Further, the governor also maintained that following the Brexit, the country apparently falls among those that are underperforming in the G7. Again in November, the budget compelled Chancellor Philip Hammond to offer about 25 billion euro as an extra expenditure to support the economy back on its feet (Jenkins 2017) Information in the budget revealed that some families suffer financial constraints, a thing that has existed since the 1950s. Interestingly, the office concerned with budget opined that the economic growth would be estimated at 1.4%-1.5% successively in two years. This is about the previous years where the economic growth estimates stood at about 1.6% and 2.0%.
Technological considerations after Brexit
Technology-wise, UK falls among more economically developed countries (MEDC) which have better access to technology (Jack et al. 2018). However, Brexit has raised concerns over the status of London being the capital of European tech and equally expressed lack of confidence in the UK as a place where investors would resort to (Lomas and McLeod 2017). In the opinion of financial technology businesses, the significant threat attached to Brexit would be that companies stationed in the UK would be at risk of not serving clients from continental Europe come next year. Thinking of recruiting workers would be another issue altogether. This is because the workers of EU are not in agreement with coming to the UK unlike they would before voting on Brexit. However, there are a few companies that still accept London as an active hub of technology (Lomas and McLeod 2017)
Considering the unanimous Brexit vote, the significant advantage for the UK gets premised on the fact that it can still forbid free migration of people from the European Union. This is in line with demographic factor as far as business is concerned. The UK was particularly interested in the increase of refugees from Arab countries who would constitute relatively an increased population making the demographic factor necessary for businesses to thrive (Farstad et al. 2018). Among the positive technological factors that have changed in international businesses in the UK include improved skills of innovation, specialization in science and IT together with rampant international competition that boosts the growth of technology (Lydgate, Rollo and Wilkinson 2016). However, there are negative factors within technological aspect such as slow growth and development of technology as compared to other countries like the United States of America. Another advantage would be that UK will be in a position to tax-free without paying attention to the guidelines set by the EU. Also, it would not be necessary to pay membership charges for EU.
Apart from the retarded economic growth of Brexit, another potential setback is losing British free-trade tariff. Since tariffs increased export costs, British companies would be priced at higher fees making them less competitive (Dhingra et al. 2016). Notably, other consequences would include increased import prices which would automate inflation. As a result, low living standards are bound to flourish in the UK. The Brexit would be unhealthy for the city of UK which is its financial base (Dhingra and Sampson 2016). Most companies would relocate elsewhere and not use the city as an entry into the EU economy, and consequently, real estates would cease to exist within the city’s premise.
Conclusion
The United Kingdom being a fraction of the monopolistic market has been a desirable factor for foreign investors. Should the UK resort to altering its policies of free trading across EU countries and not having access to single markets, many impacts on performance on foreign direct investment (FDI) may arise. This is the speculation of many people though the pro-Brexit lot has a contrasting view. For them, they stress on factors like competitive edge and global chain supply connections which make the UK a preferred stop for foreign investors.
In relation to matters of global trade conventions, Brexit exit will allow UK the propensity to have immense control over bargaining trade deals with countries that are non-members of EU. On the other end, UK may lose the bargaining power within its jurisdiction as EU member. Negotiations are increasingly drifting towards blocs such as the ASEAN and NAFTA (Wright et al. 2016). This means it will have difficulties in making decisions, as a lone country, with giant economies such as China, India, and the US. While some sectors will be beneficiary of the higher negotiation control, some will be affected in equal measure. Those industries that embrace migrant artistry are likely to be affected after Brexit (Shetty 2018).
Conclusion
In summary, external environmental factors in business context do change. The dynamism is found to prevail even after Brexit, as have been discussed herein. The changes above of the external environment occur for the international businesses that operate in the UK. Like had already been mentioned in the first paragraphs, no business operates in a vacuum. For that matter, critical analysis and evaluation of external environment must be taken into consideration since by doing so, much that goes on in the field of business gets revealed.
References
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