International Business Strategy Assignment: Brexit Impact & Advice

This report examines the impact of Brexit on businesses operating in the UK, with a specific focus on providing advice to an Indian conglomerate considering the acquisition of a UK-based gearbox manufacturing company that supplies to a Japanese car manufacturer. The analysis delves into the Brexit process, its economic consequences, and the challenges it poses to international trade, supply chains, and foreign direct investment. The report considers the implications for small and medium-sized enterprises (SMEs), the manufacturing sector, and the movement of goods and people. It highlights the uncertainty in the market and the potential impact on the UK's attractiveness for foreign investment. The advice provided to the Indian firm emphasizes the risks associated with acquiring a UK company during the current period of negotiation and uncertainty, considering factors such as trade regulations, supply chain disruptions, and the overall economic climate.

INTERNATIONAL
BUSINESS STRATEGY

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Contents
INTRODUCTION.................................................................................................................................2
Brexit process........................................................................................................................................2
Impact of the process on the Brexit.......................................................................................................3
Advise for Indian firm............................................................................................................................5
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9

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Question 4: From your own research of the Brexit process and its impact on business,
what advice would you give to a conglomerate from India who are seeking to acquire an
established UK gear box manufacturing company, which is part of the supply chain of a
Japanese car manufacturer?
INTRODUCTION
World is changing and so is world’s political condition. Due to this even the bigger countries
like UK has to take decisions such as Brexit. Brexit is a term used for Britain exiting the
European Union. This was done due to fact that Britain was facing economic crisis.
Government had a view point about this that they are paying huge amount of money to the
welfare of the states that are performing badly in economic terms (Dhingra, et al. 2016). They
felt that it is a burden for them in financial terms and they could utilise it for their own
development. In the June 2016, a referendum took place where voting resulted in the favour
of Brexit. The first impact of the Brexit was that it caused British Pound to fall to its lowest in
the last 30 years. This was the first sign which suggested that companies were not happy
about this decision being taken by the Britain. It was decided that in the long run, this is
going to affect the overall economic condition of Britain as well as the companies that are
working within the Britain. This report is going to highlight the impact that Brexit is going to
have on the companies that are working in Britain with an example of the gear box
manufacturing company that supplies its products to the Japanese car manufacturer.
Brexit process
In the referendum done in the month of June 2016, more than 51.9% of the votes were casted
in favour of Brexit. Article 50 of the Treaty on European Union was invoked by the
government which started a two year process which was to end in 31st October 2018. This
deadline was passed and was extended to 31st October 2019 (Gasiorek, Serwicka and Smith,
2018). Britain became the part of the European communities back in the year 1973. Many of
the political parties with Britain advocated full withdrawal from EC from 1970s and 1980s.
The major justification about getting out of the Brexit other than the financial burden was that
it is not allowing Britain to grow at the pace which it wanted. At the same time it is also not
allowing Britain to make their own trade rules and policies with other nations on their own
terms as they had to follow the rules and regulations of EU (Wadsworth, et al. 2016). It is to
be noted that this will enhance the chances of lobbying. Being a part of EU is like bondage in
many terms where they are not free to take decisions which they wanted to. The contribution

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of UK to EU was around £18.8 billion which was almost 1% of the GDP of the nation. Even
when the EU’s spending is included the average net contribution for the next five years was
approximated to around £8 a year.
Britain has drafted the negotiation agreement with the EU which started in the June 2017.
This withdrawal draft was presented in the House of Commons which voted against the
agreement. The margin was 432 to 202. It was one of the biggest defeats ever in the history
faced by any UK government. This called for extension in the parliament where government
demanded for some more time from the House of Commons (Portes and Forte, 2017).
Impact of the process on the Brexit
There had been many debates going on in different parts of the world about whether the
Brexit is a correct decision or not. The intensity of the debate can be understood in terms of
the fact that even at the time when the referendum was done there percentage of votes that
was casted was only just above 50%. It was that time when the wind was with the Brexit
process (Lawless and Morgenroth, 2019). In today’s time, since the concerns of the people
have increased hence the debate has gone to another level.
The major reason of the impact on the business is that most of the companies have their
suppliers from different parts of the world. For these companies it is always difficult to
maintain healthy relations with their suppliers that are from other than Britian. Due to Brexit
there is obstruction in the free flow of trade across borders. The companies that are the part of
the EU will not will able to do free trade across Britain borders. This is going to enhance the
taxes and tariff which will have direct impact on the cost of operations which again is going
to have impact on the overall cost of productions (Davies and Studnicka, 2018). In the time
when the companies from emerging countries with lower cost of operations have taken their
market share from the native companies, this can be highly dangerous. This is going to
reduce the overall competitive forces of the firm. In today’s time, it is going to be the biggest
challenge as it would reduce their competitive power within the industry.
The biggest concern or say the impact of the Brexit is on the Small and medium sized
business. This is because these firms do not have large amount of resources to deal with the
changes in the environment. Since due to Brexit a huge amount of changes will be noticed in
the Britain and EU marketplace hence it might be possible that these SME will not be able to
handle it (Dhingra, Machin and Overman, 2017). This can be understood in terms of the fact

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that small and medium enterprises avail their resources from different EU countries hence the
growth of the SMEs will be hampered. For instance an SME that aims to achieve high levels
of growth, this is a serious concern. This is not only the case with the SME as the firms
having larger size is also not able to avail the resources they require or say the quality of the
resources they require might not be availed by them (Nunez-Ferrer and Rinaldi, 2016). This
is because the quality suppliers may be from different countries and due to Brexit they might
not be able to supply to the companies of Britain. Same is also the case with the firms that are
in Britain but are the suppliers of the firms in other parts of the world. Some of the
researchers claim that the manufacturing industry is going to be affected by it on the greater
side. This is usually because of the fact that manufacturing sectors have lots of suppliers from
other parts of the world.
This entire problem due to Brexit is becoming bigger because of the fact that due to Brexit,
policies and regulations related to trade and commerce is going to change. New treaties will
be going to get enforced in between Britain and different nations. Due to these changes firms
will also have to shape their business model in such a manner that they do not face any
significant barriers in doing the trade easily (Oehler, Horn and Wendt, 2017). All the
companies will want that new trade rules will be made according to their comfort. In today’s
time when the draft or negotiation terms is not finalised between Britain and EU, there is lot
of uncertainty in the market. The result of it can be understood by the fact that many firms
shifted offices, businesses operations and assets out of Britain and to the continental Europe.
The fear in the minds of the investors about the uncertainty of the Brexit decision can be
understood by the fact that till 2019, banks has transferred more than US$1 trillion out of
Britain as well as insurance firms and asset management transferred US$130 billion out of
Britain. An independent research institute New Financial suggested that 269 firms in the
financial or banking services sector that has shifted part of their businesses or staff after the
decision of Brexit. Out of this number 239 confirmed that it was due to Brexit that they left
Britain. The stock market of Britain crashed post Brexit referendum in the next three days
(Tetlow and Stojanovic, 2018).
It is also seen that there are people from different parts of the world especially from different
regions of the Europe are working in the firms of Britain. The same is also the case with
people that are from Britain who are from other parts of the world. Businesses will also get
affected by the fact that Brexit will be going to obstruct the free movement of people across
borders. For companies which hire talents from all across the globe, this is the biggest

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problem and they are going to face challenges due to this (Steinberg, 2019). This is going to
have impact on the effectiveness of the overall organisation. In the time when the skill
development and human resource management has become very much critical for the
companies, this can be a loss to the firm. Firms will have to develop new policies and they
will have to take new permission from the governments for doing recruitment and for
providing training as per the requirement.
There is also a broad consensus among the economists that Brexit will likely be going to
reduce the real per-capita income level within UK (Colantone and Stanig, 2018). This is
because of the problems that will be generated in the industries. UK government has the
theory that by applying Brexit, they will be able to support the internal industries and their
small scale industries. This is because Brexit will promote bigger companies to make
purchase from the companies that are within Britain as the prices at which the internal SMEs
will be able to sell their products will be lesser than those of the companies from outside
Britain due to the additional taxes that will be charged from them (Fahy, et al. 2017). In the
time when the countries like Britain is facing the challenges related to the unemployment
boosting the economy from within has become very much essential. In this the role of the
SMES becomes very much crucial.
Advise for Indian firm
The situation is not so good for SMEs or the companies that are delivering their supplies out
of Britain. Above analysis of the impact of the Brexit suggest that the condition for the FDI
within the UK is not good (Di Cataldo, 2017). It is expected that till the time the whole
negotiation process between UK and EU does not gets complete, it is not good for the foreign
direct investments to come into UK. It is to be noted that many of the companies saw Britain
as a gateway to the European Union and after this decision they are also rethinking about
their investments. It is lured by the supporters of the Brexit that it is not that Brexit will
reduce the attractiveness of the Britain market and beyond the short volatile period in the
market, the British market will remain to be favourite destination for investment in the
European region (Matti and Zhou, 2017). Still there is an advice for the company from India
that aims to buy the gear box company within Britain which is already established to not do
the purchase right now.
Since the terms of negotiations are not clear between UK and EU hence it might be difficult
for the companies within Britain to decide their supply routes. This might be full of taxes

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when it crossed borders. The condition can also be understood in terms of the fact that once
the terms of negotiation gets finalised the government of Britain will also be going to make
changes in their trade regulation and policies. This might have impact on the supply chain
mechanism. In spite of the fact that Japan and Britain has a close economic relation with each
other, it is possible that terms of trade might get affected between the two nations (Fagan and
Rubery, 2018). Till now European Union has been playing a crucial role in supporting the
investment within Britain but with such decisions it is quite obvious that EU will become one
of the competitors of Britain.
The suggestion of not acquiring the established gear box company by an Indian firm in this
time can be illustrated by the fact that UK economy never able to improve its condition after
recession of 2009. The best example can be seen in terms of another conglomerate Tata who
acquired Corus. In the short term it gave good returns to the acquirer but it was found that
there is basic lagging in the working environment of UK. The employees of UK are not
actually supporting in the company in their difficult times. They are not ready to compromise
on anything. Due to this last year Tata had to sell Corus. This illustrates that acquisition
should not only be done on the basis of whether any firm that will be acquired has the ability
to enhance their revenue in the long term but it should also be done checking that whether the
Brexit will put more burden on the economy of UK or not (Coyle, 2016).
It is not that everything is going negative in the favour of acquisition decision. For instance
what Brexit will do is that it will give an opportunity to the suppliers within Britain to
negotiate with their government so as to reduce their export duties. This will be going to have
an impact on the supply chain hence acquisition might be beneficial in some regards. Japan-
EU FTA will have impact on the business of the Indian firm as they will act as barrier in
making new and easy trade routes. The exchange rate related uncertainties have grown bigger
and it will have impact on the business operations (Hosoe, 2018).
Checking all these facts it can be said that what an Indian firm needs to do is that it should
concentrate on making investment with the help of government support. UK government is
attracting various kinds of investments with the help of the policies hence this India firm
might take assistance of the government. For doing investments this Indian firm needs to add
more numbers of investors from different parts of the world (Bachtler and Begg, 2017). Since
the company which they want to acquire is a technology based firm hence they will have to
ensure that they have technology supporting framework that will bring innovation in the

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company which they seek to acquire. Taking the support of the banks within Britain might be
a bad decision. In this regards it is essential that firms look at the banks outside Britain to
take loans from (Ruddick and Oltermann, 2017).
In order to deal with the challenges related to the employee management, it is suggested that
this Indian firm make new policies related to human resource management which the
acquired firm employees had to follow. The policies and regulations also need to be changed
for operation methodology but at the same time they need to ensure that they do not disturb
the environment within the company (Belke and Gros, 2017).
Post Brexit since there is already a lot of turbulence in the economic environment hence it is
essential that other type of turbulences does not occur. This can be understood by the fact that
the business culture of Indian firm is different from the business culture of the UK gear box
firm. It is suggested that while making acquisition they ensure that laws of acquisition are
fulfilled according to the changing business environment within Britain (Haas and Rubio,
2017). This Indian firm needs to redesign their supply chain so as to ensure that restrictions
that are caused by the Brexit get reduced.
Post Brexit this Indian firm needs to redesign the skill development program so that more
efficiency can be brought into their working. This is also helpful in implementing new
strategies which is essential for their growth in the long term. It is also advised that in the
design of their strategies company needs to put efforts towards reducing the cost of
operations. Firms need to focus on redesign strategies related to resource management so that
cost of the operations remains on the lower side (Goodwin and Heath, 2016). Post-Brexit this
Indian company need to make new adjustment plans that ensure that companies are able to
work as per the changing environment. Even the slightest of change need to be monitored so
that they company is ready for making the changes.
It is also advised that firm adds new set of priorities and add new set of suppliers that can
help the firm in improving the way in which they deal with the post Brexit environment
(Horrell, 2018). Company also needs to change the organisational structure in a manner that
they might be able to improve the efficiency of the organisation and its working. This Indian
firm should also work towards adding more numbers of companies for which they will be
acting as the suppliers. What this will do is that it will open the routes for the new economic
sources for the company (Sampson, 2017). This is necessary for improving the
competitiveness of the firm and also for the long term development of the organisation.

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Turbulence due to Brexit will be for shorter period of time hence it is essential that firms
makes strategies that will allow them to resist this phase.
Conclusion
From the above based report it can be concluded that Brexit has a negative impact on the
economy of England. After the referendum done in the favour of Brexit, all the parameters
related to the economy of the Britain is showing the decline. Government has a logic that it
will save a lot of money of Britain which they give to the EU for their development projects.
This is not for the Foreign Direct Investments coming in the Britain. For a company from
India that aims to acquire a well-established gear box firm in UK which is a supplier of the
Japanese car manufacturing company, this is not a very good environment. It is advised that
this firm should look at finding new investors and they should improve the efficiency of the
workforce. It is also advised that firm looks at finding new companies for which they can do
supply. This will help in adding new income sources for the company.

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