Brexit's Impact on Global Organizations

This assignment provides an in-depth analysis of the impact of Brexit on global organizations. It includes a discussion of how Brexit can affect the profitability and costs related to production operations of companies like Sainsbury's and McLaren. The analysis also covers the economic conditions of a country and how they can influence the ways in which organizations operate in that area. References to various studies and research papers are provided, including those by Bailey et al., Bloom and Mizen, and You et al.

Running head: ANALYSIS OF ECONOMIC GLOBALISATION
ANALYSIS OF ECONOMIC GLOBALISATION
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Economic globalization is mainly related to the two major dimensions of the
globalization concept which are, cultural globalization, political globalization. Economic
globalization can be defined as the process of the free movement of goods, services, capital,
information and technology. This process is related to the increase in economic integration
and the interdependence of the national, local and the regional economies across the entire
world. The cross-border movement of goods, technologies, services and capital are related to
the globalization of economies all around the world. Globalization can also be defined as a
set of the processes which is concerned with the multiple networks of political, cultural and
economic interchange between the different countries or organizations (Bailey, Driffield and
Karoglou 2017).
Economic globalization mainly consists of the globalization of services like, finance,
production, technology, institutions, organizational regimes, labour and corporations. This
process of globalization has increased rapidly after the emergence of the trans-national trade.
Globalization of economy has grown at an increasing rate due to the increase in the
communication and the technological advances in the global organizations. The recent boom
in the economic globalization has been hugely supported by the developed nations of the
world. Globalization has increased the economic growth and incomes in the developing
countries of the world. On the other hand, the consumer prices related to the developed
countries have also decreased in the process (Baylis, Smith and Owens 2017).
Economic globalization has been hugely affected by the recent political turmoil and
shocks in the recent times. Political instability is considered to be a serious issue related to
the economic performance of an organization. A situation of political instability is mainly
related to the short-term policies of macroeconomics. This can further lead to the frequent
change of policies and creates volatility in the market. Political instability can further lead to
inflation in the economy and affect other macroeconomic variables including, growth of GDP

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and private investments. Economic development and political stability are related to each
other and in case of a global economy the effect of political stability is the highest. The ways
by which political stability in the nations can affect the economic growth of a country are
affected by the relationship between the two factors (Bloom and Mizen 2017).
The uncertainty that is related to the unstable political situation can reduce the speed
of the economic development and the investment made in the particular area. An unstable
political environment is created only when the government is mismanaging and misusing the
resources of the country. This means that the resources are not being used fully by the
government and the ways by which the economic development of the country can be
increased. The volatile political environment will deter the foreign trade, investors and the
economic development of the country. The investment related areas can be linked to the
political stability and the economic growth of the country (Born et al. 2017).
The analysis in this essay is based on the operational processes of two organizations
namely, Sainsbury’s Group and McLaren’s Technology Group. These two companies have
their origins in the United Kingdom and they operate in many different sectors. The global
organizations have to face different issues related to the changes in the political conditions
and the effect of this on the economy.
McLaren Racing Limited was founded in the year 1963 by Bruce McLaren and the
company has expanded its operations globally in the next few years. This company is a
subsidiary under the McLaren Technology Group which has other companies like the
McLaren Applied Technologies. The McLaren Group is mainly based in Woking Surrey,
United Kingdom and the company was renamed as TAG McLaren Group as they had
developed ca partnership with the TAG Group. TAG McLaren Group was again renamed as
McLaren Group in the year 2003. The current name of the company is the McLaren

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Technology Group and the formula one company of McLaren Group is considered to be
highest grossing among all the other companies (Mclaren.com. 2018). The structure that has
been implemented and followed in McLaren is hierarchical in nature. The culture of McLaren
is mainly related to the value that is provided to the employees by the management of the
company. The ways by which managers in the company interact with the employees helps
McLaren to acquire the topmost position in the market. The employees of the company are
motivated with the help of rewards that are provided based on their performance. The
company also an incentive scheme for the employees who are able to achieve their targets.
McLaren has its operations all over the world and the products are available in many
countries in the world including Europe and Asia.
Sainsbury’s is an organization which operates in the supermarket industry and holds
the second largest position in United Kingdom. The company holds around 16.9% of the total
share of the supermarket sector in the United Kingdom. Sainsbury’s was founded by John
James Sainsbury in the year 1869. Sainsbury’s has many other companies operating under its
parent company which are, Sainsbury’s Bank, Sainsbury’s Supermarkets Ltd. and
Sainsbury’s Argos. The head office of the company is located in Holborn Circus, London
(About.sainsburys.co.uk. 2018). The power culture is used in Sainsbury’s for the purpose of
making decisions that are related to the fulfilment of the aims and objectives of the
organization. The managers of the company are chosen based on their capabilities and the
ways by which they are fit for the job. The structure of the company is mainly based on the
various physical stores and the online stores of Sainsbury’s all over the world. Sainsbury’s
uses staff rewards and incentive based activities for the purpose of motivating the employees.
The company has physical operations in UK and the online stores operate in other countries
like China and India. The communication process is based on the application various

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platforms like the website of the company, the social media pages of the company and many
more (Born et al. 2017).
UK had voted to leave the European Union in the year 2016 and this process was
named as the Brexit effect. The value of pound fell to the lowest in the same year after the
results of the votes has been declared. The campaigners of Brexit had positive predictions
about the effect that Brexit can have on the business organizations operating in the UK.
However, this step had proven to be a big mistake for the economic development of UK and
the profitability of the business organizations. The export business in UK had been expected
to see a huge loss related to the effect of Brexit. The business can try to maintain their
competitive advantage in the market by decreasing their prices and further by lowering their
profits as well (Breinlich et al. 2016). UK will also lose the access to a single market after the
European Union changes its policies due to the new rules of Brexit. The employment
opportunities in the United Kingdon can also decrease due to this process. The rates of
unemployment can increase due to the recession related issues in the country. Foreign
investment can decrease due to the increase in trade related costs and other tariffs which can
decrease the attractiveness of the market. The loss of single market access of UK will further
lead to the uncertainty in the future trade relations of the country (Busse and Barslund 2017).
The Brexit can affect the future operations of the business operations conducted by
the McLaren Group in the industry. The Brexit process has further led to an unstable
economic and political situation in the United Kingdom and the organizations operating in
the country can also be affected by this process immensely. The tariffs and the trade related
costs are expected to increase and the immigration related facilities between EU and the
United Kingdom will also decrease in the process. The supply chain of the organizations
therefore need to be ready for the future implications of the Brexit process in the United

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Kingdom. The car manufacturing industries can face immense problems after the United
Kingdom leaves EU (Collier 2017).
The increase in the tariffs of the car manufacturing components can increase the
buying costs of the company. This will further the increase prices or the tariffs of the finished
automobile products. The restrictions that were imposed on immigration could further limit
the supply of labour required for the specific jobs in the manufacturing plants. The changes in
economy can also bring some benefits for the company which includes the decrease in the
costs of labour. McLaren had further taken a decision to move its entire manufacturing
process in the United Kingdom so that it can take the advantage of the weak pound and
manufacture much more products for less costs (Cumming and Zahra 2016). The cars
manufactured by McLaren are mainly sold to countries which are not a part of the European
Union. In case of the implementation of a hard Brexit McLaren can benefit from the tariffs of
the finished goods. On the other hand, in case of a soft Brexit the operations of the company
will remain similar. The McLaren Group has been planning for long-term success of the
company after the Brexit process will be implemented. The other plans that were made by
McLaren are related to the planning of the changes that will be brought in their capacities.
The reason behind this plan is that the processes related to manufacturing and selling the cars
to the other countries will not remain the same after the Brexit effect. The recruitment of
foreign engineers in the organization will also be hindered by the Brexit process (Djankov
2017).
Sainsbury’s will also be impacted heavily by the changes in the economic conditions
of United Kingdom after Brexit effect. The cost related pressures are increasing on the
companies as the fall in the value of pound is uncertain and can lead to many changes in the
economic position of the country. The sales and revenues of the supermarkets are decreasing
as a result if the fall in the value of pound in the recent time. The import costs of the raw

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materials and other products required for the production and operation of the organization is
increasing on a continuous basis. The fall of pound has been the main reason in the decline of
the business activities of the company. The inflation related to food production has increased
and this is further increasing the costs of the everyday staple products as well. The household
budgets have been put under huge pressure due to this factor (Kierzenkowski et al. 2016).
The sales of Sainsbury’s and Argos has decreased in the recent times due to the
situation caused after the Brexit vote. The shares of the company had also fallen due to the as
reported by Sainsbury’s. The market of United Kingdom is however still competitive in
nature due to the pressure exerted on the costs related to the production of the company. A
large number of the total workforce of the company belongs to the European Union who form
an important part of the operations of Sainsbury’s. The changes in the rules and regulations
under the European Union can further increase the issues related to recruitment of
professionals from the countries belonging to the European Union. Sainsbury’s has been
planning to solve the issues that can be caused in the organization due to the Brexit voting.
The company has planned to open 250 outlets of Argos within the stores of Sainsbury’s
(Sampson 2017).
This will help the company in reducing costs related to the maintenance of the stores
and the payment to be made to the employees. The promotion related costs incurred by the
company are also being reduced and the lower prices are favoured. The costs of operations of
the company are also being lowered and food waste is decreased. The profit margins of the
company are most likely to fall as the costs of production are increasing and the sales are
decreasing. The founder of the company had warned that the Brexit decision will definitely
affect the pricing policies of Sainsbury’s. The impact of Brexit on the prices of the product
manufactured by the company will be quite uncertain. The profits of the company will

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decrease due to the increase in the prices of raw materials and high costs of production
(Schoof et al. 2015).
The high costs related payroll of the employees will also affect the profit margins of
Sainsbury’s. The increase in the minimum wages of the employees can act as a major
pressure on the profits of Sainsbury’s. The rules that will be imposed by the customs after the
exit of United Kingdom from European Union can lead to the waste of food materials in the
UK border itself. The strict rules of the customs will delay the process of the delivery of fresh
food products to the various stores of Sainsbury’s. This will further disrupt the supply chain
of the company and lead to a lot of wastage. The supply of fresh food items which the main
feature of the operations of Sainsbury’s will be adversely affected by the customs rules of the
United Kingdom (Srovnalikova and Razinskaite 2017). Even a delay of few hours can have
massive impact on the quality of the food items that are sold in the stores of Sainsbury’s. This
add more cost to the supply and also further decrease the degree of freshness of the food
products that are being delivered. The issues occurring in the negotiations related to entry and
exit of items can cause a revolt in the retail industry. The changes that can occur in the
economic condition of United Kingdom due to the effects of Brexit voting can therefore
impact the financial position of Sainsbury’s and can cause a lot of issues in the daily
household budgets of the UK citizens (Vickers 2017).
The two major global organizations of UK are hugely affected by the economic
conditions that can occur in the country. The political condition of UK will be hugely
impacted by the Brexit voting. The economy of the country will be affected in a large manner
depending on the future trade related relationships that can be made by the United Kingdom.
The budget of the European Union will be affected by the migration of the citizens of United
Kingdom. The political conditions of the countries will be affected as the negotiations can
cause differences in the interests between the members of the European Union. Almost 52%

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of the total British voters have voted for the Brexit decision and still after one year of the
Brexit voting the specific shape of the United Kingdom is not quite clear to these people. The
impact of this decision on the trade of the company can be still managed, however, the
exporters will be affected by the increase in the costs related to export and the other costs
(Whyman and Petrescu 2017). The consequences of this decision will be negative and UK
will be the most affected member state. The trade inflows in the United Kingdom are
managed by EU and Brexit will cause many changes in the trade rules and the tariffs. The
loss of trade between United Kingdom and the other member states of the European Union
can affect the GDP of the country. One of the major concerns after the exit of UK from the
European Union will the budget of EU, as UK has always the highest contributor among all
the other member states. The other major issue in this case are the mobility of labour and the
migration related problems. The political challenges between the member states of the
European Union can also become much more prevalent after the negotiation process (You et
al. 2016).
Conclusion
The differences in the political opinions of the country are more likely to increase
after the implementation of the Brexit process. This will further lead to an unstable political
condition in the countries and the economy will also be affected in the process. Economic
globalization will be affected by the unstable political situation in the United Kingdom. The
foreign investments can also decrease as the investors may not like to take risk in the unstable
situation that has been created in the country. The various business sectors will be affected by
the loss in the interest of the investors in the country. The global organizations will be the
amongst the most affected ones as the process of Brexit can cause an unfavourable situation
for them to operate in the country (Zenghelis 2017). The analysis of the two global
organizations have shown that the economic conditions of a country can be affect the ways

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by which the organizations operate in that area. The profitability and costs related to
production operations are the most affected areas of the companies.

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References
About.sainsburys.co.uk. (2018). Welcome to Sainsburys Home. [online] Available at:
http://about.sainsburys.co.uk/ [Accessed 7 Mar. 2018].
Bailey, D., Driffield, N. and Karoglou, M., 2017. With Brexit, inward investment will fall in
the UK. LSE Business Review.
Baylis, J., Smith, S. and Owens, P. eds., 2017. The globalization of world politics: an
introduction to international relations. Oxford University Press.
Bloom, N. and Mizen, P., 2017. Why Brexit could hit productivity in the UK. LSE Brexit.
Born, B., Müller, G., Schularick, M. and Sedlacek, P., 2017. The Economic Consequences of
the Brexit Vote.
Breinlich, H., Dhingra, S., Sampson, T. and Van, J., 2016. Who Bears the Pain?: How the
costs of Brexit would be distributed across income groups. BREXIT 2016, p.54.
Busse, M. and Barslund, M., 2017. Has Brexit made the UK less attractive to high-skilled EU
migrants? New evidence. LSE Brexit.
Collier, P., 2017. Culture, Politics, and Economic Development. Annual Review of Political
Science, 20, pp.111-125.
Cumming, D.J. and Zahra, S.A., 2016. International business and entrepreneurship
implications of Brexit. British Journal of Management, 27(4), pp.687-692.
Djankov, S., 2017. The biggest threat to the City of London is now uncertainty. LSE Brexit.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The economic consequences
of Brexit.

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Mclaren.com. (2018). McLaren Technology Group. [online] Available at:
https://www.mclaren.com/technologygroup/ [Accessed 7 Mar. 2018].
Sampson, T., 2017. Brexit: The economics of international disintegration. Journal of
Economic Perspectives, 31(4), pp.163-84.
Schoof, U., Petersen, T., Aichele, R. and Felbermayr, G., 2015. Brexit–potential economic
consequences if the UK exits the EU. Bertelsmann Stiftung, 8.
Srovnalikova, P. and Razinskaite, J., 2017. THE EUROZONE CRISIS AND THE EFFECT
OF BREXIT. Journal of Management, (1), p.30.
Vickers, J., 2017. Consequences of Brexit for competition law and policy. Oxford Review of
Economic Policy, 33(suppl_1), pp.S70-S78.
Whyman, P.B. and Petrescu, A.I., 2017. Was There Really an Economic Consensus on
Brexit?. In The Economics of Brexit(pp. 1-50). Palgrave Macmillan, Cham.
You, N., Xuan, O.J., Mahmood, M. and Krijestorac, H., 2016. Brexit and its effect on the
pound, the UK’s trading position and productivity. LSE Business Review.
Zenghelis, D., 2017. Both Brexit and the financial crisis highlight why economists should
admit they can’t always get it right. British Politics and Policy at LSE.