Impacts of Brexit on Business Environment

This essay analyzes the consequences of Brexit on the economic, political and cultural aspects in the business environments of the United Kingdom as well as the European Union. It discusses the reasons behind the potential exit of Britain from the EU and the implications of a hard Brexit on the international business environment of both the UK and the EU.

Running head: IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
Impacts of Brexit on Business Environment
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1IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
Introduction
The global business environment has changed drastically over the decades and has
experienced substantial dynamics much of which can be attributed to the international factors
like that of Globalization, trade liberalization in different part of the world as well as
technological and infrastructural innovations which in turn have cumulatively contributed in
making the global commercial frameworks more integrated, interconnected as well as inclusive
(Holland 2018).
With the global business environment becoming more integrated and interconnected, the
economic, political, business and other aspects of the different countries across the globe can be
seen to be becoming heavily influenced by the phenomena occurring in different countries and
across the globe. One such phenomenon of immense significance in the contemporary period, is
that of the phenomenon of Brexit (Hobolt 2016). The term, “Brexit”, referring to the expected
exit of the United Kingdom for the European Union, was triggered on March 29, 2017 and the
same is expected to come into operation on March 29, 2019.
Keeping this into consideration, the concerned essay tries to discuss and analyze the
consequences (both present as well as potential ones) which are about to happen given the Brexit
materializes in the coming years, specifically concentrating on the economic, political and
cultural aspects in the business environments of the United Kingdom as well as the European
Union.
Brexit: Overview and Reasons behind Announcement
As discussed above, the term “Brexit”, refers to the potential exit of Britain from the
European Union, which was decided by a referendum, in 2016, signed by nearly thirty million

2IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
people, where the leave-decision won by 52% over 48% of the votes against it. The official
departure date of the UK from the EU is March 29, 2019. In this context, it is of immense
significance to know about the European Union and its implication to understand the reasons
behind the potential exit of Britain from the same (Goodwin and Heath 2016).
The European Union is one of the most prominent economic and political partnership and
conglomeration of 28 contemporary European countries, including that of the United Kingdom
and also consists of a common currency zone, with 19-member countries, using Euro as the
common currency, although the other members use their own domestic currencies (Pollack
2015). The primary reason behind the establishment of the European Union was that of building
a common business zone, thereby facilitating commercial transactions between the member
countries, by unifying the trade and transaction regulations among them and also by reducing the
trade hurdles and barriers among the member nations, thereby contributing to the prosperity and
long term economic growth and political stability as well as cultural amalgamation among the
same (Cini 2016).
The United Kingdom has been one of the most significant members of this European
Union, over the last few decades since its initiation, along with its stance as one of the most
significant contributor to the budget of the EU, as can be seen from the following figure:

3IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
Figure 1: Contribution of the different member counties in the budget of the European Union
(Source: Geostata.com 2018)
As is evident from the above figure, the United Kingdom is one of the primary members
and contributors in the economy dynamics and budget of the European Union (Smith 2013).
Apart from that the country also is one of the primary exporter as well as importer in the
European Union over the decades, with both the UK as well as the other countries being hugely
benefitted by the multi-lateral trade connections in the European Union.
However, in the recent period, several issues can be seen to be arising in the domain of
operations of the European Union, which can be seen to have compelled a considerable section
of the population of the United Kingdom to opt out of this economic and political
conglomeration and trade agreement.
Reasons behind the potential exit of the United Kingdom
There have been several reasons put forward in favor of the potential exit of the United
Kingdom from the European Union, of which the primary one can be seen to be related to trade

4IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
and commerce. With time and expansion of the global commercial framework, the possibilities
for setting up of trade relations of the United Kingdom with that of the rest of the world, expect
of that of the European Union has been increasing (Hunt and Wheeler 2017). However, the
presence of trade and commerce regulations in the domain of the European Union can be seen to
be arguably hampering the expansion of the trade relationships of the UK with the rest of the
world, thereby having potentially negative implications on the productivity, trade and overall
economic progress of the country in the coming years (Crafts 2016).
Another robust argument which can be seen to be put forward in favor of Brexit is that
UK being one of the largest economic net contributor to the EU, the money contributed is often
invested for the development and economic betterment of the poorer countries under the domain
of the European Union. The contribution bill of the UK can also be seen to be increasing with its
development (with the net contribution of the country to the EU increasing from 2.7 billion
pounds in 2008 to as high as 17.4 billion pounds in 2013) (Moloney 2017). This has been taxing
on the nation to some extent, according to the proponents of Brexit, thereby validating the
potential phenomenon of exit of the country from the EU. The migration rules under the
European Union facilitates free movements for labor and people which in turn can be seen to
have led to high level of migration to the UK, especially in search of economic prospects and a
better standard and quality of life (Menon and Fowler 2016). This has threatened a significant
share of the work-force of the United Kingdom, thereby leading to a considerable voting in favor
of the Brexit.
Hard Brexit
From the above discussion, it thus, becomes evident that there remains a high possibility
of a hard Brexit to be occurring in the coming year, which if happens will imply the UK giving

5IMPACTS OF BREXIT ON BUSINESS ENVIRONMENT
up their full access to the single market of the European Union to gain full control on its own
borders and trade and commerce with nations outside that of the European Union along with the
full withdrawal of the country from the customs union of the EU too (Kaufmann 2016).
Implications of a Hard Brexit
The phenomenon of Hard Brexit, which in all probability is supposed to happen in the
near future, can be seen to be already having its effects and is also expected to have far-fetched
implications on the international business of both the United Kingdom as well as that of the
European Union. The primary consequences can be economic, political, legal as well as cultural.
The main implications which a Hard Brexit is about to bring are mainly related to the
aspects of trade and commerce, thereby indicating towards the economic changes and dynamics
which are expected to be faced by the international business environment of both the UK as well
as the European Union (Kaufmann 2016).
Figure 2: Trade dynamics of the United Kingdom with the EU and Non-EU countries (2017)
(Source: Researchbriefings.parliament.uk 2018)

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As is evident from the above figure, in the last year itself, the trade dynamics of the
United Kingdom with both the member countries of the European Union as well as with that of
the Non-EU countries have been substantially high, from both the imports as well as exports
perspectives. However, the exports from the UK to the member countries of the EU can be seen
to be lower than the imports, thereby creating a trade deficit of amount of 67 billion pounds for
UK with that of the member countries of the European Union. On the other hand, the exports
from the UK to the Non-EU countries can be seen to considerably higher than the imports to the
UK from the same, thereby creating a trade surplus for the UK of an amount of nearly 41 billion
pounds.
However, in spite of the increased deficit for the UK in the aspects of trading with that of
the member countries of the European Union, the United Kingdom can be seen to be importing
as well as exporting considerable shares of their entire trade volume from or to the member
countries of the European Union, which can be seen as follows:
Figure 3: Share of trade of the United Kingdom with the European Union (1999-2017)

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(Source: Researchbriefings.parliament.uk 2018)
From the above figure it becomes clear that over the years, a considerable share of both
the export and import volumes of the United Kingdom can be seen to be with the member
nations of the European Union although with time the volume of imports can be seen to be
higher for the UK than the volume of exports.
In such a situation, aiming for a hard Brexit can have mixed implications on the
international business environment of the United Kingdom (Holmes, Rollo and Winters 2016).
On one hand, the negative implications include the possibility of UK losing its export market in
the different member countries of the European Union, which consists of more than 40% of the
total export shares of the country as shown below:
Figure 4: Exports of goods and services of UK by destination (2014)
(Source: Fullfact.org 2018)

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The exit of the UK from the EU can thus imply the increase in the chances of the other
member countries of the EU to increase their exports to each other, thereby increasing their
productivity, efficiency as well as economic welfare. A Hard Brexit is expected to hamper the
trade related activities of the UK with that of the rest of the member countries of the European
Union as the country will need to surrender the facilities which it currently enjoys in the presence
of a single market and a more flexible and favorable tariff and tax structures among the member
countries of the European Union (Holmes, Rollo and Winters 2016).
However, on the other hand, with the UK leaving the EU, the volume of exports of the
country to the Non-EU countries are expected to increase in the absence of lesser trade-related
restrictions and stricter Non-EU trade regulations on part of the European Union.
Figure 5: Exports of UK to the EU and Non-EU countries over the years
(Source: Fullfact.org 2018)

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The already increasing export volumes of the UK to the Non-EU countries, as is evident
from the above figure, is expected to increase even more in the coming years with lesser trade
restrictions on part of the United Kingdom, especially post implementation of the Brexit. On the
other hand, in the contemporary period, UK also stands as one of the primary importers of goods
and services from the different member countries of the EU (Hunt and Wheeler 2017).
Figure 6: Largest single export markets of the European Union
(Source: Fullfact.org 2018)
With the United Kingdom walking out of the union, the other member countries of the
EU may experience a fall in their exports to the UK, which in turn can have negative
implications on the overall business environment of the European Union (Brakman, Garretsen
and Kohl 2018). The countries to be affected most by the Brexit are Ireland, Belgium, Germany
and Netherlands as these countries export more to the UK then they import from the same and
the initiation of Brexit may hamper their trades in terms of higher tariffs and restrictions.

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However, the potential impacts of a Hard Brexit, on the international business
environment of both the EU as well as the UK can be more than economic. The exit of the
country can have political as well as legal impacts on the business environments of the country
itself as well as on that of the EU. The European Union obtains its power from the set of
regulations and rules it lay for its member countries regarding trade, labor laws, wages, tariffs
and other aspects. The EU has enacted nearly 52,000 legislations between 2000 and 2013.
However, the Brexit, if materializes, is supposed to give the UK the right to choose the
regulations which it can abide by and those which it can give up in the context of EU and Non-
EU trade. This in turn may have implications on the business environment of the UK and the EU
as well (Van Reenen 2016).
The cultural and political aspects of international businesses can also be affected by the
Brexit. The political relationship of the UK with the other member countries of the EU faces the
threats of being hampered if a hard Brexit occurs while the relationship of the country with the
other Non-EU countries can have the possibility to strengthen more (Matthijs 2017). The
businesses in the UK are also divided in the cultural front, with one share believing that the
Brexit would liberate their operations from the bureaucratic inefficiencies of the EU and the
other share being skeptic about the UK leaving the lucrative European Single Market for other
Non-EU markets.
Conclusion
From the above discussion, it is evident that the possibility of a potential hard Brexit, if
materializes, can have mixed implications on the economic, legal, political as well as cultural
aspects of the international business environment of both the United Kingdom as well as on that
of the European Union itself. While the positive implications include those of increased trade

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opportunities for UK outside EU and that of increased trading activities between the other EU
member countries in the absence of competition from the UK, the negative ones may include
both UK and EU member counties losing mutually symbiotic markets and political tensions
among the UK and the EU member countries if Hard Brexit takes place.
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