Impact of Brexit on Jaguar Land Rover: Benefits and Threats

This article discusses the impact of Brexit on Jaguar Land Rover, including benefits and threats such as free movement, volume and margin concerns, currency risk, and manpower issues. A strategy for the future is also presented.

Global Economic Environment and Marketing 2
Table of Contents
Introduction........................................................................................................................3
Economic Integration.........................................................................................................3
Future economic integration for UK and 27EU..................................................................6
Impact of Brexit on Jaguar Land Rover: Benefits and threats...........................................7
Free movement..............................................................................................................7
Volume and margin concerns........................................................................................8
Currency Risk.................................................................................................................9
Manpower issues...........................................................................................................9
Strategy for future..............................................................................................................9
Conclusion.......................................................................................................................10
References.......................................................................................................................12

Global Economic Environment and Marketing 3
Introduction
23rd June 2016 is considered as a historic date, due to the landmark referendum
of UK (United Kingdom) being passed, where the nation decided to leave the European
Union (EU), and this was known as Brexit. As soon as the results of this referendum
were declared, the pound fell at its lowest since 1985, and this was the fear of the world
showing in face of the uncertainties surrounding Brexit (MacKay, 2017). Till the time
Brexit had not taken place, UK had been positioned at the top for starting up any
business, but with the uncertainties which continue to be present on the topic of Brexit,
the position of UK is in question. The possibility of a hard Brexit has shaken the most
well established businesses, so much so as to force them to think of going overseas
(Hobolt, 2016). However, there are those who think that Brexit would only result in
improved conditions for their businesses, and are therefore optimistic about the whole
thing. This is particularly in comparison to the ones who predict that, for UK, Brexit is a
big mistake (James, 2017). Where UK is set to bear negative impact of Brexit, EU is set
to gain a lot. However, some proponents of Brexit believe that the reverse would
happen.
Jaguar Land Rover Automotive PLC (Jaguar Land Rover) is amongst the leading
multinational automotives companies, who fear of the impact of hard Brexit (Kumar,
2017). This discussion is focused on highlighting the possible impact of Brexit on Jaguar
Land Rover, and the benefits and threats faced by it, in addition to drawing up a
strategy for the purpose of exploiting the possible opportunities and averting the threats.
Economic Integration
Economic integration is an agreement which allows the nations, in a particular
geographic region, in removing/ reducing their barriers, in order to promote free flow of
goods and services, and the other factors having an impact on the business (Baier,
Bergstrand & Feng, 2014). This involves any such type of arrangements where the
nations agree on coordinating their fiscal, monetary, or/and their trade policies
(Liepmann, 2017).

Global Economic Environment and Marketing 4
When it comes to the relation between UK and EU, it becomes clear that UK is
highly economically integrated with the rest of EU nations. The extent of economic
integration between EU and UK can be elucidated by making use of the World Input-
Output Database of the University of Groningen. This database provided insights into
the exports of Britain to WU, and the supply chains which provide the intermediate
services and goods for the exporters. In context of all of such effects, the UK’s share of
output sold to the EU covered 9.8% in 2011. To bring these figures into perspective, the
share of London in UK output stood at 22% and that of the South East, excluding
London, stood at 15%. However, every other region of UK contributed less towards the
GDP of the nation in comparison to the share which was sold to EU. Trade with China
and US contributed way less to the economy of UK in comparison to EU. The figures for
China stood at 1% and for US stood at 3.4% (CER, 2016).
UK gets a comparative advantage when it comes to financial services and
production of businesses, in addition to the designing, marketing, engineering and
various other services. The service exports of Britain, as per the Groningen database,
along with the services which are provided to the exporting companies by the domestic
firms, are very heavily skewed towards EU. EU alone accounts for 2/5th of the UK
services demand by foreign nations. The share of US in this is just 17%, and the
emerging economies under BIRC only contribute to 10% (CER, 2016).
The close proximity of UK with the EU member states is another major reason for
the high economic integration between the two. A gravity model was constructed by
CER for quantifying how much trade goes down to EU. It demonstrated that the EU
membership of UK resulted in boosting of its trade in goods with the other member
states by 55%. Back in 2015, the goods trade of UK with the remaining EU member
states stood at £364 billion. The EU effect thus amounted to nearly £130 billion.
Comparing the bilateral trade, which Britain has with China, it was only £43 billion for
that year (CER, 2016).
There are other ways also in which UK is highly integrated with Britain. Back in
1997, the member states of EU contributed to 30& of accumulated stock of FDI in UK,

Global Economic Environment and Marketing 5
and this figure had rise to 50% by 2014. The value of bank assets of UK in 2015, which
was held in euro zone stood at 45% more than US assets, even with the economy of
euro zone being only 3/4th of US economy size. London has been the key beneficiary of
single market in terms of the financial services. A large market is present in the euro
zone for lending which is originated from UK in comparison to the suggestions as per its
economic size (CER, 2016). To put these in context:
(Source: Felbermayr, Fuest, Gröschl & Stöhlker, 2017)

Global Economic Environment and Marketing 6
(Source: Felbermayr, Fuest, Gröschl & Stöhlker, 2017)
Future economic integration for UK and 27EU
Free Trade Agreements (FTAs) help in regulating the tariffs, and the other trade
restrictions, present between two or more nations, in order to carry out the trade in an
easier manner (Findlay, 2015). Singapore was the very first ASEAN nation to initiate
bilateral foreign relations negotiations with EU for FTA (Elijah, Kenyon, Hussey & van
der Eng, 2017). In order to indulge in trade relations, Singapore and UK make use of
these FTAs (Peng, 2016). This has led to Singapore becoming the largest trade partner
of UK in Southeast Asia. UK is amongst the largest foreign investors in Singapore, and
this contributes a considerable percentage of the total EU investments in Singapore
(Ming, 2017). All this has been enabled due to the FTAs signed between the nations.
With the approaching Brexit, UK and the 27 EU would not be able to obtain
benefits, which they earlier could, and in order to trade with each other, there is a need

Global Economic Environment and Marketing 7
for adopting the strategies which were adopted for trading with the other nations, not
having the advantages of being a member state of EU. In this regard, a great option is
presented in drawing up FTAs (Dhingra Ottaviano, Sampson & Van Reenen, 2016).
Taking the example of Singapore, UK and the other EU member states would not have
to undertake FTAs for the trade to run smoothly between them. FTAs are not only used
with Singapore, but by the 27 EU and UK for their relations with US, Canada, Georgia,
Moldova, Germany, Colombia, Peru, South Korea and a number of Central American
nations like Panama, Nicarragua, Honduras, Guantemala, El Salvador and Costa Rica
(Bertelsmann Stiftung, 2015).
Impact of Brexit on Jaguar Land Rover: Benefits and threats
With Brexit, UK would no longer be a part of EU. This means that all the
advantages which the companies could earlier get, by being a part of EU and having
their headquarters at London, would no longer be applicable. The benefits which could
be earlier attained due to the applicability of economic integration, would no longer
apply. The company is amongst the ones who fear that Brexit would negatively impact
their business. They have even estimated that by the end of this decade, Brexit would
cost the company 1 billion pounds or $1.47 billion in annual profits (Thomson Reuters,
2016). The possible impact, which would happen due to economic integration, being no
longer applicable for Jaguar Land Rover, has been summarized below. To compete with
the German counterparts, Germany is taken as the selected EU nation.
Free movement
The first one in the list of possible negative impact on businesses is the
restriction of free movement. Earlier, the people of UK could move in any nation of the
EU, including Germany, to carry on their work, to get jobs, and to live there; and the
same was also true vice-versa. With Brexit, this can no longer be done (Rankin, 2017).
This is coupled with the same restrictions for the family members of the employees or
workers coming from EU nations to UK or vice versa, where they could earlier come
and reside in UK with the employee. With Brexit, the employees and their family

Global Economic Environment and Marketing 8
members would have to apply for visa in the same manner, as is to be done people
from non-EU member states, when they want to enter UK or EU member states. There
would be separate permits required for working in EU or UK for nationals of UK or EU
member states (Mullin, Webb & Harper, 2017).
Volume and margin concerns
In terms of volume, Europe accounts for the fourth ranking volume for Jaguar
Land Rover. Europe is also the source of around 35-40% of the components
requirements of the company from the region. Earlier there was free movement of
goods in EU member states and Jaguar Land Rover was thus not required to pay any
tariff, bet it for selling vehicles in the EU nations, or for sourcing the parts from the EU
nations. Though, now the situation would change, and the goods sold from and to EU,
would certainly attract duties. This would Jaguar Land Rover uncompetitive against its
German rivals. As a result of this, the volumes and margins of the company would be
adversely impacted. This would in turn prove negative for the company even in short
term as this would result in the fiscal deficit being raised, shortfall of adequate
manpower, and lower growth in UK (Mohile, 2016).
However, within this is an opportunity or a possible benefit for the company. This
is due to the fact that there could be a range of indeterminable variables which would
level the impact on the company. Owing to the strong margin performance for 2015-16
at 15%, in addition to the better geographic mix and strengthened new model launches,
the company is expected to expand its margin for the next two years. Again, an
uncertainty looms due to Brexit. For the year ending on March 2016, the company made
sale of 5.21 lakh units in the retail market alone, which was a growth of 13% in
comparison to last year. The total sales contribution for company of Europe grew by
24% from 19% in previous year. UK and EU account for 44% of the global volumes for
company. This is the reason why companies like Jaguar Land Rover hope that UK
would have FTAs with EU or would join single EU markets, fostering the bilateral trade
(Mohile, 2016).

Global Economic Environment and Marketing 9
Currency Risk
Jaguar Land Rover is also set to face the volatility of currency. As soon as Brexit
was announced, the Great British Pound started depreciating and is further expected to
depreciate only. The value of GBP has gone down in comparison to the US Dollar
(Leissle, 2018). Though, this has the possible benefits for Jaguar Land Rover as 80% of
its products; but at the same time, it would inflate the import bill of the company. Where
trade tariffs would become applicable, the German luxury calls would also get more
expensive and this would allow Jaguar Land Rover with the opportunity of gaining
market share in its home market. It is worth noting that the benefits of weak GBP would
come before the possible negative effects of the import tariffs (Mohile, 2016).
Manpower issues
The skill base of the company is also likely to take a toll. This is due to the
hindrances in the mobility of labour in between 27 EU and UK. For undertaking its
operations, Jaguar Land Rover requires skilled manpower, and the majority of it comes
from Europe. With restrictions in immigration, it would impact the company (Mohile,
2016). There would be a problem in attaining and retaining talent. CIPD has reported
that in view of 72% human resource professionals, getting qualified talent would
become a key difficultly and that the competition would toughen up (CIPD, 2017). A
survey undertaken of a thousand human resource professionals demonstrated the
same fear (Jack, 2017). So, when the staff from German would have to go to UK, or
vice versa, it would require additional costs for Jaguar Land Rover.
Strategy for future
On the basis of the threats and benefits which are posed through Brexit, a
strategy has been created for Jaguar Land Rover to follow in its future endeavours. This
requires Jaguar Land Rover to firstly create a base in German as well. This is
particularly important that as this would allow Jaguar Land Rover to attain the benefits
of free movement of trade within the 27 EU nations, with UK no longer able to do so. By
setting up branch in Germany, the advantages which the company could earlier enjoy

Global Economic Environment and Marketing 10
by being in Britain could be continued. The next part of this strategy is to make
arrangements for their talent coming out from EU nations, to continue their work from
Germany. This would allow the costs of visa of employees and their relatives, being
brought down for the company.
Alternatively, they can wait out for the possible FTAs to be drawn between UK
and other EU nations, and continue their endeavours in UK itself. However, this is not a
feasible option, and should be adopted only later on. By doing so, the talent pool of
Jaguar Land Rover can be retained, and even new talent pool can be attracted. For the
individuals of UK, the company could continue their operations there, as UK does have
FTAs with non-EU nations, which are crucial for the company, and which require work
to be done. Thus, by adopting this strategy, not only would Jaguar Land Rover be able
to establish new base in Germany, but would also be able to secure its talent pool.
Conclusion
Thus, in the previous segments, a thorough discussion was undertaken on the
possible impact of Brexit for UK, EU member states and Jaguar Land Rover. In doing
so, the concept of economic integration was made use of, and the manner in which the
economic integration exists between the EU and UK was highlighted. This helped in
gaining an understanding on the manner in which the relations exists between EU and
UK. The discussion then highlighted the manner in which the economic relations could
continue in future between UK and EU, through the use of FTAs.
This was followed by the discussion on the possible benefits and negatives of
Brexit, particularly in context of Jaguar Land Rover, which is fearful of the negative
impact which Brexit would have on its business annually. There are possibilities of
difficulty in free movement of people, GBP falling, attaining and retaining talent, and
volume and margin concerns. Based on this, a strategy was created for Jaguar Land
Rover, where it is suggested to create its base in Germany to continue taking
advantage of working in EU and in continuing its association, along with continuing its
work in UK, to tap in the advantage of FTAs drawn between UK and other non-EU

Global Economic Environment and Marketing 11
nations. This was done to show the level of impact which Brexit is set to pose on the
working of the companies like Jaguar Land Rover.

Global Economic Environment and Marketing 12
References
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.
Bertelsmann Stiftung. (2015). Costs and benefits of a United Kingdom exit from the
European Union. Retrieved from:
https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/
GrauePublikationen/NW_BREXIT_EN.pdf
CER. (2016). The economic consequences of leaving the EU. Retrieved from:
http://www.cer.eu/sites/default/files/smc2016_26april2016.pdf
CIPD. (2017). Three in four HR professionals expect Brexit to escalate ‘competition for
talent’. Retrieved from: https://www.cipd.co.uk/about/media/press/050617-
smarter-uk-recruitment-required
Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit
on foreign investment in the UK. BREXIT 2016, 24.
Elijah, A., Kenyon, D., Hussey, K., & van der Eng, P. (Eds.). (2017). Australia, the
European Union and the New Trade Agenda. Canberra: ANU Press.
Felbermayr, G., Fuest, C., Gröschl, J., & Stöhlker, D. (2017). Economic Effects of Brexit
on the European Economy. EconPol Policy Report, 1.
Findlay, C. (Ed.). (2015). ASEAN and Regional Free Trade Agreements. Oxon:
Routledge.
Hobolt, S. B. (2016). The Brexit vote: a divided nation, a divided continent. Journal of
European Public Policy, 23(9), 1259-1277.

Global Economic Environment and Marketing 13
Jack, L. (2017). Tapering Talent: The Impact of Brexit on Retention and Recruitment.
Retrieved from: https://www.icslearn.co.uk/blog/posts/2017/july/tapering-talent-
the-impact-of-brexit-on-retention-and-recruitment/
James, W. (2017). Brexit: £1 trillion London fund management business threatened by
latest EU guidance. Retrieved from:
http://www.independent.co.uk/news/business/news/brexit-latest-news-london-
fund-management-business-eu-guidance-1-trillion-euros-a7862266.html
Kumar, S. H. (2017). Impact of Brexit on Tata Groups. DHARANA-Bhavan's
International Journal of Business, 11(1), 29-32.
Leissle, K. (2018). Cocoa. West Sussex: John Wiley & Sons.
Liepmann, H. (2017). Tariff levels and the economic unity of Europe: an examination of
tariff policy, export movements and the economic integration of Europe, 1913-
1931 (Vol. 25). Oxon: Routledge.
MacKay, B. (2017). Impact of Brexit on Businesses in the UK. Retrieved from:
https://www.market-inspector.co.uk/blog/2016/10/impact-of-brexit-on-businesses-
in-the-uk
Ming, C.P. (2017). Singapore remains a top FDI destination globally. Retrieved from:
http://www.businesstimes.com.sg/government-economy/singapore-remains-a-
top-fdi-destination-globally
Mohile, S.S. (2016). Why Brexit matters to Jaguar Land Rover. Retrieved from:
http://www.livemint.com/Companies/a3cuXDgdnNw9DeRJHvTduL/Why-Brexit-
matters-to-Jaguar-Land-Rover.html
Mullin, G., Webb, S., & Harper, P. (2017). UNCERTAIN FUTURE What will happen to
EU citizens in the UK after Brexit, will they need visas to work in Britain and how
many are here now? Retrieved from:

Global Economic Environment and Marketing 14
https://www.thesun.co.uk/news/2822423/eu-citizens-uk-after-brexit-freedom-of-
movement-visas-immigration-figures/
Peng, M. W. (2016). Global business. London: Cengage learning.
Rankin, J. (2017). Free movement: a circle that cannot be squared in the Brexit debate.
Retrieved from: https://www.theguardian.com/politics/2017/sep/13/free-
movement-circle-that-cannot-be-squared-brexit-debate
Thomson Reuters. (2016). Jaguar Land Rover Could Face 1 Billion Pound Brexit Hit:
Report. Retrieved from: http://profit.ndtv.com/news/corporates/article-jaguar-land-
rover-could-face-1-billion-pound-brexit-hit-report-1421740