International Strategic Management: Impact of Brexit on UK, Norway, and Iceland

This report discusses the impact of Brexit on the UK, Norway, and Iceland in terms of trade agreements, economic uncertainties, and foreign direct investment. It also explores the role of these countries in the global economy and the application of economic trade theories.

International Strategic
Management

Table of Contents
International Strategic Management................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Brexit and Uncertainties caused by It..........................................................................................3
Effect of Brexit on UK, Norway and Iceland and Terms of Trade Agreement and its Benefit. .4
Role of UK, Norway and Iceland in World Economy.................................................................5
Foreign Direct Investment and Foreign Value-Added Activities................................................6
Application of Economic Trade Theory......................................................................................7
Relevant Considerations..............................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
International Strategic Management refers to a comprehensive and ongoing management
planning process including formulation and implementation of strategies so that countries can
compete and perform effectively at international level. This report includes discussion over UK
and impact on Economy of UK due to Brexit. Along with UK Norway and Iceland has also been
included in the discussion. There are various benefits that country might have due to Brexit along
with some of the factors and disadvantages like increased cost and difficulty of free trade with
EU countries. This has been discussed with role of countries in Global Economy and Theories
like FDI.
MAIN BODY
Brexit and Uncertainties caused by It
Brexit is exit of Britain from European Union. The exit of UK from EU was a result of
votes and as per votes 52% wanted to leave and 48% wanted to remain and on the basis of this
British Government formally announced country’s withdrawal from in March 2017 (Dhingra and
et.al., 2016). This begun a transition period in this UK and EU will negotiate terms of their future
relationship. In this UK remains to subject of EU Law and part of EU custom unions and single
market but is not longer a part of political bodies of EU.
EU (European Union), it is a political and economic union of 27 countries which are its members
and primarily are located in Europe. In this EU has developed internal system which are required
to be followed by all the member states and all the states are open single market which allows for
free trade among member states. All the member states are required to follow standardised
system of law which have been developed by EU. Through this union ensures free movement of
people, goods, services and capital within internal market.
Earlier as UK was also member of EU it was also subject to all this system of EU. Exit of Britain
from EU have caused many uncertainties (McGrattan and Waddle, 2020). Uncertainties of Brexit
are harming UK Economy and some of the uncertainties which have caused by Brexit are as
follows-

Fall in pound, this is currency of UK and fall in pound makes imports more expensive, this
increase price of consumer goods and cause inflation.
Risk of Recession, this is caused by two successive quarters with Negative GDP growth. After
Brexit UK economy has weakened significantly.
Financial Stress, Brexit related UK recession is highly uncertain and because of Brexit UK have
faced increase in financial stress.
Effect of Brexit on UK, Norway and Iceland and Terms of Trade Agreement and its Benefit
Increase in tariffs and caused Inflation, this is one of the major impact that UK have had
because of Brexit. In this due imports of UK became costlier because of Brexit and this increase
the price of goods and services and caused inflation.
Labour force of UK get negatively impacted because of Brexit as this created constraints in
immigration. Effect that Brexit made on UK are both positive and negative
Positive effect of Brexit are-
Foreign Affairs- As a member of EU, UK had to limit its international influence and because of
Brexit this will not happen anymore (Wadsworth and et.al., 2016). UK can have its international
influence and can have independent seat in world Trade Organisation.
Control- Earlier in many aspects UK was governed by rules and regulations of EU but because
of Brexit now can have its own rules and regulations, without any forcefully imposed policies.
Security- UK can have more security over its borders and benefits full from its border security,
which would gain outside the political union.
Money- Billions of pounds membership fee was contributed by UK to EU, this is benefit that
this is not a expense anymore because of Brexit.
Trade- Because of its membership with EU, Britain could not capitalize its trade with other
countries like Japan, India and US. Now as Britain is free from EU it can have trade relations
with other countries of Asia and other parts of the world.
Negative Effect of Brexit on UK

Trade- EU membership gives access to a big open and single market to EU (Huggins and et.al.,
2019). This enabled easy movement of goods and services and people but Brexit have restrained
all these free movements.
Business- Free Trade with EU countries allowed UK to grow its business and improve its
economy. This have also negatively affected because of Brexit.
Relationship of Norway and Iceland have also affected with UK because of Brexit. In this UK
had a deal with Norway and Iceland about protecting the rights of EFTA citizens living in UK
and British Citizens living in EEA EFTA states, that they can continue living in States in the
event of No-deal Brexit (McAngus and et.al., 2018). This agreement protects 17000 UK national
living in Iceland and Norway, while 15000 EEA EFTA nationals in UK.
Continuity agreement in UK, Norway and Iceland will see continuing business and consumers
benefiting from continued trade with Iceland and Norway after UK leave EU.
Terms of Trade Agreement are as follows-
 The trade agreement covers trade in goods and will only be used in no deal scenario.
 Level of Tariff on goods traded between UK, Norway and Iceland will be same as earlier.
 Trading in the countries will be done on no deal scenario rather than terms of World
Trade organisation’s terms.
 These terms will also deliver significant savings and help to safeguard British Jobs.
 This agreement will also help Britain to avoid up to £ 15 million a year in tariff charges
on exports.
 This trade will also help consumers and businesses of UK to get benefit from more
choices and lower price on imported goods from Iceland and Norway.
Role of UK, Norway and Iceland in World Economy
All the countries have their role in context of economy of world. The role might be small
and big but all the countries have significant role to improve the world economy and to impact
the economy.
Role of UK, with a GDP of $3.0 trillion and per capita income of $45,705, UK is the first
country to industrialize and this is important contribution of UK to world and world economy

(Simionescu, 2018). Economy of UK is significant part of World Economy and there are various
other ways in which this have contributed to world economy. The role in context of Exports
which are important so that consumers all around the world can have wider choices, its important
export products are, Cars, Refined Petroleum, Crude Petroleum, Pharmaceuticals, Diamonds,
Aircraft parts and many other things. Due to Brexit this role of UK in world economy have
affected and as its relations with other EU countries have restrained by law, it can now have
significant trade relations with other countries of the world.
Role of Norway, with a GDP of $395.9 billion Norway is considered to be one of the most
prosperous countries in the world. Important sectors of Norway includes oil and gas and other
sectors in economy are hydropower, fish, forests and minerals. Its per capita GDP is $89741 and
the role it plays in world economy is that Norway is 36th largest export economy in the world and
its export accounts around $106 billion. The important export that Norway does includes Crude
Petroleum, Petroleum Gas, Refined Petroleum, Raw Aluminium, Iron Structures, Broadcasting
Equipments and packaged Medicaments etc.
Role of Iceland, with a GDP of $24.48 billion, Iceland is considered to be the country mostly
dependent on tourism. Its GDP growth rate is around 4.6% (Godwin and Cook, 2018). important
exports through which Iceland contributes in World economy are, tourism, Seafood, Aluminium,
Cars, Planes, Helicopters, Carbon-based electronics etc.
Foreign Direct Investment and Foreign Value-Added Activities
Foreign Direct Investment (FDI), is an investment made by firm and individual of a
country into business interest located in other country. This generally happens when investors
and business establish and acquire business operations in other country. Commonly FDI are
made in open economy that offers skilled workforce and above average return on investment to
the investors.
In relations with UK, Norway and Iceland, UK is sixth global recipient of FDI which amounted
to £49.4 billion in 2018. On the other hand outward flow of were £6.3 billion.
In relation with Norway , its FDI is more outward than inward. This means that Norway has
made more investment in other countries in comparison with what it has received from others. Its

outward flow of FDI accounts to $196.6 billion and its inward flow of FDI accounts at $-18.21
billion.
In context of Iceland, its outward flow of FDI was $138 million on the other hand inward flow of
FDI in Iceland accounts for $-336 million.
OLI Paradigm this stands for Ownership, Location, and Internationalization (Cook and Godwin,
2018). This is a theory in economics through which companies evaluate whether it is beneficial
for companies to pursue Foreign Direct Investment. In this paradigm it is assumed that
institutions will avoid transaction in open market if the cost of completing the same as it is in in-
house investment.
Application of Economic Trade Theory
Absolute and Comparative Advantage Theory
Countries benefit when they are specialized in production of goods for which they have
comparative advantage than other countries. In this absolute and comparative advantage are wio
impotant and major theories and economics and international trade.
In this, absolute advantage refers to a condition in which a institution in a country can produce
higher quality products at faster rate for a greater profit than another business institution can
complete or another country can complete (Zhao, 2018). Comparative Advantage on the other
hand refers to condition in which opportunity cost involved while choosing one firm is
considered to manufacture multiple goods with limited resources.
Absolute Advantage
The basis of concept of absolute advantage is differentiation of varying abilities of companies
and nations to produce goods efficiently. This looks at efficiency of producing single product.
Analysis of this help countries and companies to avoid production of goods that would yield no
demand which might lead to loss. This is why companies can select what to produce according to
their absolute advantage.
For an example country UK can produce High quality luxury Automobiles at a fast rate and Italy
can produce high quality sports car at high rate with greater profits. In means that UK have

absolute advantage in Luxury Car industry and Italy have Absolute advantage in Sports Car
industry.
Comparative Advantage
This includes more holistic view and includes that particular country have resources to produce a
variety of goods. This also analyse opportunity cost of a given option and which means that
company and country analyse the cost and advantage which it might lose while choosing another
option available.
For Example, UK has enough resources to produce Either Cars or Transportation vehicles. The
cars generate higher profit and this is why opportunity cost is difference in value lost from
producing car rather than transportation vehicle (Bellino, 2019). For example UK earns £500 on
car and £400 on a transportation vehicle. This means that opportunity cost is £100. In such case
UK will chose producing Cars rather than transportation vehicles.
Relevant Considerations
For FDI some other relevant considerations are cultural implication, in this it is
considered what will be cultural implication making a particular investment in other country
(Steigner, Riedy and Bauman, 2019). There are various differences in culture and when countries
are located on distance this difference become significant, Host country culture id major
influence on FDI.
CONCLUSION
On the basis of above discussion it can be concluded that just as the decision of Brexit
was significant for Britain implications of Brexit are also significant. This decision led to may
new choices that UK can have but also restricted UK from Free Trade that it could have with
other countries of European Union. It is also important to consider that Brexit does not affected
relationship of UK, Iceland and Norway, their political as well as trading relations are as good as
they were earlier. FDI were also discussed in this report as they play significant role in economy
of country in both the conditions in inward and outward flow. This is why it is important for
countries to make decisions which are most beneficial for its economy.

REFERENCES
Books and Journals
Bellino, E., 2019, June. Capital mobility and absolute advantages in international trade theory.
In STOREP 2019-The Social Rules! Norms, Interaction, Rationality.
Cook, M. and Godwin, E.S., 2018. Determinants of greenfield emerging market outward FDI
into the UK.
Dhingra, S and et.al., 2016. The impact of Brexit on foreign investment in the UK. BREXIT
2016. 24(2).
Godwin, E.S. and Cook, M., 2018. Determinants of Greenfield emerging market outward FDI
into the UK. International Journal of Emerging Markets.
Huggins, C and et.al., 2019. Brexit and the future of UK fisheries governance: learning lessons
from Iceland, Norway and the Faroe Islands. Contemporary Social Science. 14(2).
pp.327-340.
McAngus, C and et.al., 2018. Governing UK fisheries after Brexit–Lessons from Iceland,
Norway and the Faroe Islands.
McGrattan, E.R. and Waddle, A., 2020. The impact of Brexit on foreign investment and
production. American Economic Journal: Macroeconomics. 12(1). pp.76-103.
Simionescu, M., 2018. The impact of Brexit on the UK inwards FDI. Economics, Management
and Sustainability. 3(1). pp.6-20.
Steigner, T., Riedy, M.K. and Bauman, A., 2019. Legal family, cultural dimensions, and
FDI. International Journal of Managerial Finance.
Wadsworth, J and et.al., 2016. Brexit and the Impact of Immigration on the UK. CEP Brexit
Analysis. (5). pp.34-53.
Zhao, W., 2018, May. Analysis on the Comparative Advantages of Developing Green Industry in
Heilongjiang Province under the Labor Division Theory. In 8th International
Conference on Social Network, Communication and Education (SNCE 2018). Atlantis
Press.