Analyzing the Impact of Brexit on International Businesses in the UK

This essay provides a comprehensive analysis of the impact of Brexit on international businesses operating in the United Kingdom. It begins by defining international business and Brexit, setting the stage for an examination of the various factors that influence international trade, including economic, political, cultural, and competitive environments. The essay then delves into the reasons behind the UK's decision to leave the European Union, exploring the immediate effects, such as the devaluation of the British pound and rising prices. It further examines the changes in trade relationships, particularly with the EU and other global partners, and the impact on foreign direct investment (FDI). The essay discusses the opportunities and challenges presented by Brexit, including the potential for new trade agreements with countries like China and the US, and the implications for labor markets and political stability. Ultimately, the essay assesses the dynamic situation the UK faces in navigating international business post-Brexit, considering both the advantages of independent decision-making and the global challenges that have emerged.

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Effect of Brexit on International Businesses in Uk
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1EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
International business, as the name suggests, is a business that involves two or more
countries trading goods, services, technology, resources. It involves cross border transaction,
multinational companies, overseas business and global marketplace. In other way,
international business can also be described as the study of the process by which
multinational enterprises become internationalized. Brexit is the abbreviated form of British
Exit. It refers to the withdrawal of UK form the European Union to become an autonomous
territory, on 23rd June 2016. A decision of this magnitude is bound to effect on the country’s
economy and politics. The political and economic changes of a country bring change in the
business relationships between that country and other countries, which further change
situation for that country’s foreign trading. This essay is prepared to discuss the vastness of
the effect that the Brexit has brought to the international business in UK.
When a company deals with companies from other countries to export or import goods,
services and resources, it falls under the category of international business. The forms in
which international business works are quite diverse. Other than exporting and importing
goods; opening franchises in other countries, giving contractual licenses to firms to use a
countries resources; researching, developing, manufacturing and distributing products in
foreign countries are also considered as a part of international business (Shenkar, Luo and
Chi 2014). In order to understand the impact of Brexit on international business in UK, one
must understand the factors that are related to international business and what are its benefits.
Making a business successful on foreign soil depends on recognising the correct opportunity
and scope in the market. Market recognition includes full knowledge on the diversity of the
market and understanding of how to handle that diverse market demand. In the context of the
benefits that can be gained from international business, comparative advantages have crucial
part to play. The concept of comparative advantage comes from the advantages that a country
possesses, in comparison to other countries, to get lands, labours, capitals and resources on a

2EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
very affordable price. International business gives a country the opportunity to utilize both
the resources and markets in other countries. In addition, it creates a better competition in the
markets within a county and motivates to be innovative in products and services.
International business also has its own challenges to face.
There are four environmental aspects, on which the success of international business
depends – economic environment, political environment, cultural environment and
competitive environment. The economic environment includes economic stability and the
economic structure of the country, as in whether the country has a free market or a centrally
planned market. The free market economy interferes less in the activities of international
business, whereas the centrally planned economy is controlled by the government and hence
gives less opportunity to companies from other countries to trade in their country
(Internationalrelationsedu.org 2018). Economic stability of a country supports the
organizations of that country to create a strong business outside the country as well as invites
foreign investors to invest in their market. The relationship that a government has with the
business of its country is the political environment of that country. This factor also includes
the political risks regarding that country. The political structure of a government plays a
crucial part in international business, as a politically stable and friendly country will let
foreign firms to grow in their land. When a country is going through a political structural
change, it evidently is taken as a risk for foreign organizations to grow their business in that
country (Brink 2017). Both domestic and international legislations have an important role in
international business for they govern how an organization will do business in a foreign
country. Cultural environment is probably the most difficult factor to understand, as it covers
various dynamics of a country such as the history, location, geography, language, religion,
education, and other. Therefore, a thorough cultural analysis of a country before trying to do
business there is evidently significant. The most interesting factor is the competitive

3EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
environment, as this factor depends on the other three factors. Based on this factor, it is
possible to determine the relationship between the buyers and the suppliers as favourable or
adverse. As the other three factors changes with time, the competitive environment also
changes with that.
Among the British electorates who participated in the election, 52% voted in the
historical referendum of 2016 to leave the European Union (Convery, peterson and wincott
2017). There were multiple reasons that lead Britain to withdraw their country from the EU.
The failure of the EU to recognise the economic problems that were present in the union
made their economy stagnant. Britain did not want to be a part of such a stagnant economy.
Britain also could not freely decide on foreign trading as the EU was making it difficult for
the countries in the union to make their own business decisions (Hannan 2016). The voters
who supported the leave were from both the Conservative and Labour parties of Britain. The
parties were in favour of remaining in the union. Yet many of their members opposed them
and voted for the withdrawal, as they saw both parties to be incompetent to control the
financial system and protect the interest of the people of Britain (Mauldin 2016). These were
the major reasons why Britain decided to leave the European Union. As an immediate effect
of Brexit, the value of the British pound fell to a large degree. UK, for several years, had been
catering as a country that provides the best opportunities for starting a business. Brexit
brought uncertainties to those opportunities. Experts were divided in two halves, one saying
that Brexit could bring betterment for the international business in UK, and the other half
saying that the decision of Brexit was a historical blunder.
As the impacts after Brexit, consumers were putting less trust on the British market.
On one hand the value of British pound decreased to the lowest in last 31 years ; on the other
hand, prices were rising in various fields such as the manufactured and food products,
petroleum products, transport materials, and many more (Market-inspector.co.uk 2017).

4EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
There was a noticeable rise in the price of imported materials. These were the results of the
sterling depreciation. The falling of the value of the British currency was effecting largely on
the market and production. Foreign companies, which were manufacturing in UK, became
unwilling due to this inflation. On this context, during the inflation, countries outside the
European Union were more interested in exporting to UK than the countries In the European
Union.
Brexit alters the relationships between Britain and other countries. European Union
has one of the largest markets in the world. In the field of business, the EU represents its
states to make sure that they have fair business agreements with other organizations (Pollack
2015). The EU acts on the best interest of its member states. As Britain has become an
independent country now, it cannot enjoy the advantage of bargaining power that the union
has. Moreover, it has to make new trade agreements and legislation with other countries
(Miller 2016). After Brexit, the EU intends to take strict actions against Britain by making the
trade agreements more protectionist for the country in order to make it less appealing in the
terms of international business. On the other hand, this punitive action of the EU may
consequence into a stronger trading bond between Moscow and UK that has the possibility of
making the EU diverge from its position (Cumming and Zahra 2016).
According to World Trade Statistical Review, 2016, the UK ranks as one of the top
ten countries in the world, which deals in merchandise and service exporting and importing.
The major portion of merchandise and service was being exported in the EU. After Brexit,
the UK lost its major market of export. The Direction of Trade Statistics, 2017, shows that
before Brexit the UK had seven countries from the union as their major global trading
partners. With the exception of Germany, this scenario changed after UK left the EU, as the
growth of trade in those EU countries became slow. Currently, UK’s major export markets
include countries outside of the union.

5EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
Immigrants from several countries of the union fill up a major portion of the skilled
and unskilled workers in the UK. In fields like IT sector, healthcare, engineering, these
immigrant employees had been providing a significant amount of labour. As an effect of the
Brexit, these immigrants’ leaving the UK will create a huge void in these services (Portes and
Forte 2017). As a huge political change, Brexit will make the political environment of the UK
unstable for a substantial period. Unstable political environment means there will be risks in
investing in that country’s market. Brexit will increase the tariffs and costs too. Moreover, the
EU was the source of major part of the FDI stock of UK (Oehler, Horn and Wendt 2017).
Brexit will make future trading with countries from the union uncertain and hence, reduce the
FDI stock of UK. Thereafter, these reasons will affect the foreign investors to invest in the
unstable and uncertain environment of the UK (Dhingra 2016).
One of significant reasons behind UK’s withdrawal from the EU was that the union
had excessive obligations regarding international trading. Brexit will provide UK the
opportunity to save a large amount of money, as it no longer has to comply with the EU
regulations and membership cost. The country has the scope of using the money on new
foreign ventures. UK is now free to do business with any country, among which China and
Australia have the most priority. With the new Free Trade Agreement with china, UK can
now grow its banking and insurance industries there, and exploit China’s market and
resources. Brexit also heightens the possibility of an UK-US tie up (Nytimes.com 2017).
There is a scope for the UK to make a Free Trade Agreement with the US. US were the
largest market for exported goods of the UK. IT also was the second primary source of
imported goods in the UK. After losing the EU single market, the role of the US has become
significant in UK’s business. The UK is now trying to explore ways to grow a market in the
US for its service industry. In this new scenario, where UK has the ability to make

6EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
independent choices and negotiations regarding international business, it is facing a quite
dynamic situation in the process of bargaining with the US.
International business can be seen as the way of growing domestic businesses.
Trading in another country depends on various factors. Among those, the political stability of
a country plays the most crucial part in doing overseas business. Political balance of a
country determines how flexible the workforce and work environment will be in that country,
and how much willingly it will let foreign firms and investors to do business with them. The
regulations regarding foreign trades, the economical balance also play a crucial part as the
factors of international business as these say how much a country can utilize the resources
and markets of the foreign country. Brexit, Britain’s exit from the European Union affects all
these factors and therefore has an impact on the international business of the UK. It hampers
the trading relation between the UK and the countries within the EU. Hence, the UK is facing
global challenges to do foreign trade as it is seen as an economically and politically unstable
country. However, this withdrawal from the EU also gave the UK liberty in making trading
deals and agreements with foreign companies. Through new independent business policies,
the UK now has the scope to venture more in the countries outside if the union, such as the
US, Australia, China. With the strict EU laws not abiding anymore, the UK, in future, can
bring more prosperity in its international business.

7EFFECT OF BREXIT ON INTERNATIONAL BUSINESSES IN UK
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