Discuss about the Changing Business Environment in Globalization.
Lee (2017) stated that globalization is a process that resembles ease in business and communication among diverse nations. Businesspeople opt for globalization for developing the opportunity in trading; attain ease in outsourcing and procurement and for economic enhancement. Organizations desires to promote their brand and merchandise in other nation get encouraged if globalization is valued. Elliott (2017) also highlighted one advantageous aspect of globalization that is the higher the international trade among different counties, the greater will be the GDP of the world’s Economy. This impact can be witnessed through the growth in World GDP and global trade from the year 1980 to 2016 (Chandran, 2017).
Image 1: Growth in World GDP and Global Trade
(Source: Chandran, 2017)
Elliott (2017) also depicted that countries that are the part of a union face less challenges in adopting the procedure of globalization and trading procedures. European Unions are one of such examples where all the member nations were prospering with high benefits. However, United Kingdom opted for has voted to LEAVE the EU for their further development self-dependency in business and trade but the assumption of increasing globalization and trade has been called into question. This essay thus aims to explain the reasons for the above mentioned aspects along with the implications.
The United Kingdome was not a member country of European Communities till 1973 (Goodman, 2017). The concerned nation had joined the community through a referendum in 1975 but after four decades, in the leadership of Donald Trump, the nation again demands for leaving the European Union (BBC News, 2017). 51.89% of voters voted for leaving the European Union; whereas, only 48.11% desired to remain a member of the European Union (BBC News, 2017). The prime reason for quitting the EU was many British think that European Union is not able to serve the purpose of maintaining financial balance and trade among its members nation. Goodman (2017) stated that people also believe that can take control away from individual nations without any prior communication that can affect their economy to a great extent. In addition to that people of Britain also believed that UK's relationship with Europe was never stable and thus people or voters who have witnessed the pre-Brexit era support this belief. According to BBC published article, 75% of the voters, who have voted for Bexit are above 65 years of age; while only 54% and 43% of the voters are 25-34 year olds and 18-24 year olds respectively (BBC News, 2017).
In the year 2015 that is pre-brexit 44% of UK export was directed to EU Member States (Dhingra et al., 2017). It is also stated that this is equivalent to the scenario that 53% of total imports are formulated in EU regions (BBC News, 2017). Hine (2017) highlighted that this case is vulnerable for those nation, who had a strong tie with UK for the trading aspect to European Union and these nations got affected when the UK leaves the EU.
Trade cost will also expected to increase but Chandran (2017) stated that this cost will be based on the relationship between the UK and the EU after Brexit. The major reason of the cost of trade will be then decided by free trade agreement (FTA), customs formalities and VAT along with the market access measures like quotas and tariffs. It is also expected that the extent of non-tariff barriers (NTBs) also includes the financial aspects of health, safety and environment standards. Businesspeople and economist also expected that business can expect new trading regime from 2019. Thus, another arguments that can be stated from the prior observation is that the increase in the price of the trade between the UK and other European Union nations damaging the export and import aspect of the international trade. This affirms the major argument of the essay statement that is the assumption of increasing globalization and trade has been called into question after the post- Brexit. Different nations are affected differently; taken for instance, 9% of the Belgian goods export’s destination was the United Kingdom. In terms its size of economy, Belgium ranks fourth to export to the European Union. However after brexit, their position gone down to the fifth rank and only 5% of the total imports from UK is going to Belgium. Another example is for Germany, which is the largest trading nation according to the volume. Hine (2017) stated that the affected industry from the Brexit are- electronic equipment manufacturers, automobile industries and especially the food processing industries. Lee (2017) argued furthermore that even the UK will be affected from post-Brexit world. 57.5% of the automobile export is made by UK to the EU market. In addition to that, the services sectors are most impacted post-Brexit. The service sector of UK is also expected to be affected more as 80% of the services sector in UK provide financial and banking services to the EU nations and community that after Brexit will be affected.
The transfer pricing may be impacted from Brexit as it influences the trade-based fiscal regulation. The countries of EU have to pay tax for transporting products and services. In some cases, the price of the products can be double taxed due to intercompany transactions (Warner, 2017). Hobolt (2016) stated that this system of double tax can be avoided through EU arbitration convention which is a matter of question after the UK leaves the EU, as during that time UK will no longer a party to EU fiscal legislation.
Akman et al. (2017) furthermore stated that the Brexit impacts the supply chain management. Elliott (2017) depicted that companies intends to support globalization focuses on decrease in the cost of sourcing and delivery. Moreover, these companies also values for higher service levels and quality of the products and services. The articles published in CNBC provided a statement that a huge part of the UK trade is associated with the global supply chain. Moreover, the gross trade is associated with value added services and 41% of the value added in exporting flow comes from European Union that is only 12% in number from the United States (Chandran, 2017). It is also expected that after Post-Brexit, the EU have to balance their current global supply chains. Adler-Nissen et al. (2017) highlighted a significant argument that is the last two decades, EU has negotiated total of 36 Free Trade Agreements (FTA) with other 58 non-EU countries. Elliott (2017) states that all these negotiation taken by EU are for the business and trading benefits of the member nation but UK will not be able to benefit from these negotiations once it leaves EU. However, even if UK alone desire to develop negotiation of business and trading with all other nations, the process will be time consuming and expensive.
Economists also believed that there will be a macro-economic effect on trading concerning post-Brexit. The research of Bureau for Economic Policy Analysis (CPB) found that Brexit leads to diminish the bilateral trade between EU and the UK. This furthermore resulted in reductions in GDP per capita as higher trading cost impact the efficiency of the resources allocation. According to the research it is estimated that other 27 EU nation and the UK may face up to 0.8% and 3.4% reduction in GDP respectively (Hobolt, 2016). It is also found that the greater loss of GDP may have to be faced by Netherlands, Belgium and Ireland (Hobolt, 2016).
In terms of implications, some political approaches can be taken like avoid the Brexit from EU nation. In this case, the EU nation can offer incentive so that the exit of Britain can be discouraged. Even if this approach fails, the union may suggest the other member nations to choose different benefits of EU membership (Cumming & Zahra, 2016). A mutual and favourable FTA should be established so that no nation will be adversely impacted by the political decisions. The business agreements and supply chain should be balanced effectively so that adverse impact on globalization can be diminished.
It can be concluded that Britain desire to quit their membership from European Union. The benefits that was predicted by the political leaders was following less regulation, ability ot formulate new trading rules according to the convenience along with huge savings on European Union contributions and ability to formulate skills-based migration policy. However, disadvantages like higher trading costs; imbalance in existing supply chain frameworks, loss of access to the single market, diminished GD of the two nations was neglected during the time. 51.89% of the British people voted in favor of Brexit in which the older people are maximum to vote. They have compared the past situation with the present; however, overlook the future requirement. The consequences of the Post-Brexit are uncertain outcome in the economy of production sectors, loss of influence over the single market’s rules, lower rates of migration and economic disruption impacts the saving of British government that they used to give to EU during the membership. The government and authority members of the nation should take proper implications like offer incentive to UK for not leaving the EU, formulation of new trading agreement that will not affect the other participating nation.
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