Post-Brexit and the changing global trade landscape
Table of Contents
In this jeopardized business environment, globalization has created an adverse impact on the overall performance on a global scale. Globalization refers to the increasing trend of interaction between people and companies on a worldwide scale. With the intense transformation within technology and the global trend of business, the organization has faced both positive as well as negative consequences. This report will enlighten the key trends in trading service between commonwealth countries for understanding this substantial impact. The impact of Brexit on the UK aviation industry will be narrowed down to understand the current link of the economy as well as global business performance. Difficulties in Multinational business preference will be analyzed to identify the field of business improvement.
Key trends of goods and services are required to be analyzed for understanding the following status of trade in United States on their own. Todd Rosenbaum used an example of the commonwealth countries. These key trends are as follows:-
- Volume in international trade in goods
- Trade flows across the region
- Market share of trade in services
The reflection of these keys is indicated in trade through import as well as an export propensity. As per the report of 2013, combined exports of goods and services are valued at $3.4 trillion. Here 53 system review final report. [Canberra, A.C.T.?], commonwealth members are combines and 15% of total world exports have been visualized. Since 2000, members have collectively grown their share just above 50 percent. In this landscape, the growing significance of developing countries in the world economy has presented vast trading opportunities for the commonwealth members. In China, system review final report. [Canberra, A.C.T.?], commonwealth member’s trade expansion is assumed as spectacular nature. Average 12 percent of system review final report. [Canberra, A.C.T.?], commonwealth goods import is sourced from China (thecommonwealth.org, 2015).
Figure: Exports share of goods and services in commonwealth countries
(Source: thecommonwealth.org, 2015)
According to Taylor Buck and While (2017), system review final report. [Canberra, A.C.T.?], commonwealth members have fully recognized the value of international trade from the angle of achievement on social as well as economic progress. Social, economic as well as fundamental changes have been taken place in global trade, which influences the direction of trade. Such changes are mainly driven by the factors of the Global value chain or GVC. As per the opinion of Cocks (2016), lack of dynamism in trade multilateralism has created an impact on business actions. The global economic slowdown has been visualized during the global financial crisis in 2008 (ons.gov.uk, 2017).
At that time the world economy was less than 3 percent in comparison to the average growth of 7 percent. Now the contextual analysis is required for understanding this changed rate from the dimension of global forces. It has a significant impact on the trading of goods and services. As per the theoretical demonstration of McKinsey, four global forces are urbanization, technological change, aging challenges, and financial connections. Financial connections are related to both trade and people. The countries are becoming much more urbanized. As per the report, 65 million per year rate is visualized in the scale of urbanization. It has been identified that emerging economies are also major forces. By 2025, emerging economies will grow up to 75 % faster. About the urban consumer class, a 150% increase in annual consumption has been expected between 2010 and 2030 (wti.org, 2015).
Figure 2: Global Forces
(Source: mckinsey.com, 2015)
On the other hand, Seabrooke and Wigan (2017) commented that technological change has also driven a significant impact on the business. In the current period, technological breakthroughs are speeding up, where consumers prefer online systems to fulfill their daily needs. In this scale, a 14% increase in the global workforce has been visualized in proportion to an increase in global life expectancy. However, productivity is dependent on this workforce. If productivity not increased, the GDP growth of the developing countries can be declined. The volume of trade, people, and finance are increasing and reflected in systematical changes on economic stability. The trends in good and service trade have experienced challenges from globalization. These consequences are increasing interdependence of location and increasing interdependence of firms.
Trade-in both goods and services has the direction to gain a maximum increase in GDP by 2020. In this scale, the total value of the foreign investment is an integral part. As per the report, the United States, East Asia, and Europe dominate the global FDI. They are also dominating the global market region of South America, the Middle East, South East Asia, and Africa. These are increasingly attracting investment flows. Flows of capital are broadening remote geographies and populations. Financial globalization has also created an impact on cross-border lending. As per the current report, some US and UK banks have reduced their foreign business However, the new era of financial globalization has maintained more stability, which is effective to maintain a higher share of gross capital flows. The system review final report. [Canberra, A.C.T.?], commonwealth has made up a small part of UK trade. As per the report of 2015, 9% of total UK exports went to system review final report. [Canberra, A.C.T.?], Commonwealth in 2015. EU has accounted for 53% of UK imports. Before the Brexit, UK services export to the system review final report. [Canberra, A.C.T.?], commonwealth has been tripled from £8.5 billion to £22 billion. Therefore, key trends are the major outline, which has hampered this rater after Brexit in the UK.
It has been visualized that the outcome of the UK’s referendum on EU membership can display opportunities in the UK economy. The travel and Aviation industry has been influenced by international politics as well as trade. Any major changes can create a direct impact on every dynamics of these sectors. However, the governmental referendum has created uncertainty in the aviation sectors.
As per the report, the country is facing a tradeoff for accessing the European single aviation market. The immediate impact on the air traffic can be governed through understanding two key variables, which are the sterling exchange rate and economic activity. It has been visualized that Brexit has given a negative shock to the UK economy.
On this scale, uncertainty has occurred in the trading and investment decision in the aviation industry. This status is occurred due to transmission via the financial channel.
Exchange rate impact
UK air market is primarily dominated by outbound traffic. As per the report of 2015, 53.9 million visits have been recorded. Volatile trading conditions have occurred while currency becomes weakened as a result of Brexit. The weaker currency has created an adverse impact on the outbound trips for UK inhabitants. As per the report of Guardian, UK aerospace industry issues can be occurred due to a lack of Brexit trade deal. In the report, it has been analyzed that increased border checks can create an additional £1.5bn cost (Roberts, 2017). Approx £10bn of annual exports are destined for the EU. The impact of increased customs checks is also an issue to maintaining the standard economy of the industry. To deal with the other country parts across Europe, the industry faced an expensive tax rate.
Impact of governmental policy
As per the report of the telegraph, Government has been urged to focus on the aviation industry to avoid the hit of trade as well as investment. Various arguments have displayed that Brexit has a significant impact on the regulatory framework in aviation trade. For preserving the UK’s air connectivity, the government has to ensure a timely renegotiation of aviation treaties. UK’s aviation manufacturing sector has been signaling out due to the potential concern of such regulatory policies. As per the report of 2016, the UK’S trade surplus in aircraft parts and aircraft was largest than any other country’s good sector. The aviation manufacturing sector has a significant impact on the global supply chain. Economists say that the competitiveness of the UK sector is dependent on the regulatory barriers post-Brexit (West, 2017). If now the industry become goes to achieve its vision as a global player, the additional tax can penalize the travel to far-flung locations. The development of a new airline route between two metropolitans can lead to a 4.6 pc increase in venture capital investment (Roberts, 2017). As per the opinion of Schnapper (2015), better transport linkages can enable human capital and investment for accessing more freely across the borders. Such a factor can improve the return on investment.
Impact on market access
As per the report, the EU is easy can be the biggest destination market that accounts for 54% of commercial flights and 49% of passenger flights (iata.org, 2016). The UK is a very important destination market, where air travelers across Europe are involved but the adverse impact is visualized in the share of business operation. In this term, issues are occurring from the standpoint of policy freedom. To foster cross country travel and manufacturing, the industry has faced massive issues in trading actions.
The impact from Cross border business
Therefore in the Aviation industry, the UK has faced the prospect of ‘Hard Brexit’ due to a lack of free trade agreement. As per the report, trade relation between UK and EU has hampered the mutual relationship in World trade organization. The UK is not dependent on the intra-regional trade, which is displaying that country’s extensive involvement in the global spectrum.
On the other hand, Brexit has supported the industry to strengthen the international trading position. The UK is prohibited from negotiating bilateral trade agreements with global partners. However, foreign investments can be declined if Brexit creates an adverse impact on the economy of other countries. For instance, Brexit can create an impact on Australian tourism (gov.au, 2016). Due to the impact of Brexit, customers are not traveling to foreign countries due to their limited income status. This scenario can be analyzed from the standpoint of the aviation industry. In the cross-boundary parameter, foreign investment is also a part to maintain trading relationships with other countries. In this scenario, the impact of global forces has been visualized in the trade and investment purpose of the UK aviation industry (deloitte.com, 2017). To resolve the financial as well as operational consequences, long-term planning needs to be structured.
3.0 Critically evaluate the possible challenges and opportunities of a multinational enterprise (MNE) in London post-Brexit within the context of a changing global trade landscape
In the current period, competitive advantages are associated with the location strategies of MNEs or multinational enterprises. In this scale, understanding is required in international business. As opined by Lea (2016), this business is related to the transaction across the national border for consumer satisfaction as well as organizational profit. From this standpoint, foreign direct investment is related to the equity fund, which has invested in other nations. Marketers often have misconceptions about MNEs. They think organizational ambition is to earn most of the revenue in the overseas business (ecb.europa.eu, 2008). However, they are earning most of the revenue in the home regions. They are not engaging in the global competition but they are involved in the regional competition. As per the current report, more than 50 percent of trade is made by the MNEs (grantthornton.co.uk, 2016).
Vodafone Global enterprise limited is a multinational enterprise and headquartered in London. Since 2007, the organization is serving as a provider of telecom and IT for large corporate customers. Now the analysis is required to understand the positive and negative impact of Brexit in their business process as a part of the multinational enterprise.
Challenges in the business operation of Vodafone
After Brexit in 2016, Vodafone has faced major consequence in the field of employment. As per the report, 13000 employees might be at risk due to an adverse impact on the freedom of capital, people, and goods, which are related to successful business operations. They said that group revenue fell by 3.9% due to volatile foreign exchange movements after Brexit (lse.ac.uk, 2017). A hard version of Brexit has been faced by them in the field of economic consequences that force them to access the single market. Therefore, Vodafone has decided to move headquarter outside the UK because of Brexit. The decision is quite shocking as various opportunities are still present in the UK marketplace. They think that their cross-boundary business will be hampered through changed regulations after Brexit. Vodafone said that they have achieved their growth in the UK market due to free trade policies as well as the free movement of people. They have also displayed that 55% of group profits in the last financial year from European operations. However, in the UK, this percentage was only 11%. Therefore, they are facing issue in taxation, movement policy as well as the flow of capital (Sgeffield, 2016). They think they are losing single market access due to such consequences in business operations. Therefore, they have decided to move to headquarter from the current location.
Figure 3: Challenges and opportunities for MNEs
(Source: Sgeffield, 2016)
From this standpoint, it can be said that Brexit has created a negative impact on its overall business process to maintain a constant flow of capital in the single market. As stated earlier, multinational enterprises can get maximum revenue in the home location rather than the external countries. In this case, Vodafone has not to gain a standard profit level in the last financial year due to the impact of Brexit. On this scale, certain separation from the UK has made them vulnerable in the single market. Here issue has been occurred due to restriction or modification in the cross-boundary business processes. Therefore, currently, the organization is not seeing any hope in the present UK business after Brexit.
Opportunities in business operation
On the other hand, Brexit has a positive impact too. It can create a positive environment for Vodafone by decreasing market overcrowding. Also, Vodafone can get rid of multicurrency issues. It will solve the problems of converting the Euros to pounds or vice versa. Due to the presence of independent monetary policies, organizations can get standard financial performances. Also, the UK government has lowered the tax on various scales that will foster standard business growth. Vodafone has indeed experienced a massive economical downfall in the period of 2016-2017. However, they have to keep patience for achieving standard business growth in the market after Brexit. It has been visualized that, various positive attributes remain present in the current market place of Vodafone.
Governmental support is effective here to protect the market stability of Vodafone in the UK market. Competitive force is also an important factor to understand market performances. In this context, Brexit will provide the scope to be dominant at the market level. The organization is listed in the FTSE 100 index and they have achieved positive growth at all levels. In the UK market, a positive economic viewpoint is visualized in the scale of employment, sartorial growth as well as GDP. From this view, organizations can face positive opportunities to maintain long-term growth. Current market stability is not as per the CEO expectation, but there is a chance to get a positive business dimension. The organization has to take initiative on the internal business process through supervising as well as recognizing the gap in the performances due to the modified governmental referendum.
It can be deduced that due to the impact of the transformed global trend of business, the organization has faced both positive as well as negative consequences. In this case, the major key to the trading global business has been understood. These keys are related to the substantially constant flow of capital, market share, and volume. These keys are the indicator in trade within import as well as an export propensity. Through understanding the impact of these keys, the growing significance of developing countries in the world economy has been understood as vast trading opportunities for the system review final report. [Canberra, A.C.T.?], commonwealth members. The changing trend of trading has been criticized through the McKinsey model. This model highlights four global forces, which are urbanization, technological change, aging, and financial connections. It has been analyzed that Before Brexit, UK services export to the system review final report. [Canberra, A.C.T.?], commonwealth has been tripled from £8.5 billion to £22 billion. Now the global business pattern can be directed on a negative dimension if the financial risk can emerge. In the current period, Brexit has created a negative impact on the overall business process due to the changed dimensions of regulation, business policies, as well as economical stability. In the analysis of current UK aviation, industry impact on trading as well as an investment has been realized. The report has identified that the UK is facing a tradeoff for accessing the European single aviation market. On this scale, uncertainty has occurred in the trading and investment decision in the aviation industry. On the other hand, opportunities and challenges in the post Brexit period through considering the case scenario of Vodafone, which is a multinational enterprise. Based on this analysis recommendation has been suggested as follows.
Recommendation for the aviation industry
- Airlines businesses need to adopt a sensible approach to risk planning to struggle against emerging economic consequences.
- They should consider different ranges on financial regulation
- As a short term plan, the industry should take sincere focus on foreign exchange volatility
- They have to restructure their business policies through understanding the consumer perception
- They have to discuss structuring a new line to resolve the barrier to cross-boundary business performances
- They have to take positive initiatives for the manufacturing process too, where taxation has created an adverse impact
Recommendation for Vodafone as an MNE
- As per the case scenario of Vodafone, they can get a positive market environment by making modifications to the internal business structure. In this landscape, they have to understand the requirements of stakeholder management. Through segmenting the stakeholders at the required level, an organization can handle its share growth from a positive dimension. In the new market field, they have to employ more effort in strategic management towards the business field. Stakeholder management is also required to reduce the level of uncertainty. If stakeholders are not aware of the present business consequences, they cannot deliver the required strategic effort as per the business commitment.
- They have to rethink their decision of headquarter movement through understanding the positive outcome of Brexit in the UK market zone. They have to understand the threats of global forces that have created an impact on foreign business policies. Through proper understanding, they can regain their profit growth in a competitive market.
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Direction of intra-commonwealth average goods trade