On June 23rd the British people voted to leave the European Union. The financial markets reacted negatively, but the UK is still the fifth largest economy in the world. It’s an export driven economy, for many American and Asian companies it is an important country for production and services operations and London is a world financial center. So what does Brexit mean for your company and how can you address the Brexit challenges?

The United Kingdom's vote to leave the European Union raises many questions, most of which are unanswerable at this time. No one likes uncertainty, least of all the corporate world. However, there are three steps for companies impacted by the Brexit:

  1. Review of the current European Footprint based on Scenario Analysis. Developing scenario’s (with for example various levels of relocating activities) and assessing them for strategic drivers and operational impacts is a smart way to get an understanding of feasible responses for your company to the Brexit;
  2. Brexit Impact Assessment, which includes a.o. assessment of the financial situation, the expected business implications, the future competitiveness of UK operations. Of course, this depends heavily on your UK operations: a marketing and sales office, production plant(s), regional headquarters, back office and/or R&D-labs;
  3. Find a new location for certain activities if necessary. This asks for an accurate and up-to-date comparison of what countries, regions and cities have to offer from a cost, quality of the business environment and risk perspective.

These steps are part of the special Brexit Contingency Plan developed by Buck Consultants International developed for companies that require assistance in this matter.

Trade tariffs on goods and services

The result of Great Britain leaving the European Union will be tariffs on goods and services imported into the EU, as these apply to other non-EU members as well. Some examples: for cars it is 10%, for medicines 5%, for certain financial services it is up to 40%. There is a chance that trade agreements between the UK and the EU are agreed upon which avoid or decrease these tariffs. But than the UK government has to break some of the Leave EU-campaign promises. We expect the majority of the companies with UK operations will not wait for the uncertain outcome of at least two years of negotiations.

Lengthy and tough negotiations

It is foreseen that later this year the British government will officially give notice to the European Council of its intention to leave the European Union, followed by a two year period of negotiations. The UK does not want to adopt EU regulations and wants to stop immigration (mainly from Central and Eastern Europe) and the arrival of refugees. But the concept of the European Union is based on the same regulations in all member states, in order to guarantee free movement of goods, services, people and capital. The starting position of the EU will be a combination of ‘out is out’ and not ‘Europe à la carte’ (yes to free movement of goods, capital and services; no to free movement of people). So, lengthy and tough negotiations are ahead, with an uncertain outcome.

Migration status between the UK and EU is a another big unknown. As with tariffs, there is no way to predict what kind of migration arrangement will ultimately be negotiated between the UK and EU. At the moment 3.3 million EU inhabitants live in the UK. Their ‘right to stay’ is uncertain, so it could have dramatic effects on the ability to recruit and retain talent. Companies will want to assess various outcomes to gauge the sensitivity of their own operations to potential changes in migration laws.

There is no need to panic, yet. The UK will stay at least for two years in the European Union. The boardroom question, however, is: can we afford to wait and see what the results will be of the two years negotiation process or do we have to act now?

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