Brexit - International Management

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Over the last ten years, UK goods exports have grown by an average of 2.8 percent and service exports by 7.5 percent each year. The UK’s share of global services exports was recorded at 6.2% in 2010. This is the third highest behind the U.S. and Germany. The share of UK’s goods exports has decreased to 2.7% because of the increase in goods leaving China and other emerging markets. Uncertainties remain about the long-term repercussions of Brexit however, according to article 50 of the Lisbon Treaty Britain has 2 years to exit the European Union. Additionally, prior to the exit the remaining 27 remaining European Union members have to agree on the terms of the exit which “Former Foreign Secretary Philip Hammond, now Chancellor, argued that it could take up to six years for the UK to complete exit negotiations (Wheeler, Hunt, 21 July 2016).

According to a report by Capital Economics, it would still be reasonable to assume that trade agreements can be reached that will be beneficial for both sides in the future. “the worst-case scenario, in which Britain faces tariffs under ‘most-favored nation’ rules, is certainly no disaster. Exporters would face some additional costs, such as complying with the European Union’s rules of origin, if they were outside the single market.” (Capital Economics for Woodford Investment Management, February 2016). Even these tariffs would amount to nothing more than minor hindrance.

One of the more immediate impacts of Brexit has been on the pound. The value of the pound has lost close to 10% against the dollar, levels such as these have not been seen since 1985. The Sterling pound has also fallen close to 15% against the Euro since the exit vote. The most monumental effect will be on the daily discretionary spending in the region. The pound will not stretch as far on the cost of imports, such as clothing and food, which have increased due to the monetary drop. Ultimately, the only real benefactors of the exchange rate will be anyone traveling to the region.

2.2 The Effects of Brexit on the U.S.

Brexit is expected to be a source of concern for the US economy.. The dollar gained 6.3% on the pound in a single day, the largest gain in one day since 1967. The stronger dollar will hurt trade for US companies that sell products overseas. “A strong dollar makes company's products more expensive -- and less attractive -- to buyers outside the U.S” (Gillespie June 24,2016). The effect of the stronger dollar on US global companies means potentially fewer profits and fewer exports from US companies leading to potential jobs losses. Corporations within the US have been in a profit recession for 3 straight quarters according to Matt Lloyd, chief investment strategist at Advisors Asset Management, “It's one of the key reasons why Corporate America has been in an "earnings recession," with profits declining for three straight quarters on an annual basis”.

3. Understanding the culture of Britain

When discussing British culture, it’s important to first have a solid understanding of the people this includes. The United Kingdom’s is made up of four countries. These countries include England, Wales, Northern Ireland, and Scotland. “It is important not only to be aware of these geographical distinctions, but also the strong sense of identity and nationalism felt by the populations of these four nations”(Commisceo 2016). When an individual says they are “British”, this can mean that they come from one of these four areas. If an individual says they

are “English”, this generally, but not always, means they come from England. Although not as isolated as they once were thanks to their geographic location; the United Kingdom’s culture has seen rapid change over the last decade. Known as a “western” country, the UK culture is somewhat similar to the culture found within the United States. The official language spoken throughout the UK is English. That being said, “The United Kingdom includes England, Northern Ireland, Scotland, and Wales. The native languages of Ireland and Scotland are dialects of Gaelic, and the speaking of welsh in Wales predates the use of English in England. After decades of decline, Gaelic and Welsh are staging comebacks on radio and television and in school curricula” (Wild pg.58).

When considering the use of body language in communication, “The British are a bit more contained in their body language and hand gestures while speaking. They are generally more distant and reserved than North and South Americans and Southern Europeans, and may not initially appear to be as open or friendly.”(Commisceo 2016) As previously mentioned, the British value their personal space so it is important to be aware of the distance between those conversing. “For Western Europeans, 14-16 inches seems appropriate but someone from the United Kingdom might prefer about 24 inches” (Wild pg.60).

3.1 Cultural characteristics of Britain

Based on its geographic location, the UK is an island nation, surrounded by the Atlantic Ocean. The United Kingdom’s experiences four seasons, and is considered to have a mild climate thanks to ocean currents. “The United Kingdom has a temperate maritime climate. This means that it does not reach the extremes of temperature that you might find in the tropics or at the Poles. Instead we have relatively cool summers and not particularly cold winters”(S-cool 2016).

Unsatisfied with the traditional three-class system (Rich, Middle, and Poor Class), Professor Mike Savage from the London School of Economics created a seven class ranking system for the British. The seven levels are as follows: elite, established middle class, new affluent workers, traditional working class, emergent service workers, and precariat. “Although in the past few decades, people from varied backgrounds have had greater access to higher education, wealth distribution is changing and more upward/downward mobility is occurring, the British class system is still very much intact although in a more subconscious way. The playing field is leveling but the British still seem to pigeon-hole people according to class”(Commisco 2016).

According to a 2010 Pew Research Center poll Christianity is the most practiced religion in the UK at 64%. Islam is the second most practiced religion at 5%. Hinduism comes in third with 1.4%. It is also important to note that 28% of those polled said they had no religion. Studies show that by that by 2050 Christianity will no longer be the majority religion. Predictions indicate Islam and those of no faith are predicted to rise significantly in the years to come (Wyatt