CEO's Thoughts

British Referendum – Opportunity in Instability, How to Work During Brexit…

By June 24, 2016 August 13th, 2018 No Comments
British Referendum - Opportunity in Instability, How to Work During Brexit

Last night the people of the UK spoke, and the result of the British referendum was a likely exit from the EU. The “Brexit” has spawned speculations of wildly divergent outcomes. There is almost an infinite number of various short and long-term possibilities. We at Velocity Global feel that only one thing is certain in the near-to-mid-term: instability. Many reputable news sources including the Economist, Reuters, and CNBC are making what we feel are overly assumptive claims about the final outcome of Brexit. There are simply too many variables to know what the specific 6, 12, 18, and 24+ month outcomes will be.

New call-to-action

What are some of the variables of the EU / British Referendum / Brexit?

It is important to understand some of the variables at play in Brexit and why instability (both short and long-term) is the only definite at this stage:

  • A referendum by definition is not legally binding, Parliament does not have to exit the EU due to public sentiment
    • Business Insider reports in detail how a referendum is merely advisory, not decisive
    • The reason this leads to instability though, in that it revealed that more than half of UK citizens are openly dissatisfied as members of the EU
    • Parliament has a difficult decision to make either way considering the almost 50/50 split in public vote; no matter what outcome almost half the country is going to be disappointed
  • Prime Minister Cameron stepping down has no clear outcome
    • No one can know what his replacement will do, or who in fact will replace Cameron
  • The process of the UK leaving the EU (if actually seen through) will be long and arduous
    • Despite media hype of finality, the actual process leaving the EU as invoked by Article 50 of the Lisbon Treaty will probably take 24 months or more to complete
    • There will be financial, treaty, and immigration negotiations that will require countless hours of debate and ratification
  • It is unclear if this will cause a domino effect in the EU

How this affects doing business in the EU and UK

The variables at play point to one certain outcome for the next 12-36+ months: general political and financial instability in the area. We think as an international business, there are a few key areas where this instability will impact most companies:

  1. Immigration will only become more difficult
    1. Immigration is a hot topic in the EU and UK already; we feel Brexit adds much more fuel to the fire
      1. The UK will likely become incredibly difficult to navigate from an immigration perspective. This will likely create immigration issues for both UK nationals in the EU and EU-based nationals in the UK.
  2. Volatile currency fluctuation
    1. Both the Euro and the British Pound will see more fluctuation as the roller coaster of negotiations begins and surprises arise along the way
  3. Regulatory changes and currency fluctuation make investing in hard assets riskier
    1. Considering all the treaty and trade negotiations that will be happening, the idea of investing in hard assets in the UK or any EU country just got exponentially riskier
      1. Real estate, foreign corporations, equipment, etc.

Does Brexit’s success mean you stop doing business in the EU and UK?

Absolutely not.

But what it does mean is that you should adjust your international business strategy to keep a lighter footprint and limit your exposure. The question you have to ask yourself is, “Can you afford to sit out of Europe for two years as an international business?” Probably not, but you also don’t want to put your hand in a machine with gears spinning…

Instability also causes opportunity. While no one can accurately predict the exit outcome, no one questions whether or not you should stay in the Eurozone game… Every historic tumultuous time has created just as much opportunity as destruction. Agile companies will profit from this, that is another certainty.

How do you limit exposure?

This is a time for forward-thinking companies to shine. Think hard about the downsides of making a large capital investment in a place of uncertainty, balanced with the upside of keeping a human presence to identify opportunities. In short: keep your best people in, but the majority of your assets out.

The key principles to add as cornerstones to your international strategy in the EU & UK now are:

  • Keep a human presence in-country
    • Your greatest risk might actually be missing an opportunity by avoiding the EU/UK entirely
    • You have to keep a local human presence to find the opportunity your competitor is too scared to work for
  • Stay Agile
    • Be able to pivot or leave (if you have too). Now is not the time to double down, it’s the time to slow play and keep your options open
  • Use Lean principles
    • Test a new opportunity before doubling down
    • Always be aware and challenge your assumptions
    • Treat this whole process like an internal startup; create feedback loops and use data to understand where the best opportunity and steer your company’s direction
    • Read here about how to be lean
  • Limit large capital investment

The answer is clear: use an International PEO or Foreign Subsidiary as a Service (FSaaS).  The service-oriented structure is inherently flexible and allows you to keep a human presence to identify opportunities, and if the situation degrades you can leave at any time.