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Navigating Brexit:
Four Considerations for Global Businesses

By August 28, 2018 No Comments
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Updated January 9, 2019

The United Kingdom has historically operated differently than its European counterparts. This cultural and political distinction has been embraced by much of the British electorate and their representatives. On June 23, 2016, this distinction was further solidified: nearly 52% of the British electorate voted in favor to leave the European Union. And as of March 29, 2019, the UK is planning to no longer be a member of the EU.

Whether or not the UK will undergo a soft or hard Brexit remains to be seen, and there are several concerns that are top of mind for businesses both in and outside of the UK. We’ve outlined four of these key considerations that, while challenging, are not unnavigable.

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  1. A No-Deal Brexit May Affect Domestic, Foreign Businesses in the UK

The referendum results have created many uncertainties about taxes, trade, visas, borders, and seemingly countless other considerations. Either a hard or soft Brexit will have implications for both domestic and foreign businesses that operate inside the UK. Many of these businesses are located in London, where 22% of the UK’s GDP is produced.

With London as Britain’s financial engine, current regulation changes regarding how businesses in the City trade with the EU could spell financial woes for the UK as a whole; the EU has stated that its regulatory equivalence system will determine the UK’s financial market access once the transition has taken place.

While negotiations between British Parliament and the EU are in progress, there is currently no sign that a deal will be struck before the March 29, 2019 deadline. Prime Minister Theresa May has informed Parliament that it should prepare for a range of potential outcomes. Additionally, trade minister Liam Fox stated that the chances of the UK not reaching a deal with Brussels is “uncomfortably high” at 60-40—and two-thirds of business leaders in the UK share this sentiment.

  1. Most Businesses Are Unprepared or Underprepared for Brexit

Among the 66% of CEOs, directors, and founders of businesses in the UK who believe a no-deal Brexit is “likely,” 25% fear that a no-deal Brexit is “very likely.” Perhaps more startling is that the same poll found that roughly half of businesses have not prepared or have done little to prepare for a no-deal Brexit. Another poll surveyed 800 business leaders and revealed that nearly half are not preparing at all.

This lack of preparation could majorly impact how businesses respond to the outcome of negotiations and will likely affect businesses both large and small across numerous sectors. However, certain industries have begun preparing for a less-than-optimal Brexit.

Many startups and established businesses within Britain’s tech sector—an integral industry worth £170 billion and a key driver of UK innovation—have begun preparing contingency plans in case a hard Brexit occurs. While plans vary among companies, one unifying theme has emerged: British techpreneurs and startups are building up operations on the Continent as a way to bolster their businesses—and avoid the impact of a hard Brexit. Specifically, Google Ventures-backed Currencycloud will open another office in an EU city, as the outcome of Brexit negations looms.

Among top concerns for businesses in the UK is retaining key EU national employees and hiring new team members. Prime Minister May announced plans to double the number of visas allotted for “exceptional talent,” but many SMEs do not have the resources to sponsor such visas. Moreover, companies fear they will lose access to qualified workers from the EU—workers that currently make up one-fifth of tech jobs in London, and about 5% of the total population.

  1. Post-Brexit Immigration, Talent Acquisition, and Employee Retention May Become More Difficult

It isn’t just Britain’s tech sector that may be concerned about access to the EU talent pool. Summer 2018 saw 2.28 million EU nationals working in the UK, down from 2.36 million the year prior—the largest drop in two decades. These EU nationals are spread among numerous industries and contribute more to the economy than they take out.

Despite the drop in numbers and significant financial contribution, the UK government expects a total of 3.5 million applications from EU citizens and family members residing in the UK to apply for settled status (if UK resident for more than five years) or pre-settled status (if less than five years), should they want to continue living in the country after December 31, 2020. Applications will be rolled out in phases before a full national launch by March 30, 2019.

  1. “Bulking Up” for Brexit: Are Mergers and Acquisitions the Key to Survival?

While many UK companies are concerned about retaining talent, others are focused on weathering a potential storm once negotiations are finalized—many to the point of merging with or becoming acquired by a larger, more established UK company. This is evident in the “bulking up” of companies to counteract these uncertainties; domestic mergers and acquisitions are a survival tactic of sorts, suggesting that “bulking up” will help mitigate the impact of a hard Brexit, should it occur.

Overall, M&A activity among UK businesses surged to $551 billion as of June 2018. In 2017, the UK domestic M&A deal volume soared to $68 billion—roughly double that of domestic deals in 2016.  For both foreign and domestic businesses that are eyeing UK companies with which to merge or acquire, concerns surrounding regulatory compliance, taxes, talent availability and other challenges remain unanswered.

Companies that wish to avoid the potentially negative impacts of the final Brexit negotiations and are not interested in either a merger or acquisition may seek to establish a dual presence in the UK and EU. Deloitte notes that, given uncertainties concerning the UK’s path forward, businesses should consider creating a dual presence in both the UK and the EU by way of entity establishment. This would allow a company to separate its EU exports activity from its UK domestic market presence. But even with an established entity, many UK-registered entities that have received contracts, grants, or prizes from the EU will no longer be eligible for such funding—unless a deal is reached by October 2018. This timeframe would allow the European parliament and House of Commons to ratify the deal before the UK leaves the European Union on March 29, 2019.

Ease Post-Brexit Uncertainties with Global Expansion Solutions

With Brexit comes seemingly countless uncertainties, concerns, and considerations for businesses—but none of these factors are insurmountable. Velocity Global has helped thousands of companies achieve their global expansion goals, no matter the uncertainties that surrounded them—and we can offer your organization the same.

If you’re considering expanding globally, but are uncertain of the best approach to meet your business goals, reach out to Velocity Global. Whether your expansion leads you to the UK, the EU, or one of the other 185-plus countries in which we operate, our suite of global expansion services that includes our International PEO (Professional Employer Organization) solution can assist you with each step of the expansion process.

 

 

 

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