As Friday dawned last week, or at least as Friday began to think about dawning, news reached the east coast of the US that “Brexit,” the exit faction in the UK, had won. After a very close vote, the “leave” vote won. Whether the UK will leave the European Union will be made clear over the next year or two. Only time can tell. By the time Americans in the east were sitting down to breakfast, the Pound had already dropped precipitously, and the US Stock Exchange promptly fell by 600 points.
A new week has begun, and now you might be wondering how Brexit will impact your own business. We have some thoughts on that for you today.
Economic Uncertainty Likely Will Lead to Skittishness
The Brexit victory has opened the door to layers of insecurity economically. NBC News reported that a lot of American corporations may pull back from investing in UK operations. One of the enticements for those types of investments was accessing free trade with the EU. Indeed, the status of international trade is pockmarked by insecurity itself. The UK will now have to create its own trade agreements with nations around the world, which will take a long time and which will probably not be a pleasant process. Will the EU attempt to undermine these agreements? Only time can tell.
Another concern much of the world will be watching is the impact of the falling Pound and Euro on the dollar. The good news is that the dollar’s value will almost certainly increase, BUT (there’s always a but) this could make US exports less attractive around the world. Companies that rely on exports are going to be sweating this one out, and again, the final impact will probably not be identifiable for several months.
Finally, as the already cited NBC News article pointed out, the EU is one of the top three economies in the world, or it has been up to this point. The US has invested trillions of dollars into the European Union and has received trillions of dollars in return. Now that the UK has voted to leave, it is possible other countries may also leave, further crippling the EU.
Uncertainty in the world economy is sometimes worse than just plain bad news. Bad news is easy to identify and monitor. Uncertainty is more difficult for countries, companies, and markets to wrap their collective arms around.
Multi-National Corporations in the Lurch
Along with all of the economic uncertainties on a global scale, some companies are going to be impacted more directly. The Washington Post highlighted the conundrum in which Caterpillar finds itself, for example. The article notes,
The company manufactures heavy machinery and is headquartered in Peoria, Ill. More than 55 years ago, it opened its first facility in Britain, and now Caterpillar has 9,000 employees and 16 plants there making equipment, such as backhoe loaders and mini hydraulic excavators.
Much of that production is exported throughout Europe and other parts of the world, eased by the E.U.’s open market and standing trade agreements. A Brexit would undermine an economic alliance that the company has called “fundamental” to its business: Roughly a quarter of Caterpillar’s sales and revenue comes from its European business and the more limited operations in Africa and the Middle East.
While your company might not be working on the same scale as Caterpillar, the fate of these large companies often influences the industry as a whole. This is something everyone will be carefully monitoring.
Right now, there is certainly no reason to panic, even though that seems to be the direction people often go in complex times. This is a time, however for caution and observation. We’ll be watching here.
Image Credit: https://www.flickr.com/photos/dfsmith/22927152066/ via Creative Commons