By , David Nicholls
Published July 05, 2016
The momentous Brexit vote has come and gone. The verdict: the United Kingdom is slotted to leave the European Union (EU) as soon as it chooses to invoke Article 50 of the Lisbon Treaty. The U.K. is now on the precipice of being on its own after 40 years of aligned economic policies and regulations with the EU.
The effects on international business are already being felt.
In the hours following Britain’s vote to leave the EU, the Sterling reached a 30-year low, with investors becoming wary as they pivot from positions that expected a “Remain” result. In the same vein,the S&P Global Broad Market index (BMI) has fallen almost 7 percent and the benchmark U.S. index has lost 5.37 percent in the last few days, just to name a few noteworthy changes. But what does this all mean for small businesses?
It’s not all bad news. The U.K. is home to some of the world’s most prestigious universities including Oxford, Cambridge, St. Andrews and Imperial College, London. However, due to the economic instability, U.K. employers will likely hold off hiring for the short term, meaning that U.S. businesses can take advantage of the strong dollar to hire seasoned, in-country professionals and experts at a much lower rate than a month ago. Even after factoring in the extra accounting and legal costs associated with international labor, American small businesses will gain access and the opportunity to pay fair compensation for top-notch talent in an otherwise inaccessible market, especially when compared to expensive domestic labor markets such as New York and the San Francisco Bay area.
Global market volatility may continue. While the U.S. has managed to maintain steady growth, once the U.K. pulls the trigger on exiting uncertainty will again reign, which will almost certainly lead to a tightening of capital markets and bank lending. Companies looking to expand into -- or within -- the U.K. and EU in the next 12 months should consider alternate routes to capital, whether through private equity or other companies. Additionally, exploring the possibility of joint ventures with companies already located within these regions could be a way to avoid the high costs of market entry.
A big impact of Brexit is the rules and regulations that will change once the ties between the U.K. and EU are severed. The free movement of people and labor will change, as will working time directive. Under EU law it is currently illegal to make an employee work more than 48 hours a week. Other rules, such as water cleanliness and even regulations that restrict how many bananas can be sold at a time, might also come up for renegotiation.
Each and every change will mean that, as a small business, you will have to understand the nuances that are currently in place and how any changes will impact your business. Due to the complexity, the need for professional services will increase. Those that can explain the jargon - lawyers, accountants, etc. will experience a surge in business as clients look for advice and clarity.
Despite the resulting negative effects, small businesses can benefit from the global market volatility caused by the recent Brexit results. U.S. dollars go further with a weak U.K. pound. For a small business, as the value of the pound continues at a low, small businesses can reap the reward as their buying power increases. American real estate buyers are also in luck. A depreciated pound and Euro makes it easier to purchase real estate in foreign countries. Some areas, particularly in the Eurozone, offer extremely attractive bargains from vacation homes in the South of France to new European hubs in Barcelona.