What does Brexit mean for U.S. Companies

In late June, voters in the United Kingdom (U.K.) shocked the world in voting 52 percent to 48 percent to leave the European Union (EU) in a referendum where more than 33 million people cast ballots.  

In the aftermath of the vote, U.K. Prime Minister David Cameron, the Conservative Party leader who actively campaigned for staying in the EU, stepped down. His party chose Theresa May to replace Cameron as party leader and hence, prime minister. May had also supported staying in the union but wasn’t vocal about it. And after the vote, she committed to respecting the will of voters and going through with the Brexit.

What does it mean to Britain and the rest of the world that British voters have decided to leave the EU? 
Depending on whom you ask, people will say that while there may be some downturn in their economy in the beginning, that over time, the markets will adjust and the U.K. will be just fine. After all, they never bought into the Euro, so the headache of reverting back to the British pound is one major challenge they won’t face. 

That said, I for one believe that their exit will have more long-term negative effects.

Contributing to the negativity is the worldwide media, which tends to sensationalize a lot of things, including the Brexit story. The impact that the media can have on people’s decisions and views has proven to be very effective even if it turns out to be exaggerated. I read a story in the Wall Street Journal, saying that Delta Airlines has decided to cut down on flights from the U.S. to England because of Brexit. My immediate thought was, what does Britain’s decision to leave the EU have on a major airline deciding to cut flights now? It shouldn’t but what a great excuse to find ways to cut costs for the airline. 

Then there was a story I read on a major German economic development website that discussed how British tech startups are thinking of leaving the U.K. and setting up shop in Berlin so they could have easier access to countries in the EU. I think there will also be a migration to Dublin since Ireland is still in the EU.

How will Brexit impact U.S./British relations?
In case you weren’t aware, shortly before the Brexit vote, President Obama was in England and made remarks in favor of staying in the EU. He felt it was among other things in America’s best interests. Why? Because without the U.K.’s support, it will be that much harder to implement the TTIP (Transatlantic Trade and Investment Partnership), a trade agreement meant to enhance global trade. Within hours after the vote to leave, the value of the British pound plunged, increasing the value and costs of American goods being exported overseas, not just to the U.K. When the world is faced with uncertainty, the mighty U.S. dollar has been a refuge for investors. The dollar is stronger today than it has been in decades. The downside of course for U.S. companies is that it become much more difficult to sell their products overseas because of a strong dollar.

While U.S./U.K. relationships have been fairly strong over the last 100 years, not being part of the EU will have an impact on U.S. companies who have traditionally looked to set up an office in the U.K. because it provided a sense of familiarity and comfort. However, with no easy, direct access to other EU member nations, U.S. companies will have to consider their options regarding future centers of operations. Many will look towards cities in the Benelux region and Germany because of their location and past strong relationships with U.S. companies. 

Any chance of the TTIP trade agreement moving forward is probably a real long shot as a result of Brexit. Why? Because the EU member nations need to focus on the effects of the U.K. leaving the EU. This combined with a strong dollar will add to the difficulties of U.S. companies doing business with U.K. companies. This will also likely lead to Scotland holding another vote to leave the U.K., and I believe they will be successful this time around.

What’s to follow?
As outsiders, we can’t truly appreciate the frustrations that the British people must have felt dealing with Brussels and EU regulations, but they weren’t the only ones that that had to face them. There were 27 other member nations that had to abide by the same rules. While those who voted to be free of the EU might be happy today, I think the celebrations will be short-lived.

If you are an American company looking to do business in Europe, you will have to make a choice regarding where you want to focus your efforts. My dollar says it should be mainland Europe since that will provide you the best options even when you are faced with the higher cost of goods due to a strong dollar.

As always, I welcome your feedback.

Mark Lesselroth is founder and principal of Brenner Business Development, an international business-development consultancy focused on helping small- and mid-size businesses in the U.S. explore international opportunities as well as assisting foreign-owned companies gain market entry into the U.S. Contact him at mark@brennerbd.com