BREXIT and the impact on British and European companies

The result of the British referendum has shocked the whole world. 

Experts have estimated the trade volume (mostly import/export of goods and commodities) between the United Kingdom and the EU to about 1196 billion euros at the time of the referendum.

When the results of the referendum in the UK was announced, in Germany alone in terms of companies with subsidiaries, there were an estimated 1,300 German subsidiaries in the UK and 25,000 British companies with a branch in Germany with an overall of 2.6 million jobs.

In the short term, UK regulatory laws have remained correspondent to the EU regulations.

But for the future. it has yet to be defined in detail; initially there were various potential models for the definition of the bilateral relationship like the Turkish way by means of an EEA membership or like Switzerland by bi-lateral agreements or by independent free trade agreements, which all which would not have been without changes to the current way of doing business. However, the current British government and the EU negotiators have some way to go before the post-Brexit landscape is fully defined. For the time being all negotiations are on hold.

Risk factors for companies with branches in each others territory:

- increasing bureaucracy and higher administrative expenses, even if expected agreements for facilitating the economic relationship between UK and EU are concluded.

- higher fluctuations in foreign exchange rates, which influences directly the product pricing and increases the competition pressure.

- revaluation of supply chains to be eventually made on the basis of their risk assessment (costs and delivery times, standards and regulations)

- higher logistics costs for intercompany transport as a result of burdensome customs procedures

Risk factors for companies doing cross-border business where each business has a marketplace in each others territory:

- territory-specific requirements may lead to specific testing and certification request

- high import duties with direct impact on selling prices and marketing

- preference of the products manufactured in the own territory with effect on the sales market

- risks for freedom of movement for workers with influence to the possibility of commitment of employees within the European Union.

Conclusions

The legal and regulatory position is undoubtedly likely to be more complex as careful analysis of each jurisdiction will be required in the absence of new treaty access rights. Given the additional bureaucratic burden as a result of the more complex legal and regulatory framework, which is to be expected and its associated additional costs. Restricted access to the EU internal market as well as the British market is quite high.

In order to successfully position the company for the future in the changed market, current operating organisations and companies structures must be examined and closely monitored in the respective territories.

If you would like to know more about facilitating cross-border transactions post-Brexit please click here.