Brexit and the Future of the European Union

Firm-Level Perspectives

Marian Gorynia, Barbara Jankowska, Katarzyna Mroczek-Dąbrowska, Marian Gorynia, Barbara Jankowksa, Katarzyna Mroczek-Dąbrowska

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000411904
• Edition: 1
• Topic: Economics
• Subtopic: Commercial Policy
• Index: Economics

Following the British referendum held on June 23, 2016, voters supported the withdrawal of the UK from the European Union (EU) (Brexit), a starting point for the third round of European crisis, following the eurozone debt crisis and the migration crisis. This volume provides an overview of the process and consequences of Brexit for EU member states, with an emphasis on possible future EU-UK relations, and a particular focus on countries in Central and Eastern Europe (CEE).

The authors assess the extent to which firms in CEE states have already put in place strategies to counter the new economic reality post-Brexit and identify the strategies that firms are exploiting to better cope with the anticipated implications of Brexit. The book includes a ranking of countries most and least likely to be affected by Brexit; identification of the main determinants of the expansion of companies on the British market and the creation of a typology of strategies used by these companies in the face of Brexit. The book stands out as a complex and multidimensional research work that draws its roots from distinct yet simultaneously interlinked research areas.

It will find a broad audience among academics and students across diverse fields of study, as well as practitioners and policy makers. It is a key reference for all those who want to better understand the complex nature of Brexit and its implications, not only for EU member states but, first and foremost, the business environment.

1
Toward the new reality

EU after Brexit

Marian Gorynia, Barbara Jankowska, Katarzyna Mroczek-Dąbrowska

Introduction

British voters’ decision, made on June 23, 2016, to leave the European Union (EU) will visibly create a wide range of unpredictable consequences on the UK and other EU member states, the eurozone and the wider region. A vote for Brexit can be perceived as a starting point for the third round of the European crisis, following the eurozone debt crisis and the migration crisis. The result of the referendum generated, above all, quite a large shock to the British society and economy. Nevertheless, for the rest of the EU member states, Brexit would obviously not be a zero-sum game (cf. Miglbauer & Koller, 2019). Each of the EU countries will be hit by Brexit, to a smaller or larger extent though it is hard to predict the scale of the changes. Although Brexit is now a done deal, there is still much uncertainty over how it would impact the EU and national economies (Owen & Walter, 2017). Until the final agreement is signed, the unpredictability of the new rules is a cause for anxiety for companies involved in the British market.

In many EU countries, there should be a discernible impact on the companies’ strategies caused by the British referendum. Since the UK withdrawal case is the first one in the EU’s history, it creates uncertainty for all actors (small, large countries, EU institutions, societies, companies, etc.) and immediately after the referendum it was perceived as a significant rupture for the EU. Hence, the volume is driven by the strong belief that neither the UK nor the EU member states and institutions are interested in escalating tensions and the European disintegration process following Brexit (cf. King, 2020). All stakeholders in the Brexit negotiation process have had a stake in both the political and economic stability of Europe, which would ensure a safe environment for companies to continue their mutually beneficial cooperation (cf. Giammetti, 2020).

Key lines of argumentation advanced in this volume: questions and objectives

The problem discussed in the volume refers to the strategies that Polish companies implemented to cope with the volatility of external circumstances caused by the UK’s withdrawal from the EU. The main objective is not to verify the changes caused by the Brexit itself but to study companies strategies in the post-vote and pre-Brexit period (2017–2019). Hence, the volume assesses whether companies have already developed strategies to face the new economic reality after Brexit or not and – if they have – how firms strived to tackle the uncertain future. Although Brexit is a fact now, we still cannot foresee its impact as the transition period is not over yet. Therefore, the volume’s objectives include the following:

• to see how the trade-off between individual national goals and the European community so far impacted the negotiation process of Brexit;
• to see, in economic terms – which countries are bound (or not) to suffer most of the UK’s withdrawal;
• to see how companies reacted to the imminent threat of Brexit and to distinguish the actual strategies they have adopted against Brexit; and
• to see which factors bore the most significant impact on their decisions regarding the British market.

The chapters included in this volume query current developments and processes that shape and influence the performance of companies’ and their expansion paths today and in the future. The volume addresses the most topical issues that either delineate public discourse on Brexit and its consequences or should be included in that discourse but have been silenced, nevertheless. In this way, this volume “connects the dots” and uncovers the missing links necessary for any reader wishing to get a fuller understanding of the specificity of contemporary companies’ strategies and EU integration. This volume addresses the under-researched area of company’s response toward Brexit which so far has been mostly neglected.

The structure of the volume

The book consists of ten chapters, including this introductory chapter and the concluding one. The chapters address a variety of issues consistent with the volume’s objectives. The discussion in the book takes a top-down approach, starting with the global perspective, to later on, focus on the company perspective. We discuss how the historical context influenced the genesis of Brexit and what implications this may have for the post-Brexit reality. We examine the economic ties that have existed between the UK and other member states, taking into consideration trade, investment and migration. These issues underpin the logic of the following chapters, which redirect the reader’s attention to the company strategy. Based on the conclusions of Chapters 2 and 4, we assess which factors have so far impacted the company’s strategies in the developed market (including the UK) and how the former studies go against the recent developments. In Chapters 7 and 8, we focus on the actual changes in the company’s strategies in the British market and see which factors played the most important role in that process. In brief, this volume offers a rich and complex insight into today’s state of art on companies’ reply toward Brexit. The remainder of the book addresses the following issues.

To fully understand the genesis of Brexit, in Chapter 2, Anna Matysek-Jędrych and Katarzyna Mroczek-Dąbrowska outline the path and relations the UK has had with the EU. This chapter focuses on the tangled history and position the UK has taken throughout its years of EU membership. It outlines the main reasons for the referendum results covering the economic, political and social aspects of the Brexit. It also touches upon the multifaceted negotiation process which – even with Brexit being an accomplished fact – is still underway.

In Chapter 3, Marian Gorynia and Aleksandra Kania concentrate on the literature review regarding the potential economic outcome of the UK’s withdrawal from the EU structures. The literature review revealed that most of the studies devoted to the Brexit’s consequences focus on macroeconomic perspectives. These relate to the main freedoms gained by the EU accession: free movement of goods/services, persons and capital (Emerson, Busse, Di Salvo, Gros, & Pelkmans, 2017; Rojas-Romagosa, 2016). Much attention is devoted to the potential post-Brexit trade scenarios; in terms of both the UK’s relations with the remaining EU-27 member states and the UK’s relations with other countries. So far, an attempt has been made to assess the consequences of the UK’s exit for the EU as a whole (Emerson et al., 2017) and for individual economies, e.g., the Netherlands (Rojas-Romagosa, 2016) or Ireland. However, with continued uncertainty over post-Brexit reality and with only a sketch of the future agreement, the question on mutual relations between the EU and the UK remains open.

Chapter 4, written by Katarzyna Mroczek-Dąbrowska and Anna Matysek-Jędrych, offers an analysis of the consequence of British voters’ decision to withdraw from the EU through the lens of a disintegration process, by measuring the degree of vulnerability of the individual EU-27 countries (cf. Mroczek-Dąbrowska & Matysek-Jędrych, 2021). Although the UK’s negotiations are held with the EU representing all 27 remaining member states, the impact it would have on individual economies can vary. The UK has a trade deficit (in goods) with the EU (around £70 billion), but not all countries are equally affected. If these surpluses were to be lost, large economies such as Germany, France, Italy or Spain are expected to suffer less than the small ones, like Luxemburg, Malta, the Netherlands, Belgium or Slovakia. This is due to the fact that – although in nominal values the exports of smaller countries to the UK is lower than the exports of the larger ones – their exports as a share of GDP is much higher. The common agreement seems to be the expectation that the long-term GDP of the UK (by 2030) will drop. The pessimistic scenarios forecast a reduction of more than 5% (Emerson et al., 2017; Begg, 2017). With the drop in UK’s Gross Domestic Product (GDP), the Organization for Economic Cooperation and Development (OECD) also expects a drop of the EU-27 GDP, which by 2023 will fall by 0.8%. The chapter provides an economically rigorous and critical assessment of Brexit, with a focus on the ranking of potential winners and losers. Through the lens of the disintegration process, it contributes to the ongoing debate regarding the Brexit negotiation process by providing strong arguments in favor of or against certain solutions.

In Chapter 5, Barbara Jankowska and Anna Matysek-Jędrych and in Chapter 6 Marlena Dzikowska, Jan Polowczyk and Szymon Bytniewski write about an often overlooked but still essential dimension of the internationalization process: the strategies in the developed markets such as the British market. Companies internationalize with various reasons, entry modes and strategies. Their choices are often dictated by the market they approach; thus, their decisions (how) to enter developed markets will most certainly vary from the way they tackle the developing markets. To fully understand the implications Brexit can exert on the strategies of companies, it is first vital to have a look at the strategies the firms adopted in the times of relative stability. This chapters focus on the few main aspects: motives to internationalize, determinants of the internationalization process and specifics of internationalization process to the developed European countries. Based on the contribution made here, the empirical study on company’s strategies toward Brexit could be developed.

Katarzyna Mroczek-Dąbrowska, Aleksandra Kania, Cezary Główka and Marian Gorynia, in Chapter 7, turn to the company perspective and offer an in-depth analysis of the post-vote but pre-Brexit strategies of companies in the British market. The research focuses mostly on the impact the exogenous factors (policy changes, taxation, trade barriers, etc.) may have had on the strategy making. This chapter presents the results of the empirical research based on primary study and conducted on a sample of Polish companies. The factors under study include market, cost, competitive and governmental determinants. This chapter links directly to Chapter 5, where such dependencies are discussed in conceptual manner.

In Chapter 8, Barbara Jankowska, Katarzyna Mroczek-Dąbrowska and Alek-sandra Kania offer a typology of the strategies adopted by companies in the face of Brexit. The study is based on the same sample that served for discussion in Chapter 7. In reference to Ansoff’s matrix, the authors verify how companies behaved already having the knowledge of Brexit but still uncertain of the exact shape of the “divorce”. The results hint to certain patterns (industries, company size, entry mode, etc.) that distinguished particular strategies.

Chapter 9, written by Barbara Jankowska, Aleksandra Kania and Piotr Trąpczyński, supplements the studies on company behavior with quantitative perspective. Qualitative research allows us to examine the Brexit phenomenon in its proper context, by providing a more detailed description and exemplifying the relationships described as part of quantitative research. At the same time, collecting qualitative data enables us to triangulate the conclusions formulated in the earlier stages of the research process. Furthermore, case study analysis allows us to verify to what extent the generalized conclusions on Brexit and observations in the quantitative results are confirmed by selected real-life business cases. The data were acquired by means of an interview questionnaire with questions concerning all the sections studied in Chapters 7 and 9, and they are supplemented with direct interviews aimed at extending some of the topics from the questionnaire.

In Chapter 10, Marian Gorynia, Barbara Jankowska and Katarzyna Mroczek-Dąbrowska draw the conclusions that wrap up the discussion on company’s position toward Brexit. Companies constitute the core of the economic relations between the UK and the EU, and the changes that happen within them have a direct impact on the society by shaping the labor market, migration trends, consumption and others. Companies cannot be neglected as their response to new reality may backfire – either to the EU, the UK or possibly to both.

Conclusions

The microeconomic perspective on Brexit – focusing on its impact on the companies’ strategies – is of utmost importance for the EU members which overall have very close economic relations with the UK. Most companies perceive Brexit as an inconvenience if not a threat which therefore requires adaptive moves. At the same time, companies do not suffer from and respond to the change in the same way. There is hardly any research on company strategies in the face of Brexit. One of the reasons for that is limited data availability. Information on approaches toward Brexit cannot be found in any official statistical data and requires in-depth analysis at the core of the setting – the company. However, this requires time and other resources. This volume aims to understand the different approaches toward the UK’s exit and understand its meaning for the whole economy. The study encompasses a complex and multidimensional research workshop based on a distinct yet simultaneously co-related areas, such as the theory of the firm, international business, along with micro-and macroeconomics.

References

• Begg, I. (2017). Making sense of the costs and benefits of Brexit: Challenges for economists. Atlantic Economic Journal, 45, 299–315. https://doi.org/10.1007/s11293-017-9550-x
• Emerson, M., Busse, M., Di Salvo, M., Gros, D., & Pelkmans, J. (2017). An assessment of the economic impact of Brexit on the EU27. Brussels: Centre for European Policy Studies (CEPS), IP/A/IMCO/2016-2013.
• Giammetti, R. (2020). Tariffs, domestic import substitution and trade diversion in input-output production networks: An exercise on Brexit. Economic Systems Research, 32(3), 318–350. https://doi.org/10.1080/09535314.2020.1738347
• King, R. (2020). On Europe, immigration and inequality: Brexit as a “wicked problem”. Journal of Immigrant & Refugee Studies, 19(1), 25–38. https://doi.org/10.1080/15562948.2020.1821275
• Miglbauer, M., & Koller, V. (2019). ‘The British people have spoken’: Voter motivations and identities in vox pops on the British EU referendum. In V. Koller, S. Kopf, & M. Miglb...