August 28, 2016

Britain’s Exit from the EU: Why Marketers Should Care

By Prof. Michael R. Czinkota, McDonough School of Business ,Georgetown University’s
These are tough times for international marketers. There is the ubiquitous and growing occurrence of terrorism, bringing fear to airplanes and airports, trains, entertainment venues, and many unexpected places. There is strong political volatility where the battle is not only about political savoir faire, but is driven by individuals. Just think of the new woman governor of Tokyo, elected against “official” guidance in a male-dominated country.
There is growing wealth concentration for a few, and low income for many others. We have witnessed the breakup of long-term coalitions thought to be stable, such as in Libya, Iraq, Indonesia and South Sudan. In Europe alone we have witnessed massive migration flows from the Middle East, which has led to global disharmony.  We have seen the referendum in Scotland to tear asunder the United Kingdom. And now there is British exit (BREXIT) from the European Union due to a plebiscite.
Much of this occurs at a distance, so should marketers really be concerned? Yes, they need to analyze the precursors, effects, and consequences.  There will be major changes in the business relations within the EU, and also important effects on marketing on both sides of the Atlantic. Understanding and preparation will not remove the thorn of separation, but may help with a less painful adjustment.
One hundred years ago, world economic and political conditions were characterized by globalization and democratization. Political and economic power was in balance. Large global conflict seemed unlikely between the three relatives who ruled England, Russia and Germany, and referred to each other as Georgie, Nicky, and Willy. Yet, within only a few years, World War I had led to millions of casualties and major devastation. Today, some say that rather than walking the walk of diversity, we are ominously close to a similar path of divisiveness. What are we to do now in order to avoid a dramatic deterioration of global civility, security, and economy?
Tinderboxes can cause hot flames. For example, to guarantee their spheres of influence, Britain and France signed the Sykes-Picot treaty on May 16, 1916, which drew hasty and culturally poorly conceived borders for the Middle East. The accord achieved its planned outcome, namely the expiry of the Ottoman Empire, but has caused a century of painful conflict in the Middle East. Even today, the conflicts in Syria or Turkey reflect the inherent disharmony of the old agreement.
Brexit reflects an unwillingness to accept large migration flows and a reluctance to cope with diversity. A British start may encourage other nations to also demand special consideration. But who will be the beast of burden and at what price? Forward-looking countries which adapt their own solutions often surpass the slower and larger powers. Hungary’s policy of “we can’t do it” led to early control of immigration flows. But the nation found itself derided and scorned even though many other countries followed suit. Being the first with good ideas and their implementation does not always pay off.
It is ironic to see a self-inflicted British exit from the EU, which does not better the world, but carries the spark for further conflict. The economic relationship between the U.S. and Britain will weaken. The European Single Market (ESM) is single no more. The departure shifts the entire European unification from an outlook of optimism and growth to a fear of division. Its significance as a business cluster is declining and no longer as charming.  The value of the pound is likely to remain depressed as will the currency of other non-Euro countries. Relative salaries, housing prices, innovation and new ventures become less robust. The plans of many people to establish their life in Britain will change. Inward tourism may rise but outward travel will suffer.
For trade and investment issues already settled by agreements between the EU and the U.S., the United Kingdom, now a new outsider, will need to seek new access accords. Many policy questions will not necessarily be resolved in favor of the UK. How will America choose between Britain and the EU? What are the consequences the U.S. will have to bear, especially with the ongoing negotiation of the Transatlantic Trade and Investment Partnership (TTIP)? What shortcomings will marketers experience in terms of employment, human capital development, and global market success due to the missing British team member? At the very least, they will need to re-differentiate between the EU and the UK, which requires new strategies, new tactics, and new allocation of emphasis.
American outward Foreign Direct Investment (FDI) will change. U.S. Secretary of State Kerry reports that every day almost one million people go to work in America for British companies. More than one million people go to work in Great Britain for American companies. The U.S. and UK have the world’s largest FDI partnership. According to the OECD, British direct investment in the U.S. totaled $449 billion in 2014 while American direct investment in the United Kingdom reached $540 billion. American firms have regarded investment in Britain as a strategy to be safe and gain more access to the 27 other member states of the European Union. Under Brexit such rationale is no longer valid.
Stability is a key concern for investors. While the UK is an attractive market with its strong rule of law, highly educated workforce, and language similarity with the U.S., the EU partnership may be more attractive due to its size and the overall streamlining of trade and investment rules. American marketers in the UK will face rising cost and decreasing earnings. A survey of Ernst & Young found 72% of U.S. investors citing the access to the ESM as an important element of the UK’s investment attractiveness. Marketers will need to find ways which improve the future appeal of the UK.
BREXIT will not make trade negotiations any easier. Trouble may often be unforeseen and delayed. For example, the Washington Post reports that the EU has agreed to a ban of certain pesticides in order to protect bees and their hives which are in decline. Will a London withdrawal from such restrictions endanger British bees, or will British bees endanger their EU relations? What can marketers offer to bridge this gap?
This is not a time for global conflict. Marketers must contribute to tranquility and cohesion, in order to demonstrate that trade and investments are preferable ways to obtain goods and services rather than obtain them by engaging in battle. As part of this process, marketers may shape relationships which are less traditionally organized but more individualistic and spontaneous. Also, highly emphasized marketing fundamentals such as competition, risk, profit, and ownership may have to be modified.
Confrontations between friends and adversaries do not require winners and losers. All should be willing to learn from each other, acknowledge and respect special needs, and make allowance for the human dimension. “We must lead toward a world that trades in freedom. And we must pursue all these goals with focus, patience and strength.”  These words of George W. Bush still ring. With all the resources now available, there must be an increased search for the soul of marketing. Determining past wrongs and the inflicted cost on individuals and society may enable curative marketers to play a new role in the development of relationships. We all must contribute conscientiously to finding ways which help others by sharing their burden. Yet, they must become more willing to share ours as well. Leadership is expensive. Those who now sit at the table must let others approach and take a seat. Dropping crumbs is an insufficient path to a better world.
It used to be said that the United States and England are only separated by a common language. The near term future will see a separation of the two by treaty considerations, which had been thought of as concluded, but due to Brexit, will emerge anew. There may well be the opportunity to arrive at new conclusions during new negotiations. However, the revision of past agreements will be quite onerous. In many instances, negotiators will tend to be more risk averse, leading to more restrictive negotiation outcomes. Bilateral discussions between the U.S. and the UK will focus on controversial fields such as norms, use of chemicals or additives, and privacy.
Marketers can contribute to such future negotiations by providing real data which help negotiators understand the realities of market exchange. It will be up to marketers to emphasize global openness, transparency, and consumption as desirable objectives for progress towards a better human condition.


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