Britain is one geographically fortunate country. It's not landlocked. It has had the advantage of an open access to sea, which it leveraged very well over centuries for political as well as economic advantage. However, Britain is at risk of creating a metaphorical land-lock -- i.e. a more restrictive, less open and less free economy than what it has been for past decades.
What seems like an action towards freedom may actually lead to a constraining environment for Britain's economic progress.
On 23 June this year, Britain decided to leave the European Union (EU) in a nationwide and widely awaited referendum. The drivers for an exit are only understood when simplified -- a general distaste among people for immigration, a desire for political sovereignty, and the apparently expensive proposition of sending money over to Brussels as a fee for remaining part of the EU. However, when explored further, these thought processes border on a protectionist approach, which has usually not done well for countries in economic terms in the past. From an economic and business perspective, Brexit feels counterintuitive to say the least.
The EU is one of the largest markets globally, accounting for roughly 25% of global GDP. Half of Britain's exports go to Europe. Post Brexit, it is likely that the EU will end up as less open and more restrictive towards British trade, albeit unintentionally. What seems like an action towards freedom may actually have a counter-effect, leading to a constraining environment for Britain's economic progress. This, unless Britain strikes a favourable equivalent deal in the next two years, which seems unlikely due to the political after-effects as well as the chain effect from its decision.
Sailing the other way in a digitally connected wave
Let's look at what's really happening globally.
In the business world, we talk about digital breaking the boundaries. The likes of Uber, Airbnb, Netflix, and broader indicators -- such as five of the most valuable brands in the world being technology giants with a global presence -- have established that economic value is a derivative of "connect".
We talk about openness in technology protocols. We talk about digitally connecting systems, processes, people and things of an enterprise. We talk about customer delight resulting from various silos acting together to make something happen. We talk about infinite business -- where there are no boundaries and all the ingredients of a business can connect anytime and anywhere. We talk about speed that is a function of a smooth operative mechanics among parts of an enterprise.
In this digital world, where everything is moving towards a more connected way of doing things, Britain's move to break away from the EU is counter-effective.
Businesses in the EU, enterprises in Britain, and entities globally that conduct business with enterprises in Britain know this. If you are a Bank in Britain today, you would hope that while you are trying to create these bridges for connect in the form of digital and connected processes, the economic environment allows you to operate globally -- freely rather than restrictively.
So, now that Brexit has happened, it will follow two years of complex and multiple deal-making scenarios with the EU and its participant nations, with Britain's hope that its trade affairs are not negatively impacted.
Fortunately, Britain has some precedent models to look at. Norway, for instance, is not a member state of the EU, but it has membership in the European Economic Area (EEA). This participation in the single market allows many of the benefits of EU states, but Norway enjoys own agriculture and fisheries policies. A Norway-style arrangement could, at least in theory, be a good next bet. Switzerland, in another slightly different model, has a series of bilateral trade agreements with various member nations on a sector-to-sector basis. It has membership with the Free Trade Association (EFTA). They have had a longstanding application to join EU, but interestingly, in what seemed like a fallout of the then-impending Brexit, the Swiss have already withdrawn the application. Britain could even go on the lines the Turkish model that entails a Customs Union with the EU that will help in case of manufactured goods.
Britain will have to look at these models critically though, because it has a different financial services structure, and also very unique strengths and needs as an economy. And, of course, it has its own unique political equation.
Only time will tell which way Britain ends up going post Brexit. Meanwhile, though, the impact is bound to be negative on the British economy. The EU will not be much better off as well, with Britain being its strongest and most influential lever in global markets. In fact, all of Europe will be much worse off with Brexit. The fact remains that Britain can decide to leave EU, but it cannot leave Europe, where lie its most immediate trade partners and most international trade routes.
Impact on India
It is obvious that Brexit has immediate impacts on global economy. And, hence, the Indian economy will respond accordingly as well. Currency rates, FDI and other macro factors will have direct implications for the Indian economy in the very short term, but, the specific impacts lie with individual businesses in their own relevant contexts.
Britain may have decided to exit from the EU, but it cannot exit Europe, and it cannot afford any disconnects with partner nations and entities.
Britain has been a beachhead for most Indian businesses looking at European countries as trade destination. There are enterprises with direct business in the UK, with proper presence in terms of employees and registered offices. The immigration implications are also bound to affect the Indian workforce and their employers in Britain. Not all effects will be negative, though. With Brexit happening, the Indian workforce could potentially be addressed at par with those from others parts in Europe.
It is also quite probable that for enterprises in the UK, some Indian businesses may turn out to be a better and more viable alternative than their European counterparts, but that scenario could be mixed with positive and negative impacts across segments. For India, it could also mean that Britain would be able to set up some bilateral business ties without the numerous conditions that come with the EU.
However, the bigger implication still lies in the chain effect, and what such a step metaphorically means -- which is of creating a land-lock, even if in the short term. In this digital world, where everything is moving towards a more connected way of doing things, Britain's move to break away from the EU is counter-effective.
What does all this mean?
In essence, Brexit is a case in point for what is not desirable. While political and social factors hold their own stead, the business and economics of today's world require that enterprises as well as nations act in accordance with digital imperatives. One cannot expect a nation to go into a silo and succeed. Similarly, one cannot expect an enterprise to operate in silos -- internally or externally -- and succeed in today's connect-driven environment.
Today's environment demands that enterprises and countries leverage their resources by connecting people, processes, systems and things. That's the only way to succeed in today's digital environment. Britain may have decided to exit from the EU, but it cannot exit Europe, and it cannot afford any disconnects with partner nations and entities. Enterprises have a choice too, as a lesson from Brexit if you will. And, it's all about connect.