Evaluate the opportunities and risks to UK small and medium sized businesses (SME’s) as a result of Britain’s decision to leave the European Union.
Introduction
The world has been alarmed by sudden decision of United Kingdom (UK) to leave the European Union (EU), a combination of 28 countries that allows free trade and work in a single market. “It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country,” (Hunt and Wheeler, 2017). However, in June last year, a great number of the British have taken part in voting as whether to remain or leave the EU. Surprisingly, many of the citizens opt for Britain to exit the European Union thus it is called Brexit. As claimed by the UK Independence Party and the rest who voted to leave, the reasons for the UK to desperately leave the EU mainly because they are gruesome with numerous regulations imposed by EU on businesses apart from having to pay high amount of membership fees for a minimal return (Hunt and Wheeler, 2017). It is also requested by the party to cite for sovereignty and democracy where UK could have a full control on its boarders hence reducing the number of people coming either to live or work in the country (Hunt and Wheeler, 2017). Nevertheless, Brexit has started to initiate some impacts towards the economy and the people including the small and medium sized businesses (SME’s) in the United Kingdom. Hence, this short essay will appraise more deeply what are the possible consequences of Brexit and how it will affect the SME’s in the meantime and the future onwards.
Discussion
One of the drawbacks of Brexit is that firms who have been supported by EU funds will be jeopardised by means of less sources of finance to upkeep the business. When UK combines with European Union, they work together in a single market that qualifies firms to pledge for EU funds for business purpose. This is what has bothered some of the industries in UK such as the tourism industry. The MENA Report mentions that nearly1000 tourism businesses in Scotland were funded in a total of 7.8m in European Regional Development Funding since 2015 (MENA Report, 2016). This initiative helps SME’s tourism businesses to internationalise and immerse into new markets. Conversely, the tourism industry in Scotland may no longer being prioritised by EU funds once UK is confirmed to leave the EU hence may lead to financial crisis for the firms. Arguably, capital shortage will incur high cost of production and limit the firms’ ability to engage with Research and Development (R&D) which may reduce the competitiveness of the industry to attract more tourists around the globe. Moreover, the employers may slash more workers to reduce the cost-pressure of hiring them when there is not enough money to pay the salary. Therefore, to overcome this problem, the frontrunners have to seek for other alternatives in order to get enough capitals to support the business because small firms are not easy to make bank loans unlike the big firms do. It may take some time but this is the reality that SME’s have to deal with when Brexit happens.
Another downside of Brexit is the slump of pound has made costs expensive towards producers especially the net importers. The weakened currency recently has shown the capability for the pound to acquire another currency drops drastically (see appendix 1 and 2) where exports are getting cheaper and imports are becoming expensive. The worst industry that has been impacted by this tremendous change is the export-import businesses such as freight industry. Ian Brexter, a founder of Brexter Freight says that “…we’ve been impacted by the near 20% decline in the value of sterling this year” (Isaac, 2016). He explains how his small-sized business has to deal with high costs in euros amidst the earning in pounds that causes huge expenditure to be altered to the consumers in the UK. They had no choice but to distribute the costs to buyers who demand for imported goods. If this matter is prolonged, people may lose their interest to consume the imported goods thus remain loyal with domestic goods. To highlight the points, freight industries may lose some of their potential customers to use their freight services in the future onwards. The awful part is when the producers have to bear with the establishment of customs clearance procedures where it is time consuming to settle things down. Moreover, it will incur payment of duty which raise the costs even further.
Nevertheless, few firms do acknowledge Brexit as a good chance to grow successfully. First and foremost, the weakened currency eventually secures the exports industries to receive higher demand. It is undeniable that imported goods are getting expensive and Britain will opt to spend more on domestic outputs. In addition, the change in consumption habits subsequently will attract the people who lived outside UK to consume the goods and services provided in this country as well. For instance, in the service exports such as tourism, people will start to compare the service charges imposed by UK producers which are much cheaper than other countries. Robert Allan, who is the owner of Elphistone Hotel says that the weaker pound has made his business as an affordable place for the tourists (Isaac, 2016). The business is currently operating in Scotland to serve the tourists that choose his place as their holiday destination in the centre of the Burgh of Biggar (The Elphistone, 2017). This shows how the opportunities come to support the exports service in United Kingdom although arguably the EU funds that hugely finance the tourism in Scotland may come to an end once Brexit occurs. Another example shows how a pest control firm Rentokil Initial could make an extra of £15milion last year due to a weaker currency (Rentokil Initial, 2016). The company earns approximately 90% of revenues from outside the UK with insignificant cross-border trafficking (Rentokil Initial, 2016). Nonetheless, the level of competitiveness among local producers in the UK will increase due to high demand when pounds slump. Consequently, this will encourage more entrepreneurs to immerse themselves into business thus contribute to the economy growth. As what urged by Prime Minister in her recent speech, the UK should support the growth of its export markets for a significant increase in its trade with other parts of the world (Independent, 2017).
Another advantage could be that Brexit will minimize the burden of UK producers in terms of costs production. Once UK leaves EU, the country is no longer being restricted with the EU laws of employment. As what written in an article posted by a small business in the UK, Ashley HR claims that Brexit will reduce the costs of the small firms because this type of organisation has slightly less resources as compared to the big firms hence they are not investing a lot of money in the production line (Ashley HR, 2016). Moreover, the removal of the EU employment laws will give some flexibility for the business administrations to intervene their own rules which will be convenient for the employees and the employers as well. As what listed on one of the 12 objectives outlined by Theresa May, it is better for the country to take care their own affairs (Independent, 2017). However, the intervention of new rules will take some time to be agreed by the labour party in the UK. Furthermore, not all producers are voting to leave the EU hence they will be reluctant to follow the new rules and will cause minor conflicts among the stakeholders who opt to leave the EU.
Conclusion
In a conclusion, the arguments that have been delivered throughout this essay show how Brexit influences SME’s organisations in the UK. Personally, I do stand with Brexit because it offers new brand to improve the economic level. All firms have to aware and stay alert with any possible events that may take place in the future either in a good way or the other way round. Although the final decision has not yet been made, some signs due to this decision have significantly affected the progress of the economy in Britain especially when the pounds decline tremendously. However, the pros and cons presented are not strongly reliable and still can be argued since most of them are solely based on the assumptions of the possibilities that might occur when UK leaves the EU later. In addition, the sources of the evidences portrayed are written a few months after the historic vote which within the short-term period and does not greatly shows any other consequences. Hence, the appropriate time length to observe and discuss further on this issue should be made after a few years Brexit has been declared so that thorough and detailed information can be reached. Some suggestions for the SME’s in UK to stand sturdy in the economy is by increasing their confidence level to compete with one another because it helps them to invest more in R&D thus boost their performance level. Moreover, it helps firms to recruit more high-skilled workers which then will help to strengthen the quality level of the outputs produced as well as promote economic growth in the UK despite the uncertainties that might occur in the upcoming days.
(1533 words)
Reference list
Ashley HR (2016) ‘EU out Vote Could Result in Worry for Workers, But Relief for Small Businesses’ http://www.ashleyhr.co.uk/eu-out-vote/ [accessed Jan 21st 2017]
BBC News (2017) Jan 24 ‘Brexit: All you need to know about the UK leaving the EU.’
http://www.bbc.co.uk/news/uk-politics-32810887 [accessed Jan 24th 2017]
MENA Report (2016) ‘United Kingdom: Brexit Funding Threat.’ http://search.proquest.com.ezproxy.lancs.ac.uk/docview/1844778688/fulltext/BB130615AE704DB5PQ/1?accountid=11979 [accessed Jan 2nd 2017]
Rentokil Initial (2016) Interim Results 2016, July 28. p.7
http://www.rentokil-initial.com/~/media/Files/R/Rentokil/documents/2016%20Interim%20Results%20transcript.pdf [accessed Jan 22nd 2017]
The Elphistone Hotel (2017) ‘Our Mission Statement’ http://www.elphinstonehotel.co.uk/about.html [accessed Jan 18th 2017]
The Telegraph (2016) August 24 ‘The impact of Brexit on small businesses revealed.’
http://www.telegraph.co.uk/connect/small-business/impact-of-brexit-on-small-businesses/ [accessed Jan 22nd 2017]