Voters go for Brexit -- so what's next?

At Atlantic Leap our focus is on simplifying international expansion. With yesterday’s vote in favor of Brexit, things just got a lot more complicated.

Events are still in flux as we write this, and are likely to remain uncertain for a while, as there’s no clear roadmap for a country to leave the EU -- it’s never happened before.
Nevertheless, it’s not too early for business leaders to try to make sense of the implications of the United Kingdom’s vote to leave the European Union. 

Here are our top takeaways:

Currency

The British pound plunged roughly 10 percent in the immediate wake of the Brexit vote, hitting levels not seen since the 1980s. If you’re an American company seeking to invest in growing a UK operation, things just got a lot cheaper. If you’re a British company seeking to expand into the US, your pound now buys substantially less.

The pound has also fallen against the Euro -- but in the long-term the health of the Euro must also be questioned as its strength depends on that of the European Union itself -- and the news this morning suggests that the EU has much work to do to address the structural and philosophical concerns that underpinned the British vote.

Stock Markets

Stock markets this morning are volatile -- more than £100 billion in value was wiped off shares on the FTSE 100 as the market opened. Things are likely to stabilise as the initial shock wears off, but they may well stabilise at lower levels as the market prices in long-term uncertainty as Britain begins to negotiate its departure from the EU. 

For companies seeking to raise funding or for those nearing closer to a potential liquidity event, access to capital is likely to become more limited in the near- to medium term. Investors are likely to be more cautious, resulting in lower valuations for those that can get funding, and the need for startups to manage cash more carefully under the assumption that funding will be harder to come by.

Regulation

With its more liberal regulatory environment, Britain has been a counterweight to the greater regulatory zeal found on the continent. We agree with Ben Thompson of Stratechery, who said that more hawkish regulators in France and Germany are likely to feel more empowered to go after the big tech giants on matters such as privacy and antitrust. 

Longer-term, businesses will need to understand the implications for harmonizing their business activities across Europe. Currently, a “financial passport” allows companies registered in one EU country to do business freely across all EU countries. As Britain negotiates its exit, this is likely to change. UK-registered companies may find they face new limitations on their ability to operate in EU markets.

For new entrants to Europe, this may mean setting up their European headquarters in an EU city such as Berlin, Paris or Dublin.

Immigration

Immigration was one of the driving issues in the Brexit debate, with pro-Leave campaigners finding it the argument that resonated most with voters. Now that Brexit has won the day, it’s likely that controlling the borders will continue to be a central issue as Britain’s departure from the EU is negotiated.

Companies accustomed to bringing talent readily across borders into the UK may find this ability restricted in the future. With much tech talent originating from overseas, it may become more difficult for UK companies to source the specialized talent they need. Working remotely, and an increase in the deployment of virtual teams, may provide an alternative.

This is an area of great uncertainty, as Britain’s ability to negotiate new trade deals with Europe may depend on its acceptance of some freedom of movement. This may not sit well with many Brexit voters, so expect much delicacy regarding the immigration issue.

Politics

The Brexit vote, although not a complete surprise, is nevertheless a huge shock to the European Union as an institution, and to the centrist governments that have long supported it. European political leaders will scramble to understand and address what went wrong. 

The vote may further empower the more right-wing populist movements that have been ascendant elsewhere in Europe -- such as France’s National Front and the Dutch Party for Freedom. Indeed, Party for Freedom leader Geert Wilders called this morning for a Dutch referendum on EU membership. Brexit might trigger a domino effect that sees other countries also voting on whether or not to leave the EU.

Fear of such a domino effect is likely to cause the EU to negotiate hard with Britain, seeking to set an example that would discourage other countries from following a similar path. Immigration will also remain a hot-button issue in Europe, potentially making borders less open than before.

Leadership changes are inevitable -- as evidenced by this morning’s announcement that British Prime Minister David Cameron will step down. There will be a new British prime minister later this year and it would not be surprising if the Conservatives bow eventually to pressure for another general election -- although their absolute majority in Parliament may enable them to hold out for several more years.

Scotland voted heavily for Remain and they will not easily accept being dragged out of the EU by English voters south of the border. Therefore, expect to see calls for a new referendum on Scottish independence. This is not likely to happen for a few more years, until the dust settles on the terms of a British exit from Europe and until Scotland’s ruling Scottish National Party can be sure that a referendum will pass. But if and when it happens, the outcome may be that Scotland leaves the UK and applies independently to rejoin the EU.

France and Germany both will see elections in 2017 and these will be closely watched. If momentum swings toward populist parties, all bets are off regarding the European project. 

If the Brexit vote is viewed as a harbinger of renewed populism and anti-establishment sentiment across the landscape of Western democracies, it may also suggest that Hillary Clinton may have her work cut out for her if she is to defeat Donald Trump for the US presidency.

Atlantic Leap is always focused on charting the best course for its clients as they expand internationally. Contact us if you’d like to brainstorm scenarios and implications for your international expansion.