Implications On The Pharmaceutical Industry

Critical Analysis of the Implications of a ‘No-Deal’ Brexit on the Strategies of UK International Businesses

For about two decades ago, engagement of trade between the UK and the European Union has notably flourished. The trade has been built on the thresholds of free movement of labour, services and capital without restrictions, which indeed was a great source of competitiveness and success. On 23rd June, of 2016 the United Kingdom voters diverted such privileges, ushering into a new era where these trading agreements are not only going to be different, but also new. The formal withdrawal process commenced when Article 50 got invoked on the 29th March 2017, which rendered the UK until the 29th March 29018 to ponder over the exit (Goodwin, and Heath, 2016). The Brexit is deemed to induce positive and negative implications in the UK’s business sphere particularly on the Pharmaceutical industry, which this essay intends to critically explore, while drawing arguments from scholarly theories and concepts learnt in this module.

According to statistics given by the Office of National Statistics, the United Kingdom’s current account deficit broadened by 6.6 billion pounds to 26.6 billion pounds in the third quarter of the year 2018( July to September); with these figures being a manifestation of a 4.9% of Gross Domestic Product. The factors contributing to the deteriorations of the current account balance are owed to worsening trade, primary income and secondary income balances (Regmi and Timalsina, 2018). Primary income balance deficit reduced by 3.6 billion pounds to 11.1 billion in the third quarter of the year 2018, which was as a result of increment in profit margins from investors overseas. Additionally, the United Kingdom’s trade balance deficit widened by 1.8 billion to 8.8 billion pounds and this was owed to the decline in the UK’s decline in trading her surplus services. The figure of the UK’s international liability experienced a dropout in relative with the assets dropout which led to the UK’s net liability reduce to 113.7 billion pounds at the end of the third quarter of the year 2018. Notably, in the third quarter of the year 2018, the United Kingdom attracted a net financial inflow to be incurred in finance her current and capital account deficit. This attraction was capacitated through the act of the United Kingdom divesting foreign equities, net portfolio investment inflow, and the increment in debt and equity security liabilities yielded by the home residents with the overseas world (Ansong, 2018).

Over many years, the UK has enjoyed trading partnerships with the countries that are inscribed within the European Union, while enjoying the sap of the European Single Market that paves room for free movement of labour, people goods and services. There are no tariffs imposed on imports and exports of goods and services (Giles, 2017). The UK has also continually benefitted from other free trade agreements provided by the European Union which have seen through successful trading between the UK and other non-European Union countries, such as the United States of America, China, Switzerland, United Arab Emirates, South Korea, Norway, Canada, Japan, Singapore, and Qatar. The United Kingdom’s imports from the European Union, and non-European market is varied, and includes motor vehicles, mechanical appliances, electronic equipment, pharmaceutical products and plastics. Her exports comprises of products such as motor vehicles, mechanical appliances, mineral fuels, precious metals, aircraft parts and beverages (Hobolt, 2016).

The balance of payment transactions are broken down into three elements; the current account, the finance account and the capital account. The current account of the UK demonstrates how goods and services flow in the context of regional and international trade and owners of financial assets, and also the current transfers between the on-residents and residents. The agglomerations of such accounts add to current account balance. The capital account showcases the measure of the foreign investment inside the country, and the country’s investment abroad. The balance account reveals the sorts of transactions which result into inflow or outflow of foreign exchange deals such as loans given to foreign nations, and sales of assets to foreigners. The differences value of credit and debit balances arising from such transactions constitutes the balance on capital account (Johnson, 2018).

The United Kingdom has had her strengths in the past years concerning the ability to produce and export surplus goods. The existing statistics in literature demonstrates huge strengths in machinery and pharmaceutical production, but also in paper, crude and textile products. The European Union market provides a major strategic market for such produce (Greenaway, and Milner, 2016). The sources of strengths have been the ability to manipulate important factors of production including labour and raw materials particularly in the field of pharmacy. The United Kingdom is currently faced with a challenge concerning how public policy can effectively help the country’s firms amidst the impending Brexit, so as to continue with the glory of pharmaceutical production (Dzienis, 2018). But this also is a suitable opportunity to unravel alternative opportunity to ignite the business opportunity behind Europe, and look for alterative trading partners in Africa, Asia, South America and other continents, which will therefore rekindle the concept of globalization and international trade to the rest of the world through trade.

Upon any emerging turbulent force in the realms of economics or politics, the sterling pound normally has to fluctuate. The Brexit is such a force that can trigger such a fluctuation. In the eve of the decision to exit, the sterling depreciated from 1 pound to 1.3 euro to I pound to 1.6 Euros that night Brexit was conceived. The pound has been shifting ever then, but again has not recovered to the position it were before the referendum day.

The current trade arrangements between the UK and the European Union offer an excellent ground for the thriving and continuity of benefits associated with the common European market. (Karayianni and Foster, 2018). As a full member of the EU the UK still enjoys the Union’s stipulated measures that ensure member countries trade together in an easier manner through their informed systems such as reduced paperwork, harmonized standards, and the use of a single currency in trading. Harmonized company laws also dictates the operations in trade in Europe which has induced ease in accessing funding, more vivid legislations, shareholder protection and reductions in administrative burden on firms and businesses. The fateful Brexit will thus disintegrate the United Kingdom from such advantages, and fumble through a vague future in the pursuit to settle on stable economic grounds (Kierzenkowski et al., 2016).

The World Trade Organization rules and frameworks that govern the organization are broad and detailed, and deal with various domains such as agriculture, clothing, telecommunications, industrial standards, textiles, banking, food sanitation, intellectual property and product safety. After the official Brexit, the United Kingdom may opt for engagements with the World Trade Organization for the purpose of trade, and therefore it ought to subscribe to their custom and philosophies (Schwöbel, 2018). The different principles governing the World Trade Organization are the basic foundations of multilateral trade system. The indulgence into the organization will have a number of impacts on the economic strengths of the UK especially on their areas of economic specialization, including a broad pharmaceuticals exports market.

One of the principles governing the WTO is demands for Trade without any form of discrimination. In view of this premise, the United Kingdom will operate on the threshold of free and fair trading opportunities free from prejudices and discriminations. No form of discrimination is encouraged between trading partners, such as lower customs duty on some selected partners or nations. This framework is deemed to insert advantages to the economic framework of the UK, through expanded market choices globally (Hawkins, 2017).

The World Trade Organization is also governed by the principle of “freer trade: gradually through negotiation”. The tendency to lower trade barriers is the utmost forum of encouraging trade (Barrell, and Pain, 2017). Through periodic negotiations, the alleviation of barriers through negotiations has expanded to include non-tariff barriers on goods and to relatively new areas such as intellectual property and services. Opening of new markets is deemed advantageous by World Trade Organization, but this again requires adjustments. The WTO agreements permit traders to induce changes slowly through progressive liberalization. The changes may incline to advantage the UK in obtaining better chances in the realm of world markets and therefore improve her economy and trades rapidly.

The two other vital principles governing WTO such are promotion of fair competition, and encouraging development and economic reforms; are likely to improve the manoeuvrability of the United Kingdom amidst the Brexit turmoil (Iloh, 2018). The United Kingdom can optimize on her strengths and enjoy such privileges to maximize the business capabilities on the global map; based on the premise that the World Trade Organization jurisdictions are not suppressive. For instance, the principle that encourages development and economic reforms can be a critical basis for enacting effective transformations in the trading arena, which can promote economic healing and gaps created by the withdrawal.

The Brexit has diverse view concerning the stability and strength of the Sterling Pound relative to other currencies. The advent of Brexit will tend to depreciate the British Pound against the euro, but appreciate the Sterling Pound against the euro. The Brexit has a deep attachment with the sterling pound strength, in which the exit will induce some negative implications. Additionally, the possible effects and opportunities of Brexit surpass many elements of the supply chain which are central to profitability and competitiveness (Skoglund, 2018). The areas of supply chain likely to be affected include tariffs, grants and incentives, lead times, supply chain hubs, Value Added Tax, Legal frameworks, and customs. The events that triggered the Brexit revolve around economic and political life of the UK which thus makes it difficult to clearly isolate the potential impacts on exchange rates. Traders in British Pound, UK government bonds and other assets ought to plan familiarizing with different alternatives and determine the kind of assets they need to sell or buy prior to the Brexit.

Additionally, the Prime Minister, Theresa May, notes that the short term impacts of the Brexit without laid preferential agreement on future trade ties sheds unpredictable state of the UK’s economical progression. The UK, according to the Prime Minister, Theresa May, observes that the continuity of a nation will rest on the decisions by the legislature concerning the demands by the union in the withdrawal agreement (Giles, 2017). Although tariffs in sectors such as pharmaceutical production sector and other hard-hit sectors will escalate, the government ought to intervene for compensations. The exit without deal will imply that the nation will not incur the 40 billion pounds as divorce fee. The money will be invested to offset the most negatively affected sectors. Moreover, exiting without deal will impact negatively on the pound, and the export sector. This intends to push up inflation that was apparent following the referendum, and constrict the consumers’ incomes, which will consequently lead to imposing tariffs on the European Union, thus raising the import prices (Pinker, 2017).

Over the looming Brexit, the pharmaceutical company is consequently preparing on how to prepare for and indeed absorb the shocks of the future inefficiencies and detrimental effects of the exit. There is no concrete literature, demonstrating the ways in which this multinational is undertaking these strategies. There are no noticeable trends showing how the multinational companies are striving to accommodate the impacts of the exit, but apparently are in entrapped waiting to see and experience the effects so as then to draw procedures for remedy (Inglehart, and Norris, 2016). Additionally, the pharmaceutical multinational company is afraid of drawing legitimate strategies based on historical data which may be irrelevant in due course. Alternatively, the company is not clear with the spillover effects such us on regulations, currencies and costs which intend to impact the sector.

Waiting for the opportune information to trigger action may be detrimental and a risky strategy since informed clarity may come but too late, to decide on an appropriate course of action. The observable nature of the Brexit seems to be an issue of time, to induce the opportunity for both the union and the United Kingdom to ascertain about the moves to make. It is reasonable that by April 2019 there would not be any relevant information. The companies tend to risk running short of time in preparing for changes likely to impact more on businesses.

Depending on historical literature, is detrimental too. For instance, Ahrens, Dobrzykowski, and Sawaya (2018) argue that a company that supplies, say, supply of pharmaceuticals to private hospitals, may find itself less affected by the Brexit directly; but her consumers are seeing more consumer price sensitivity, rising operating margins, and labour costs; all which are inserting pressures and, therefore, transferring costs to the customers. Historical judgments may therefore become irrelevant in the face of future real events and situations surrounding the exit. Consequently, the Brexit complexity may induce analysis paralysis and a proposition that planning is meaningless (Regmi, and Timalsina, 2018).

To plan for the Brexit, multinationals should avoid applying quick fixes for the mitigation of short-term operational risks such as financial hedging to control dynamics in exchange rates. The companies needs working partnerships and groups that continually assess the looming impacts of the Brexit to draw strategic plan for the country’s businesses, and a plan which is flexible, and simple to track. In this strategic plan, the following recommendations are on offer (Bartková, Veselovská, and Zimermanová, 2018)

First, pharmaceutical company ought to comprehend the extent by which it is exposed and endangered of the Brexit. There is a need to understand the fundamental effects of the Brexit on their business in terms of supply chain, exchange rate, competition, and demand dynamics; and their supply, customers, logistics and stakeholders chains.

Secondly, create a strategic Brexit team. After an in-depth mastery of broad exposure of Brexit to the business, then there is a need to create a team mandated with the designation of the strategic plan. The team should represent areas deemed to be affected by Brexit such as supply chain, marketing, and governance.

Thirdly, develop an understanding of possible scenarios. Scenario planning around related developments and the country’s economy. Every scenario ought to be assigned a probability of risk occurrence and the extent of the impact the scenario will cause to the sector.

Fourth, carry out a detailed impact assessment. After the enactment of primary areas prone to risks, it is crucial to assess the type, timing and level of the probable impacts. The impact assessment will help identify risks that need prompt audience.

Fifth, model costs and demand based on Brexit. The essence of modeling is to form a basis for determining how sales and costs will survive amidst the Brexit.

Lastly, evaluate the value premises, act and then monitor. At this stage, the enterprise is better placed to enact decisions evolving on pricing, supply chain management and product portfolios.

This essay concludes by instilling emphasis on the proposition that Brexit will pose both opportunities and challenges in the world of business in UK. As presented above, any forms of economic or political perturbations within the European Union constitute equal impacts in member country, and so does the Brexit. As demonstrated above, the United Kingdom’s pharmaceutical industry needs a strategic plan that need to see it through the future, especially when the impacts of the exit are not clear. In addition, the government of the day ought to streamline the country’s competitiveness, and reflect on the quality of the business environment and the capabilities therein for more ventures that promote domestic businesses.

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References

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