On Friday 6/25, we awoke to the screaming headlines about the citizens of the UK voting to leave the EU. Brexit was a reality. All the experts and the polls were wrong! Leading up to this there was tremendous volatility in financial markets and uncertainty about the impact of Brexit on global financial markets and business. Business executives that we have been working with have displayed the “deer in the headlights” look: strategically frozen in place while waiting to see what happens. Now what? The vote is done and British citizens have taken back control of their country with a hope of having a say in how Britons will live rather than having to live with the strangling rules and regulations created in Brussels. It will take a long time for England to secede from the EU and their business leaders as well as global companies who do business in England and the UK are going to be strategically frozen for the next couple of years.
Donald Trump says US citizens want to “take back control” as well and we know that governments in China, Mexico and other countries are already demonstrating this behavior in various different ways through tariffs, business restrictions, protectionist attitudes toward various industries, onerous ownership rules, etc. We already know that future free trade agreements are unlikely and that global business will become more challenging and costlier. Consider this quote from an online article from a Wall Street Journal article posted on Sunday 6/26:
“The British decision is expected to hit the U.S. economy in at least three key ways: It will strengthen the dollar, weigh on business confidence and tighten financial conditions. All of that will saddle American businesses and investors, particularly those with a strong presence abroad.”
What is going to happen in the US and other countries such as China and Mexico as globalization continues to wane and protectionist attitudes continue to grow? This is a critical question that needs to be addressed in every board room as protectionism and disengagement continues to gain momentum throughout the world. Note: (For those of you who think that this won’t happen in the US, consider how badly the experts have gauged voter sentiment on Brexit, our current presidential race and safe tax havens. Voters have put current politicians on notice and drastic change will be the result.) We don’t believe that this trend is going to be reversed. We believe it is going to accelerate and significantly impact companies who have globalized over the last few decades: large and small. Because of this, the phrase “Think global, act local” is taking on new meaning.
Business is going to become more expensive through protectionist behavior by the new governments that are being established around the world. Brexit is just the start. The result will be that locally produced products and services will be much more competitive with products that come from low cost regions. We believe that we are going to see it in the US and are advising our clients to look closely at bringing back production to the US or Mexico and positioning themselves to take advantage of these changes as they occur over their strategic timeline. It will require strategies that are focused on leveraging local supply chains to serve local customers everywhere in the world.
Jim Gitney is the CEO of Group50® and specializes in Global Initiatives: Supply Chain, Manufacturing and Distribution and Market Effectiveness. Jim and the Group50 team are all former executives with well-known manufacturing and distribution companies who understand what it takes to significantly improve Customer Service inside a company. Group50 has designed a series of strategic assessments, workshops and strategic execution tools that provide management teams with key insight to their business and the support required to effectively implement major strategic change. You can reach Group50 at (909) 949-9083 or send a note to email@example.com.
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