In this jeopardized business environment, globalization has created adverse impact on overall performance at global scale. Globalization refers to the increasing trend of interaction between people and companies within worldwide scale. With the intense transformation within technology and global trend of business, organization has faced both positive as well as negative consequences. This report will enlighten the key trends in trading service between commonwealth countries for understanding this substantial impact. Impact of Brexit in the UK aviation industry will be narrowed down to understand current link of economy as well as global business performance. Difficulties in Multinational bushiness preference will be analysed to identify the field of business improvement.
Key trends of goods and services are required to be analysed for understanding following status of trade in common wealth countries. These key trends are as follows:-
The reflection of these keys is indicated in trade through import as well as export propensity. As per report of 2013, combined exports of goods and services are valued at $3.4 trillion. Here 53 commonwealth members are combines and 15% of total world exports have been visualised. Since 2000, members have collectively grown their share just above 50 percent. In this landscape, growing significance of developing countries in the world economy has presented vast trading opportunities for the commonwealth members. In China, commonwealth member’s trade expansion is assumed as spectacular nature. Average 12 percent of commonwealth goods import is sourced from China (thecommonwealth.org, 2015).
Figure: Exports share of goods and services in commonwealth countries
(Source: thecommonwealth.org, 2015)
Impact of key trend in the commonwealth countries from the scenario of business economy
According to Taylor Buck and While (2017), commonwealth members have fully recognized the value of international trade from the angle of achievement on social as well as economic progress. Social, economic as well as fundamental changes have been taken place in the global trade, which influencing the direction of trade. Such changes are mainly driven by the factors of Global value chain or GVC. As per the opinion of Cocks (2016), lack of dynamism in trade multilateralism has created impact on business actions. The global economic slowdown has been visualized during the global financial crisis in 2008 (ons.gov.uk, 2017).
At that time world economy was less than 3 percent in comparison to average growth of 7 percent. Now the contextual analysis is required for understanding this changed rate from the dimension of global forces. It has significant impact on the trading of goods and services. As per the theoretical demonstration of McKinsey, four global forces are urbanization, technological change, aging challenges and financial connections. Financial connections are related with both trade and people. The countries are becoming much more urbanized. As per the report, 65 million per year rate is visualized in the scale of urbanization. It has been identified that emerging economies are also major forces. By 2025, emerging economies will grow up to 75 % faster. In relation to urban consumer class, 150% increase in annual consumption has been expected between 2010 and 2030 (wti.org, 2015).
Figure 2: Global Forces
(Source: mckinsey.com, 2015)
On the other hand, Seabrooke and Wigan (2017) commented that technological change has also driven significant impact on the business. In the current period, technological breakthroughs are speeding up, where consumers prefer online systems to fulfill their daily needs. In this scale, 14% increase in global workforce has been visualized in proportion to increase in global life expectancy. However, productivity is dependent on this workforce. If the productivity not increased, GDP growth of the developing countries can be declined. The volume of trade, people and finance are increasing and reflected in systematical changes on the economic stability. The trends in the good and service trade have experienced challenges from the globalization. These consequences are increasing interdependence of location and increasing interdependence of firms.
Trade in both goods and services have direction to gain maximum increase on GDP by 2020. In this scale, total value of foreign investment is an integral part. As per the report, United States, East Asia and Europe dominate the global FDI. They are also dominating the global market region of South America, Middle East, South East Asia and Africa. These are increasingly attracting the investment flows. Flows of capital are broadening remote geographies and populations. Financial globalization has also created impact on the cross border lending. As per the current report, some US and UK banks have reduced their foreign business However, new era of financial globalization has maintained more stability, which is effective to maintain higher share of gross capital flows. The commonwealth has made up small part in UK trade. As per the report of 2015, 9% of total UK exports went to Commonwealth in 2015. EU has accounted 53% of UK imports. Before Brexit, UK services export to commonwealth has been tripled from £8.5 billion to £22 billion. Therefore, key trends are the major outline, which have hampered this rater after Brexit in UK.
It has been visualized that the outcome of UK’s referendum on EU membership can display opportunities in UK economy. Travel and Aviation industry has been influenced through international politics as well as trade. Any major changes can create direct impact on every dynamics of these sectors. However, the governmental referendum has created uncertainty on aviation sectors.
As per the report, the country is facing a tradeoff for accessing the European single Aviation market. The immediate impact on the air traffic can be governed through understanding two key variables, which are sterling exchange rate and economic activity. It has been visualized that Brexit has given a negative shock to UK economy.
In this scale, uncertainty has been occurred in the trading and investment decision on aviation industry. This status is occurred due to transmission via financial channel.
Exchange rate impact
UK air market is primarily dominated by the outbound traffic. As per the report of 2015, 53.9 million visits have been recorded. Volatile trading conditions has been occurred while currency become weakened as a result of Brexit. The weaker currency has created adverse impact on the outbound trips for UK inhabitants. As per the report of Guardian, UK aerospace industry issues can be occurred due to lack of Brexit trade deal. In the report it has been analysed that increased border checks can create additional £1.5bn cost (Roberts, 2017). Approx £10bn of annual exports are destined for the EU. The impact of increased customs checks are also an issue for maintain the standard economy of industry. In order to deal with the other country parts across Europe, industry faced expensive tax rate.
Impact of governmental policy
As per the report of telegraph, Government has benne urged to focus on aviation industry in order to avoid hit of trade as well as investment. Various arguments have displayed that the Brexit has significant impact on regulatory framework in aviation trade. For preserving the UK’s air connectivity, government has to ensure a timely renegotiation on aviation treaties. UK’s aviation manufacturing sector has been signaling out due to potential concern of such regulatory policies. As per the report of 2016, the UK’S trade surplus in aircraft parts and aircraft was largest than any other country’s good sector. Aviation manufacturing sector has significant impact on the global supply chain. Economists say that competitiveness of UK sector is dependent on the regulatory barriers during post-Brexit (West, 2017). If now the industry become goes to achieve their vision as global player, the additional tax can penalize the travel to far-flung locations. Development of new airline route between two metropolitan can lead to 4.6 pc increase in venture capital investment (Roberts, 2017). As per the opinion of Schnapper (2015), better transport linkages can enable human capital and investment for accessing more freely across the borders. Such factor can improve the return on investment.
Impact in market access
As per the report, EU is easily can be the biggest destination market that accounts 54% of commercial flights and 49% of passenger flights (iata.org, 2016). UK is very important destination market, where air travelers across Europe are involved but adverse impact is visualized in the share of business operation. In this term issues are occurring from the standpoint of policy freedom. In order to foster cross country travel and manufacturing, industry has faced massive issue in trading actions.
Impact from Cross border business
Therefore in Aviation industry, UK has faced prospect of ‘Hard Brexit’ due to lack of free trade agreement. As per the report, trade relation between UK and EU has hampered the mutual relationship in World trade organization. UK is not dependent on the intra-regional trade, which is displaying that country’s extensive involvement in global spectrum.
On the other hand, Brexit has supported the industry to strengthen the international trading position. UK is prohibited from negotiating bilateral trade agreements with global partners. However, foreign investments can be declined if the Brexit create adverse impact on the economy of other countries. For instance, Brexit can create impact on the Australian tourism (gov.au, 2016). Due to impact of Brexit, customers are not travelling to foreign countries due to their limited income status. This scenario can be analysed from the standpoint of aviation industry. In cross boundary parameter, foreign investment is also a part to maintain trading relationship with other countries. In this scenario, impact of global forces has been visualized in the trade and investment purpose at UK aviation industry (deloitte.com, 2017). In order to resolve the financial as well as operational consequences, long-term planning needs to be structured.
In the current period, competitive advantages are associated with the location strategies of MNEs or multinational enterprises. In this scale, understanding is required on international business. As opined by Lea (2016), this business is related with the transaction across national border for the purpose of consumer satisfaction as well as organizational profit. In this standpoint, foreign direct investment is related with the equity fund, which has invested in other nations. Marketers often have misconception about MNEs. They think organizational ambition is to earn most of the revenue in the overseas business (ecb.europa.eu, 2008). However, they are earning most of the revenue in the home regions. They are not engaging in the global competition but they are involved in the regional competition. As per the current report, more than 50 percent of trade is made by the MNEs (grantthornton.co.uk, 2016).
Vodafone Global enterprise limited is a multinational enterprise and headquartered at London. From the 2007, the organization is serving as a provider of telecom and IT for large corporate customers. Now analysis is required to understand positive and negative impact of Brexit in their business process as a part of multinational enterprise.
Challenges in business operation of Vodafone
After Brexit in 2016, Vodafone has faced major consequence in the field of employment. As per the report, 13000 employees might be in risk due to adverse impact on freedom of capital, people and goods, which are related for the successful business operation. They said that group revenue fell by 3.9% due to volatile foreign exchange movements after Brexit (lse.ac.uk, 2017). Hard version of Brexit has been faced by them on the field of economic consequences that force them to access single market. Therefore, Vodafone has decided to move headquarter outside the UK because of Brexit. They decision is quite shocking as various opportunities are still present in UK marketplace. They think that their cross boundary business will be hampered through changed regulation after Brexit. Vodafone said that they have achieved their growth in the UK market due to free trade policies as well as free movement of people. They have also displayed that 55% group profits in the last financial year from European operations. However in UK this percentage was only 11%. Therefore, they are facing issue in taxation, movement policy as well as flow of capital (Sgeffield, 2016). They think they are losing single market access due to such consequences in business operation. Therefore, they have decided to move headquarter from the current location.
Figure 3: Challenges and opportunities for MNEs
(Source: Sgeffield, 2016)
From this standpoint, it can be said that Brexit has created negative impact on their overall business process to maintain constant flow of capital in single market. As stated earlier, multinational enterprises can get maximum revenue in the home location rather than the external countries. In this case, Vodafone has not gain standard profit level in the last financial year due to impact of Brexit. In this scale certain separation from UK, has made them vulnerable in the single market. Here issue has been occurred due to restriction or modification in cross boundary business process. Therefore, currently organization is not seeing any hope in present UK business after Brexit.
Opportunities in business operation
On the other hand, Brexit has positive impact too. It can create positive environment for the Vodafone through decreasing the market overcrowding. In addition, Vodafone can get rid of multicurrency issues. It will solve the problems for converting the Euros to pounds or vice versa. Due to presence of independent monetary policies, organizations can get standard financial performances. In addition, UK government has lowered the tax on various scales that will foster standard business growth. It is true that Vodafone has experienced massive economical downfall in the period of 2016-2017. However, they have to keep patience for achieving standard business growth in the market after Brexit. It has been visualized that, various positive attributes are remain present in the current market place of Vodafone.
Governmental support is effective here to protect the market stability of Vodafone in the UK market. Competitive force is also an important factor to understand market performances. In this context, Brexit will provide them scope to be dominant at the market level. The organization is listed in FTSE 100 index and they have achieved positive growth at all level. In the UK market, positive economic viewpoint is visualized in the scale of employment, sartorial growth as well as GDP. From this view organization can face positive opportunity to maintain long term growth. Current market stability is not as per the CEO expectation, but there is a chance to get positive business dimension. Organization has to take initiative on the internal business process through supervising as well as recognizing the gap in the performances due to modified governmental referendum.
It can be deduced that due to impact of transformed global trend of business, organization has faced both positive as well as negative consequences. In this case, major key on trading of global business has been understood. These keys are related with the substantial constant flow of capital, market share and volume. These keys are the indicator in trade within import as well as export propensity. Through understanding the impact of these keys, growing significance of developing countries in the world economy has been understood as vast trading opportunities for the commonwealth members. Changed trend of trading has been criticized through McKinsey model. These model highlights four global forces, which are urbanization, technological change, aging and financial connections. It has been analysed that Before Brexit, UK services export to commonwealth has been tripled from £8.5 billion to £22 billion. Now the global business pattern can be directed on negative dimension if the financial risk can be emerged. In the current period, Brexit has created negative impact on the overall business process due to changed dimension of regulation, business policies, as well as economical stability. In the analysis of current UK aviation, industry impact on trading as well as investment has been realized. Report has identified that the UK is facing a tradeoff for accessing the European single Aviation market. In this scale, uncertainty has been occurred in the trading and investment decision on aviation industry. On the other hand, opportunities and challenges in post Brexit period through considering case scenario of Vodafone, which is multinational enterprise. Based on this analysis recommendation has been suggested as follows.
Recommendation for aviation industry
Recommendation for Vodafone as a MNE
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