By Kathy Ruff
Globalization has ebbed and flowed for millennia, intermittently expanding or reducing. Britain’s decision to withdraw from the European Union (a/k/a Brexit) and the election of Donald Trump as president of the U.S. mark a turning point for changes to globalization.
Observers remain uncertain what will occur internationally, but many agree the world will change.
“As far as Brexit is concerned, our trade with them is not going to be that much disrupted,” said Michael Horvath, senior international business development manager for the Northeastern Pennsylvania Alliance, Pittston. “But if a company was using U.K. as a landing place for their products to go into Europe, then that could be somewhat of a problem because England is going to have to establish trading agreements with the European Union and maybe each individual country.”
According to Horvath, a recent decline in trade between the U.S., England and Europe resulted from a sluggish economy and a more favorable exchange rate of the euro compared to the dollar.
“(Tourism) was a bargain a year and a half ago when the euro was at $1.20 to $1.30 versus the U.S. dollar,” he said. “It was very cheap to come over and enjoy what the U.S. had to offer as far as tourism attractions and things like that.”
Combined with lower exchange rates, President Trump’s travel ban and immigration stance could also deter some European travelers from coming to the U.S.
According to the U.S. Travel Association’s Travel Trends Index, international travel to the U.S. actually grew faster than domestic travel in February. But the association’s economists predict a drop-off in the international travel industry going forward.
“As far as trade goes, there are winners and losers on both sides,” Horvath said. “It could hurt the auto industry because a lot of parts have to come in from overseas to be incorporated into the auto that’s being manufactured either by a U.S. manufacturer or by a foreign manufacturer. Then there are going to be some companies that will definitely benefit by having things purchased in the United States if they could find a manufacturer to purchase those things or have somebody ramp up their production for that new product.”
Analysts agree Britain will also see changes to its trade environment over the next few years.
“Businesses that have subsidiaries in the U.K. will experience more and more difficulty over time selling goods and services in the EU,” said Brian Schaitkin, senior economist with The Conference Board, New York. “In addition, a large part of the reason why you’re seeing this hard Brexit is the U.K.’s desire to control immigration from EU countries. As a result, transferring workers between Britain-based subsidiaries and subsidiaries based on the continent is going to become harder once Brexit is fully implemented and Britain is outside of the EU.”
Schaitkin also expects American firms using London-based banks to encounter more difficulties conducting certain types of business without England’s privileged access to the EU’s financial markets.
“So from the financial perspective, from transferring worker perspective and from a non-tariff barrier perspective, those are all going to be issues companies that operate both in Britain and on the continent are going to have to face.”
Companies may also face trade challenges in the U.S. as Trump revamps its trade policies.
“It’s not necessarily a new direction in terms of trade policy,” said Schaitkin. “Early on there had been a realization that international supply chains are delicate and that disrupting trade relations would have adverse effects on the economy. As a result, you have not seen as dramatic a departure of previous trade policies as you might have expected. However, I won’t expect any new trade agreements to be ratified down the road.”
Observers expect changes to Britain’s trade agreements as it moves forward with its exit from the European Union.
“In the short-term, we’re seeing spotty demand,” said Frank Mataro, vice president of sales and marketing for Silberline Manufacturing Co., Inc., Hometown, Schuylkill County. “Europe is still reeling from what were pretty sluggish economic conditions over the last couple of years. The Brexit thing isn’t helping. Consumer confidence is not high.”
Mataro sees some effects today on Silberline’s business because of softening currencies.
“With the Brexit vote coming out, the pound has weakened,” he said. “We have seen weakening in the euro also, which makes a strengthening dollar, which makes our products more expensive for export.”
Silberline has a plant in Scotland, where its manufacturing costs are in pound sterling, as well as one in China and three in the U.S.
“What was a relatively easy move from a plant in the U.K. to the EU may be harder when Brexit is complete because trade conditions between the U.K. and the EU may change. “ Mataro said. “We may have a different set of rules to work under and we don’t know what those are going to look like yet. The good part is we have a plant in that theater. The bad part is that things are changing.”
What does that change mean for American companies in or anticipating entering the global marketplace?
“If you’re going to be exporting products from the U.S. to anywhere else in the world, you better understand your value proposition,” said Mataro. “You better understand why those customers are going to buy from you. With all the associated freight and duties, in order to get the kind of returns you need, you better be offering products that customers want and that has a value proposition that exceeds what they can buy locally.”
Schaitkin also offers some guidance for companies to succeed internationally despite changing conditions.
“It’s critical that businesses figure out how they would adapt links in their supply chains if trade policies changed and as a result reliable suppliers are no longer accessible, to have scenarios of how you can move more of your supply chain,” Schaitkin said.
Planning for alternate contingencies may ensure business continuity.
“There is no magic bullet,” NEPA’s Horvath said. “If you are just an exporter, I don’t think it’s too much to worry about. If they are on the import side, it’s going to be affected and how much a company realizes on imported products.”
The Northeastern Pennsylvania Alliance offers assistance to companies that are considering going global or expanding abroad to understand the benefits and challenges of international trade and navigate through all the rules and regulations that go with doing that.
“If it’s a newer company, learn as much as you can,” he said. “Get to market and develop your relationships. If you’re already involved in
international trade and see the benefits, if you know what you’re doing, keep on doing it and don’t stop. Figure out ways that you can still make your product cost-effective and competitive for consumers in that market that you are in to be able to continue to buy your product. Stay on top of everything that affects your particular industry and the product that you manufacture.”
While companies going global may face
ongoing challenges, Mataro remains optimistic.
“The good part is there are still opportunities,” he said. “There’s growth potential (with) 300 million people in Western Europe and there are lots of opportunities for offering the right products and services. It’s just going to take a somewhat
different perspective than we might have from all of the uncertainty that’s coming from all of this activity.”