Learning from Brexit

resize_Brexit_12125695

According to Canadian Minister of International Trade Chrystia Freeland, the decision by a slight majority of British voters to separate themselves from the European Union, and all its economic benefits, will actually be a good thing for Canadian trade because it will help Ottawa finally close the Comprehensive Economic and Trade Agreement (CETA) negotiated with the European Union years ago.

“CETA ratification is on a much faster track. We’re anticipating that CETA will be signed in the fall and will be ratified early next year,” Freeland told Bloomberg as the global economy reeled from the unexpected Brexit decision in late June, adding, “There has been absolutely no interest — none at all — from any of our European counterparts in reopening CETA in any way.”

Now, it is never too early to speculate, especially if you are only interested in guesstimates. But when it comes to CETA, plenty of trade experts see Freeland’s optimism as political wishful thinking.

Simply put, what happens to the much-hyped-but-not-even-close-to-ratified trade pact now that the European Union is distracted by divorce proceedings is a very open question. In other words, nobody really knows at this point whether or not the Brexit vote — which might not actually lead to a separation — will be good or bad over the long term for Canadian exports, not to mention the loonie. We also, of course, do not know if the Brexit vote will lead to a Frexit vote or a Nexit vote or a Gexit vote.

What we do know for certain is that the level of uncertainty in world affairs is now much higher than when everyone insisted a Grexit by Greece would be a major blow to the global economy. After all, British GDP is much larger than Greek GDP. And heightened uncertainty is where the immediate lessons from the surprise Brexit vote can be found for both the public and private sectors.

For example, Canada is a trading nation that isn’t actually great at negotiating trade deals with external partners. And because global and regional free trade talks were already stalled prior to the Brexit vote, federal and provincial politicians should finally seriously work together to take down internal trade barriers that hamper economic growth. According to one call for more free trade in Canada published by the Financial Post earlier this year, removing internal trade costs could boost Canadian productivity by as much as seven per cent — adding roughly $100 billion to our economy while cutting the Canada–U.S. productivity gap by a third.

While attacking internal trade barriers, federal and provincial leaders should also work together to help Canadian firms raise their game in investment attraction, following the lead of best-practice jurisdictions as outlined in Investment Attraction: Learning from “Best Practice” Jurisdictions, a recent research paper by the Ivey Business School’s David Moloney and Sandra Octaviani.

For corporate leaders, the lessons of Brexit are all about planning for unexpected events — a prevailing characteristic of the “new normal” caused by more robust mega-trends created by social, economic and political forces. In the boardroom and C-suite, Brexit should drive business leaders to review existing strategy in this much larger context. Indeed, in the new normal, winning firms will be the ones that pay extra attention to agility when planning overall business models, including a portfolio approach to asset configurations and the particular locations of value creation and value extraction.

While the rise of socio-economic and political mega-trends will not destroy corporations or trade, they will trigger the growth of what we call “no-equity” corporations, meaning businesses that are extremely agile and highly capable in managing across existing and emerging networks, not to mention new boundaries, thanks to reduced reliance on equity-based business models, which are not ideally suited to dealing with complexity derived from unexpected disruption. This will be true even in capital-intensive industries.

The bottom line is that the game is changing. Instead of developing contingencies, leading firms will disrupt themselves to come up with new business models that allow them to stay ahead of the competition. In other words, the new normal requires business executives to proactively deal with disruptions like Brexit before they occur.

One response on “Learning from Brexit

Leave a Reply

Your email address will not be published. Required fields are marked *