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Brexit Deal and Its Implications for Businesses and Startups



Introduction


Brexit, the UK's historic decision to exit the European Union, has redefined the landscape of global trade and business. After years of negotiations, the UK and the EU formalized their future relationship through a comprehensive agreement on December 24, 2020. This watershed moment has sent ripples through businesses and startups on both sides of the English Channel, bringing new challenges and opportunities to the forefront. In this essay, we will delve into the key components of the Brexit deal and explore its profound impact on businesses and startups.


Key Components of the Brexit Deal


The Brexit deal, formally known as the EU-UK Trade and Cooperation Agreement, was indeed a complex agreement that fundamentally reshaped the economic relationship between the United Kingdom (UK) and the European Union (EU). It came into effect on January 1, 2021, marking the UK's formal departure from the EU's single market and customs union. Here are more details on some of its key aspects:



· Tariff-Free Trade: One of the central aspects of the Brexit deal was the preservation of tariff-free trade in goods between the UK and the EU. This meant that products could continue to move between the two entities without tariffs or import/export duties, which was essential for many industries to maintain their competitiveness.


· New Customs and Regulatory Procedures: While tariffs were eliminated, the deal introduced new customs and regulatory procedures. Businesses now had to navigate customs checks, declarations, and rules of origin requirements, which added complexity to cross-border trade. This was a significant adjustment for companies that had previously enjoyed frictionless trade within the EU.


· Transition Period: The Brexit deal included a transition period that lasted until the end of 2020. During this period, many of the new rules and procedures were gradually implemented, providing businesses with some time to adapt and prepare for the changes.


· Impact on Businesses: Large corporations, with their extensive resources and global reach, were better equipped to hunker down and invest in the necessary infrastructure, technology, and compliance measures to cope with the post-Brexit environment. They could also diversify their supply chains to minimize disruption.


Implications for Startups: The Broad Strokes


The implications of Brexit were manifold for the startup ecosystem. Firstly, there was a palpable funding void as EU's funding sources dried up, compelling startups to hunt for alternative lifelines. Then, there was the regulatory whirlwind. Startups now had to juggle compliances both for the UK and the EU which appears to be challenging, especially for new entrants. Talent acquisition, a critical driver for startups, also saw upheavals. With new immigration rules in place, the once seamless inflow of talent from the EU faced roadblocks. Lastly, market dynamics shifted. The EU, once a logical market extension, now presented hurdles, forcing startups to rethink their expansion blueprints.


In the Spotlight: Startup Stories



Startups That Thrived Amidst Brexit:


Revolut, a leading digital banking app, is an example of proactive response in the uncertain post-Brexit landscape. Anticipating potential disruptions in the financial sector, Revolut took the initiative to apply for banking and financial licenses in several countries across the European continent. A notable achievement was securing an e-money license in Lithuania, a strategic move ensuring that their vast European customer base would continue to enjoy uninterrupted services. This timely action epitomizes how startups can pivot successfully amidst geopolitical changes.


Another success story in the post-Brexit era is Darktrace, a cybersecurity firm renowned for its cutting-edge artificial intelligence-driven solutions. Despite the prevailing uncertainties during the initial Brexit phase, Darktrace made a bold decision to go public in 2021. Their successful listing on the London Stock Exchange underscored a critical message: the UK, even outside the EU umbrella, remains a pivotal tech hub in the European landscape, capable of attracting robust investments.


However, while some startups adeptly maneuvered the Brexit challenge, others found the transition less seamless. Take Snyk as an example. This cybersecurity startup, known for its developer-first security approach, expressed ambitions of expanding its influence across Europe. But Brexit forced the startup to a strategic recalibration. They had to establish an additional foothold in Dublin, envisioning the Irish capital as a new gateway to the broader European market. While this decision allowed Snyk to maintain its European presence, it also introduced additional operational complexities and costs.


Another startup, Supernotes, which offers an innovative note-taking platform, faced its Brexit challenges on talent acquisition. The changing landscape post-Brexit muddied the waters of visa and immigration policies, creating uncertainties for startups reliant on European talent pools. For Supernotes, this translated into potential hurdles in their recruitment strategy, emphasizing the broader talent-related challenges many UK startups faced during the transition.


Strategies for Startups in the Brexit Era


In the wake of Brexit, startups had to display unparalleled adaptability and strategic insight to navigate the newly charted waters. Foremost among the strategies adopted was diversification, not just in terms of markets, but also in sourcing materials and forging partnerships which is sometimes beyond the UK, tapping into the global market to insulate themselves from regional disruptions. Other startups realigned their supply chains for local suppliers or diversified it to reduce dependency on a single source. Regulatory compliance, which became more intricate with the UK carving its own path distinct from the EU, also necessitated a proactive approach. Many startups either bolstered their internal compliance teams or formed alliances with experts to ensure they remained within the regulatory purview. As the Brexit scenario unfolded, a lesson emerged for startups: resilience is key, but so is proactive reinvention in the face of unprecedented change.


Conclusion


In the UK's business history, Brexit stands out as a defining juncture, symbolizing both turbulence and transformation. This pivotal event underscored the undying spirit of the UK's startup ecosystem. While startups some showcased adeptness, leveraging challenges as springboards to success, others faced a steeper learning curve in the altered landscape. However, the overarching lesson is unequivocal: the real strength of a business is not just weathering the storm, but adeptly harnessing the winds of change for propulsion. The aftershocks of the Brexit deal redefined trade relationships, introducing complex regulatory frameworks, and adjusting market dynamics which underscored the importance of agility and adaptability. As the world of business continues to evolve, startups that not only anticipate but adeptly pivot to these shifts underscore a compelling narrative of innovation and resilience, positioning themselves to capture emerging vistas of opportunity in the ensuing years.


This article was written by Ardi Kuka, banking supervision analyst at the ECB, Kedge business school graduate.


References


1. Bloom N., Bunn P., Chen S, Mizen P., Smietanka P., Thwaites G. (2019). “Brexit Is Already Affecting UK Businesses — Here’s How.” Harvard Business Review

2. Collins V. (2019). “How startups are surviving Brexit and what this means for London”. Forbes

3. Ezrati M. (2021). “The Brexit deal: Some good, some bad, some ugly.” Forbes

4. Hurst L. (2023). “Brexit 3 years on: The UK's tech and innovation sector is yet to see the promised 'sunlit uplands'.” Euronews






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