Brexit, friction and global teams

Global Teams explores the plumbing of globalisation. It gives a unique view on how decisions are made in global firms. The results are devastating for Brexit: the British exit from the EU.

Let’s strip away the rhetoric of both sides, and look at how firms will in practice react to Brexit.

All global firms and teams work hard to reduce the friction caused by language, culture, distance, mistrust, regulation, currencies, political risk and more. Friction stops global teams working well. This is where a single market is like manna from heaven: it removes all the problems of regulations, customs, paper work and the uncertainty created by stroppy border officials.

Brexit creates massive friction. It is like throwing sand in the engine of a global supply chain. It may be cheaper to produce cars in the UK following devaluation, but if you operate a lean supply chain then any delay at any border brings the entire supply chain to a crunching halt. That is a huge cost, which would require a massive cost advantage to offset.

So the reaction of the currency markets is predictable. Global firms will require a massive discount to stay producing in the UK and offset all the hassle of increased friction.

Nissan has shown the way for global firms which operate in the UK:  threaten to quit and then cut a special deal in private with the Prime Minister. Nissan is at the front of a very long queue. The government will complain that they are being blackmailed by business. If government had any understanding of how business actually worked, they would understand that this is inevitable.