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This case study discusses the effects of Brexit, the verdict after a referendum separating UK from the EU, on June 23, 2016. As the new prime minister for the UK., Theresa May must take charge of leading the separation. Since there is no precedent yet, the future of the UK and its relationship with Europe was yet to be seen.
Laura Alfaro; Jesse Schreger; Haviland Sheldahl-Thomason
Harvard Business Review (717028-PDF-ENG)
November 01, 2016
Case questions answered:
- How will Brexit affect the national business environment as described by Porter's diamond?
- In case Brexit actually happened, which policy course should be maintained and which one should be changed?
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Brexit Case Answers
1. How will Brexit affect the national business environment as described by Porter’s diamond?
In his 2008 book On competition, Professor Michael E. Porter argues that high and increasing levels of productivity and innovation are key drivers of competitiveness. Their causes can be observed in the context a region or nation provides for the sustained development of competition. National or regional contexts can be further divided into two major areas: (1) the macroeconomic, political, legal, and social context and (2) the microeconomic foundations of competition. These two areas reinforce each other.
The information presented in the case study paints a clear picture of the state of the UK’s macroeconomic environment across decades. The country’s political and legal system has been widely renowned for its stability and lack of barriers to economic development. Before 1980, deteriorating public finances, a high level of inflation, and an erosion of the value of the pound hampered the economy. In the early phase of the post-1980 reforms, the focus was on reducing the size of government and stabilizing public finances.
In the early decade of the 21st century, the UK had however managed to achieve a higher level of macroeconomic stability than in any other period after WWII. In recent years, however, in the midst of the state’s separation from the European Union, political instability has ensued and many investors were left wondering what the future of the UK would look like.
In the same work, Professor Porter proposes a framework of four interconnected areas that contribute to the quality and competitiveness of the business environment. These four factors are the quality of factor (input) conditions, the context for firm strategy and rivalry, the quality of local demand conditions, and the presence of related and supporting industries (Porter, 2008).
Despite the fact that the business environment has been upgraded in the last two decades of the 20th century, the last three years have witnessed a decrease in its ability to attract and maintain business in key sectors of the economy such as the financial sector. Brexit is set to…
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