Brexit accentuates structural trends and cultural differences in Europe

Whatever the outcome of the Brexit negotiations, there are two conclusions we can already draw from what has happened so far in terms of how Japanese businesses may need to respond.  One is that structural trends in business which were already apparent in Europe will be accelerated and the second is that differences in negotiating approaches in Europe have not disappeared, despite nearly 25 years of the European Union and single market.

In terms of organisational structure, there is a strange mix of physical disintegration and integration on a virtual level.  Currently, over half of the biggest Japanese companies in Europe have their regional headquarters in the UK.  This is because of the depth of financial and other support services that are available in the UK, the free movement of people that enables hiring many different nationalities in the UK and the ease of doing business in the English language.  The latter advantage will not disappear with Brexit of course, but if the UK does not keep its EU financial ‘passport’, it’s possible a lot of the financial and other services will shift to Amsterdam or Frankfurt.  Brexit may also bring an end to the free movement of people between the EU and the UK.

In any case, many of the back office, functional, coordinating jobs were already moving out of the UK.  Cheaper, English speaking, well-educated employees can be found elsewhere in the EU.  Larger Japanese companies are already developing a pan-European management structure, where teams are scattered across several countries.  This is proving very challenging for Japanese employees who are more accustomed to a team working physically together, seated in a cluster of desks.  Japanese companies will have to put processes in place to enable discussions and decisions to be made via remote communications and maintain a generous budget for travel.

The second conclusion is that Europe is still split between the pragmatists and the principles and rules based groups.  The pragmatists, often traditional trading nations such as the UK, Netherlands and Denmark, tend to negotiate step by step, concession by concession, whereas Japanese companies prefer to acquire all information and know all the risks before making one big decision.  Principles and rules based countries such as France or Germany clash with the pragmatists because they refuse to make concessions on what they would consider key principles (such as the free movement of people) or deviate from the rules which have been set in place.

This is why the European Union has become bogged down so often in processes and discussions and seems remote, bureaucratic and corrupt to ordinary citizens.  Many Europeans – particularly the British – don’t understand or are not attracted to a European vision for the future. There are two further lessons to be learnt from this for business.  One is that, no matter what happens in Europe, the British provide an important counterbalance to the French and the Germans in a management team, if you want pragmatic solutions to problems.  The second is that management must not become so inward looking that it fails to communicate its vision to the rest of the employees.

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