Inspire issue 14

INSPIRE LOUGHBOROUGH UNIVERSITY SCHOOL OF BUSINESS AND ECONOMICS BI-ANNUAL MAGAZINE ISSUE14

BEYOND THE EU

THE BREXIT ISSUE Brexit negotiations and red lines What Twitter can tell us about Brexit Is London to be the sacrificial lamb?

Emerging markets and post-Brexit innovation

Editor: Ondine Barry Assistant Editor: Fatiha Binti-Kamaludin

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WELCOME Welcome to the fourteenth edition of Inspire, the magazine of the School of Business and Economics at Loughborough University. This issue focuses on Brexit. As negotiations between the British Government and the EU continue, the full impact of the decision to leave the European Union is unfolding, albeit very slowly. At present it remains unclear exactly what Brexit will look like. As a result, many of us remain unsure as to what this new order will look like and how our organisations will need to adapt to it.

In this issue, we have asked experts from within the School to provide their perspective on Brexit and its implications on innovation, trade, outsourcing and the economy. We also have a piece from Visiting Professor Randall Wigle with lessons to be learned from the North American Free Trade Agreement and articles giving the University perspective from Professor Steve Rothberg (Pro ViceChancellor for Research at Loughborough University) and Richard Taylor (Chief Operating Officer of Loughborough University).

We are constantly looking to renew and refresh our programme portfolio. Much work is currently going into our undergraduate programmes, updating their content and delivery. You will be able to learn more about these changes from our website in the coming months.

We are also in the process of launching postgraduate apprenticeship degrees in leadership and management. UK companies now pay an Apprenticeship Levy to the Government which they can reclaim by placing staff on educational programmes, including Masters degrees. This is an exciting opportunity for organisations to develop their staff at the School of Business and Economics.

If you would like to learn more about our apprenticeship degrees please contact Ashley Carreras, Director of Executive Education.

I am pleased to report that our undergraduate Business Psychology degree, launched just two years ago, has been granted accredited status by the British Psychological Society

(BPS). This now sits alongside the BPS accreditation for our postgraduate degrees in the same field.

The School is proud of the external recognition we receive, especially through accrediting bodies. We recently hosted a reaccreditation visit from EQUIS, the European accreditation body. Although we do not know the final outcome of the visit yet, we received a very positive report highlighting many strengths in the School. The reviewers identified some areas for development that would further strengthen the School, which we shall be working on in the coming months.

Finally, you may be interested to see our new School brochure, which is available online at: www.lboro.ac.uk/sbe/engage. In my last welcome message I introduced our new strategy, at the core of which is our strapline: Engage - Inspire - Transform. The brochure follows this theme giving stories of those who engaged with us, who were inspired and who were subsequently transformed.

I hope you enjoy this issue of Inspire.

Sincerely yours,

Stewart Robinson Dean, School of Business and Economics, Loughborough University

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NEWS

2017 Graduation news The 2017 Summer Graduation drinks reception was held in July at the University’s Netball Centre. With family, SBE staff and friends all joining in the celebrations, new graduates were welcomed into the Loughborough alumni family and praised by the Dean, Stewart Robinson, for their fantastic achievements.

On Monday, December 18th the School’s Winter Graduation drinks reception will be held from 11:00am to 1:00pm in the School (Sir Richard Morris building), just prior to the graduation ceremony. If you are graduating this December and have booked your place at the drinks reception, we look forward to seeing you there!

Masters student wins at the Goalden Globe Awards 2017 Peace Proscovia, SBE MSc Marketing student and Loughborough Lightning captain, has won three major awards this season, including Vitality Netball Superleague (VNSL) Star VII for being Goal Shooter, Players’ Player of the Season and Vitality Player of the Season. Her talents, skills and passion for netball also contributed to Loughborough Lightning placing top of the Superleague. Her accolades did not end there as she was also awarded the Gilbert Netball Goalden Shot Award after she showcased her shooting prowess with a staggering 812 goals this season.

Many congratulations to Peace Proscovia on her continued success!

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Executive Education programme wins Personnel Today Award The School of Business and Economics, Anglian Water and Lane4 are delighted to have won the Personnel Today Award for Excellence in Learning and Development.

The inspirational and practical learning programme was created and delivered in partnership with consultancy, the Executive Education team at the School and Lane4. The programme drew on insights and scenarios from elite environments and delivered a series of practical, innovative and experiential workshops.

Phil Brown, Head of People Development at Anglian Water:

“We knew the experiential approach of Lane4 and the School of Business and Economics would resonate with our delegates’ engineering bias, be practical and help them apply their learning immediately.”

Another Executive Education course, developed with Renault Retail Group, has been recognised at the recent Motor Trader Industry Awards after RRG won ‘Employer of the Year’.

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New Director for the Centre for Information Management We are delighted to announce that Professor Peter Kawalek, previously at Manchester Business School, Warwick Business School and Instituto de Empresa, has joined the School as the new Director of the Centre for Information Management, taking over from Professor Tom Jackson who launched CIM in 2013.

Peter is a Professor of Information Management and has had an astonishingly diverse career, with not only publications on AI and cybernetics, social media, organisational change and technology, but also as lead on inspiring projects such as the Jubilee Time Capsule (which he cocreated and presented to Queen Elizabeth II in 2012), MADE (Multi-Agency Data Exchange: a Lancashire-wide initiative working with the constabulary, fire service, council, NHS, probation and drug action

teams), cybercrime and mental health initiatives in Manchester and service reform in Salford. He has even written for the London Design Festival. Peter attributes this diversity to an education in systems theory.

During his career Peter has worked with SAP, British Telecommunications, Fujitsu, Hoverspeed, Manchester City FC, New York City FC, four23, Bonka Circus, Siemens Gas Turbines and IBM, as well as in the public sector with the Greater Manchester

Metropolitan Police, the NHS, and Ireland’s Office an Taoiseach and Department of Communications. In addition, he is a Fellow of the Royal Society of Arts, Visiting Senior Fellow at Duesto Business School (Spain) and Visiting Professor at Letterkenny Institute of Technology (Ireland).

Peter is inspired by technology, music, art, nature and Schumpeterian Economics, and his gurus include Stafford Beer, Peter Checkland and Brian Warboys.

SBE hosts 2nd Annual UK Forum for Supply Chain Sustainability Last September, in collaboration with Carbon Trust, the School was delighted to host the 2nd annual UK Forum for Supply Chain Sustainability (UKFSCS) at the Loughborough London campus.

With a focus on industrial practices, the forum showcased a mix of interactive panel discussions, keynotes, case studies and workshop sessions, all of which were successfully delivered by leading industry and academic experts (including those from Willmott Dixon, TelefĂłnica and The LEGO Group). Topics included procurement, supply chains, sustainability, CSR and logistics leaders.

The 3rd UKFSCS will take place in 2018. Watch this space!

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NEWS

SBE in India In October, four members of staff presented at a joint workshop on Decision Sciences at IIT Delhi. Stewart Robinson, Peter Kawalek and Alok Choudhary all made the trip to Delhi, and Martin Sykora presented to the group via Skype. This workshop, part of an ongoing collaboration with the Department of Management Studies at IIT Delhi, identified a number of areas of common interest, especially supply chain management, social media data analysis and industrial decision support systems. Staff from the School are now working on joint proposals with the faculty at IIT Delhi.

SBE graduates earn £7,000 more on average In the August 12th 2017 edition of The Economist, a new ranking showing graduate earnings five years after completing their UK degree placed Loughborough University in the Top 5 for Business graduates’ salaries. With a value-added figure of £7,857, SBE ranked highly amongst 113 British universities overall, and of 53 institutions that positively impacted Business graduates’ average earnings.

Outcomes were based upon the Department for Education’s (DFE) recently published “longitudinal education outcomes” data, which is used to create estimates of graduates’ expected earnings. The analysis of the difference between predicted and actual amounts that students earn reflect each university’s boost to graduate salaries.

Professor Stewart Robinson, Dean of the School, said:

“The latest data from The Economist confirms how well our students perform in the job market, attracting some of the highest salaries among Business graduates. This is founded on the outstanding quality of education and student experience that Loughborough offers.”

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In addition to this, Jo Johnson, Minister for Universities and Science, happened to be visiting the IIT Delhi campus on the same day. Senior University staff met with Mr Johnson, who later gave a presentation on the importance of partnerships between UK and Indian universities.

Professor Stewart Robinson said:

“We are looking to build deep research partnerships with key business schools around the world. As a leading Indian university, developing the relationship with staff at IIT Delhi is an important part of our internationalisation strategy.”

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Celebrating 25 years of Retail education and research Led by SBE academic Dr Cathy Hart, the 25-year anniversary event in September celebrated the success of the School’s Retailing, Marketing and Management [RMM] degree and related impactful research.

The full-day event comprised plenary presentations and a practical workshop on professional development skills with alumni guest speakers Jill Ross (RMM 1997, Managing Director for Retail at Accenture) and James Farnham (RMM 2008, Head of Online Strategy at Dunelm Direct).

It was great to have seen other alumni and current students in attendance, as well as business leaders from a variety of retail backgrounds, sharing their input into the future of retail.

Local project Charnwood Connect wins international award Charnwood Connect, a joint project between the University (represented by Dr Gillian Ragsdell, Reader in Knowledge Management at the School) and regional public sector organisations, recently won first prize in the international Knowledge Management and Intellectual Capital Excellence Awards.

The collaboration, designed to promote joint working between voluntary and public sector organisations, was presented at the European Conference on Knowledge Management in Barcelona this October. The project beat, amongst other finalists, both NASA and the European Patent Office to win the prestigious award.

Charnwood Connect is a two-year partnership project which received £346,000 from the Big Lottery’s Advice Services Transitions Fund to strengthen and improve access to local advice and information services. The project ran from October 2013 to September 2015, managed by Charnwood Citizens Advice Bureau (CAB) with lead partner The Bridge (East Midlands), and also Charnwood Borough Council, Human Rights and Equalities Charnwood, Living Without Abuse, Falcon Support Services, Proactive Community Endeavours, John Storer Charnwood and the University.

It resulted in the development of a community resource for local people seeking help with issues such as welfare rights, benefits, housing and homelessness, domestic violence, immigration, discrimination and debt.

Discussing the award, Dr Ragsdell said:

“I am absolutely delighted that Charnwood Connect has gained international recognition - I was very aware of the originality and pioneering nature of this knowledge management project when I entered it in the competition.

We are so proud that its impact has been appreciated by such a respected audience.”

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by Professor David T. Llewellyn

THE THIN RED LINE 08

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BREXIT

The UK is engaged in its most historic and momentous set of international negotiations in generations.

Negotiations between two parties usually start with the two sides having clearly defined positions that describe their preferred outcome. Negotiations are designed to reach a mutually acceptable compromise bearing in mind that one or both parties might have ‘red lines’ over which there is no compromise.

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And yet in the Brexit negotiations neither side has articulated clearly defined objectives or red lines - at least not in public. Whilst there is always an element of bluff in public statements, this is not a good starting point.

Our purpose here is not to argue the case for or against Brexit: it takes a neutral stance. Rather, the focus is on the various dimensions of the Brexit negotiations and some of the assumptions that the Government seems to be making and their implications for negotiating strategies.

A central issue focusses on a series of trade-offs, over which political choices need to be made. This follows the dictum of the economist Thomas Sowell that in politics, “there are no ideal solutions, only trade-offs”.

In a nutshell, the more comprehensive is the post-Brexit access to the single market and membership of the Customs Union, the more the country will be required to maintain free movement of labour, make annual payments to the EU and accept EU regulation and elements of the jurisdiction of the European Court of Justice (ECJ).

These trade-offs also mean that if a firm ‘red line’ is established on any issue, the range of practical options becomes more limited.

Without doubt, the negotiations are highly complex not only in detail, but also because they are to be conducted at four levels:

— “It was evident at the outset that Article 50 was triggered without there being a clearly defined exit strategy.”

—

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1 The terms of exit (aka The Divorce Settlement) and in particular, payments to be made to the EU for various liabilities, the rights of EU citizens already located in the UK and the issue of the border between Northern Ireland and Eire.

2 The terms of post-Brexit trading relationships between the UK and the EU. 3 The design and implementation - or not - of a transitional period beyond the two-year timeframe.

4 Leaving the EU would mean the UK losing free trade agreements with well over 50 countries and many more other agreements and treaties just to get back to the same position it is in now within the EU. From the very beginning of the negotiations, disputes arose on the first two issues as the UK assumed that they would be conducted in parallel, while the EU Commission was adamant that sufficient progress would need to be made on the first point before negotiations could begin on the second.

The Northern Ireland issue has become particularly problematic, and on December 4th brought to a standstill the negotiations between the UK Government and the EU Commission. Of course, at the moment there is free trade and no “hard border” between Northern Ireland and Eire and between all parts of the island of Ireland and the UK, as Eire and the UK are parts of the single market. This would change if the UK were to exit the single market. The dilemma seems to be almost intractable. None of the three parties (UK Government, Northern Ireland, Eire) want a hard border between Eire and Northern Ireland, and Northern Ireland wants to remain within the EU single market because of its substantial trade with Eire. And yet, if the UK (including Northern Ireland) exits the single market this would logically entail a hard border between Northern Ireland and

Eire. On the other hand, if (as some would like) Northern Ireland were somehow to remain in the single market, this would be untenable as it would imply one part of the UK being outside the single market while another part would remain part of it: it would also imply a hard border between Northern Ireland and the rest of the UK. Several assumptions are being made by the Government in the negotiations, and several areas of conflict within Government have emerged. Indeed, it was evident at the outset that Article 50 was triggered without there being a clearly defined exit strategy or objectives in the Government’s negotiating strategy.

Leading Brexit supporters within government are not a homogeneous group. On the contrary, various positions are held ranging from maintaining most of the institutional arrangements of membership (access to the single market, etc.) to non-acceptance of any of these arrangements: the ‘cliff-edge’ or ‘hard BREXIT’ view. There seems to be no agreed Cabinet position, especially with regard to the tradeoffs to be made.

It became evident early on that the UK’s negotiating position did not fully accept the full nature of the trade-offs within the range of strategic options, assuming instead that, at least to some extent, the country could, in the words of the Foreign Secretary, “have its cake and eat it”. This amounts to a dispute about where to be placed along the spectrum of a ‘hard’ or ‘soft’ Brexit.

Government ministers are divided between those who wish the UK to be closely aligned to the EU in the future and those who believe that a greater priority should be to forge relationships with non-EU countries.

Above all, there is substantial debate within Government over the extent of any short-term and longterm jurisdiction of the ECJ. Some members of the Government regard this as a ‘red line’ issue.

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— “Negotiating strategies should always be based on a realistic assessment of bargaining strength.”

— It is even the case that, early in the negotiations, some influential politicians, Government ministers and academics argued publicly for withdrawing from the negotiations and exiting the EU with no deal and immediately defaulting to the WTO model: “No deal is better than a bad deal”.

The majority opinion, on the other hand, has been that the ‘cliff edge’ strategy is itself the worst possible deal. Irrespective of the arguments for or against, the fact that some ministers argue for a ‘no deal’ illustrates the enormous divisions surrounding the negotiations with no clear view or strategy emerging.

From the beginning, there was a failure to recognise the seriousness with which the UK’s negotiating partners regarded the moral hazard: the UK must be seen not to gain by Brexit in order to avoid the moral hazard that some other member states might seek either the same concessions whilst remaining members, or populous sentiments might put pressure on governments of other member states to consider exit.

A particular assumption has been that, after exit from the Customs Union, the trade benefits to be derived from freedom to negotiate trade deals with non-member countries would be greater than those lost with the EU. This seems to ignore the ‘gravity effect’ in international trade (that trade is more likely to occur the smaller the distance between trading countries).

Opinion varies between economists on this key issue. Those who favour a ‘no deal’ outcome argue that, as future growth of the world economy is likely to be disproportionately located in non-EU countries of the Far East, Latin America and emerging market economies, the UK would gain most by negotiating its own trade deals with these countries (which it is not able to do while remaining a member of the EU).

Others argue, however, that when negotiating with the US, China and India, the UK is likely to have the weaker negotiating strength.

Negotiating strategies should always be based on a realistic assessment of bargaining strength.

However, the UK’s bargaining position has almost certainly been overestimated. For instance, it has been widely assumed that the UK is more important to other member states than the EU is to the UK because the UK has a trade deficit with the EU and hence partners would offer beneficial trading arrangements.

In terms of optimum negotiating strategy, it is difficult to imagine a worse scenario than when the ultimate objectives are unclear and are disputed within one of the negotiating partners.

None of this enhances the strength of the Government’s negotiating position (and hence the chance of a ‘good’ outcome) or confidence amongst the country’s negotiating partners about the credibility of the Government’s negotiating position.

None of this would appear in any elementary textbook on How to Conduct Negotiations.

The error here is that EU exports to the UK are a much smaller proportion of EU countries’ GDP than is the case with UK exports to the EU. Bargaining strength is likely to be determined more by exports as a share of GDP than by the balance of trade position.

Furthermore, the negotiations are being conducted in extremely difficult circumstances which have the potential to undermine the country’s negotiating position.

Indeed, it is difficult to imagine a less propitious set of circumstances in which the negotiations are being conducted.

David T Llewellyn is Emeritus Professor of Money and Banking and former Chair of the European Banking Authority. David can be reached on d.t.llewellyn@lboro.ac.uk

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AN EXPL RATI N OF EM TI NS IN BREXIT NEG TIATI NS With millions of people tweeting about their feelings and opinions on Brexit, can we measure the impact of Twitter users’ emotions on Brexit negotiation outcomes?

by Dr Elena Georgiadou and Dr Suzanne Elayan

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— “Large volumes of tweets relating to different aspects of the negotiation allow us to map users’ views and emotions on a daily basis.”

—

Social media’s importance in the political sphere has long been acknowledged.

Researchers have been discussing how analysing public discourse on Twitter has become an alternative to traditional polling methods, as information can be obtained from vast quantities of voters quicker, easier, cheaper and in real time. Although it is not necessarily a representative sample, since not all voters tweet, and not all tweeters vote, it is still a useful method in gouging public opinion about particular political events. Politicians, businesses and celebrities have started harnessing this power of being able to reach wide audiences directly - without the traditional middleman, the media.

British policy makers began noticing public discourse on social media around the time of the 2010 elections. The 2011 London riots were instrumental in changing views around public mood on social media. The riots occurred at a time of economic plight - cuts and austerity were at a high, and Twitter users were tweeting about it rather emotionally. Retrospectively examining the emotions expressed in the tweets of that fateful spring, it was found that anger had been consistently rising. Had emotions in tweets been monitored in real time, those riots could have been predicted if not prevented. Since then Westminster has certainly started to pay more attention to public mood on social media.

A more recent illustration of how Westminster is taking public mood and opinion seriously on social media is the #MeToo hashtag that has been trending as a response to the Harvey Weinstein scandal. The hashtag trended in 85 countries and generated thousands of responses - Prime Minister Theresa May has spoken up against sexual harassment and violence, promising that the Government would clamp down on sexual

predators; a clear indication that public opinion on social media cannot be ignored by policy makers.

Brexit negotiations are yet another example of a political event that is being closely monitored by avid Twitter users (who, according to research, tend to be more politically involved than other types of social media users). Large volumes of tweets relating to different aspects of the negotiation allow us to map users’ views and emotions on a daily basis.

Given the well-recorded role of public emotion for collective decision making, we started investigating its role as a potential determinant in Brexit negotiations. In doing so, we focus on public mood expressed by various stakeholders as a societal input into Brexit negotiation outcomes.

Research on the role of emotions in negotiations to date has been dominated by behavioural decision making paradigms which accord a very narrow role to emotions. Such paradigms claim that emotions play a role in terms of how a negotiator’s specific positive or negative emotions affect their personal information processing and consequently the negotiation outcome. This research has taken place in labs where the behaviour of two negotiators is controlled by computer messages that secretly trigger emotions associated with either anger or happiness.

We propose a new methodology for assessing the impact of emotion on international negotiations. We use Putnam’s (1988) two-level negotiation model as an analytical framework. Putnam described negotiations as a two-level game where national-level policymakers face two separate constituencies.

These constituencies are located at the international level (between the two negotiating parties) and the domestic

level (between each negotiator and their domestic environment) and comprise a multiplicity of stakeholders such as individuals, businesses, NGOs, networks and so on. In practice, for a negotiated outcome to be agreed upon internationally it has to accord with the priorities and stakes of the domestic constituency. It is important here to understand domestic constituencies as those that concern public stakeholders and not necessarily linked to specific geo-locations.

Thus, public emotion of the domestic constituency as a response to possible negotiation outcomes institutes a decisive societal input potentially determining the very outcome of the negotiation. This exploration is very important as information on public emotion regarding specific aspects and issues of the negotiations can act as a barometer providing real-time strategic information to the negotiators.

In this project we capture public emotion through the analysis of collective emotion states derived from large-scale public Twitter feeds resembling real-time Twitter polling. The feeds concern specified Brexit conversations and present users’ emotions vis-á -vis potential negotiation outcomes such as ‘Hard Brexit’, ‘Soft Brexit’ and ‘No deal’. We began collecting tweets with hashtags such as #HardBrexit #SoftBrexit and #SingleMarket on September 13th and data collection is ongoing.

We use EMOTIVE, an ontology-based system that is designed to identify terms that reflect Paul Ekman’s original emotion model. Ekman’s six basic emotions are anger, happiness, surprise, disgust, sadness and fear. However, after conducting sociolinguistic analysis on a large dataset of tweets, it was clear that there were some additional prominent emotions that social media users were

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— “Given the well-recorded role of public emotion for collective decision making, we started investigating its role as a potential determinant in Brexit negotiations.”

—

Surprise

Shame

Sadness

Happiness

Fear

Figure 2 Disgust

Analysis of a month’s worth of data collected by the SBE’s Dr Martin Sykora, demonstrated that emotions heightened as a response to specific negotiation events and certain hashtags generated more and different emotions than others.

Specifically, in Figure 1, we observe spikes in emotions regarding the discussion of the single market between 22nd and 26th September that correspond to Theresa May’s Florence speech. The speech, after months of uncertainty, offered a degree of reassurance to businesses by proposing a two-year interim period of remaining in the single market after exit prescribing a soft Brexit. The dominant feeling recorded in this spike is surprise as demonstrated in Figure 2.

Confusion

EMOTIVE uses a custom Natural Language Processing pipeline designed to incorporate the sparse and informal nature of tweets along with the custom-built ontology, resulting in a system that is capable of disambiguating semantics in a message with one the best reported f-measures (as compared against similar systems) for detecting emotions. Although “regret” is an affective state that falls under the emotion of “sadness”, for this particular project, we decided that it was worth monitoring regret separately because of its prominence in tweets related to Brexit. We are currently monitoring the hashtag #Bregret, which also indicates a spike in Twitter users’ emotions - especially negative ones.

The next significant spike on the graph between the 7th and 11th of October concerns conversations around the revocability of Article 50, which triggered Brexit, as a response to the conclusion of the fifth round of negotiations and the open statement by Michel Barnier that: “We’ve reached a state of deadlock, which is very disturbing.” Investors reacted to the stalemate by sending the British pound 1% lower against the dollar. This peak illustrated in more detail in Figure 2 reflected a mixed bag of emotions primarily associated with fear, sadness, confusion and shame.

Anger

expressing. We hence included two more emotional states, identified by Robert Plutchik, adding confusion and shame to the ontology.

Albeit at a very early stage in this study, we have uncovered some intriguing findings in the tweeting patterns of avid Brexit negotiations followers that could be informative for future Brexit negotiations.

This is indeed a very exciting time for us as researchers in spite of the grim emotions that seem to be floating around the Twittersphere during the Brexit negotiations. And we are looking forward to further explorations in order to determine who is in fact in the driver’s seat: Will the tweets be driving the negotiations?

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Soft Brexit

Single Market

Hard Brexit

Article 50

Figure 1

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Elena Georgiadou is Lecturer in International Management and a member of the International Business, Strategy and Innovation group. Elena can be reached on e.georgiadou@lboro.ac.uk

Suzanne Elayan is a Research Associate and member of the Centre for Information Management.

Suzanne can be reached on s.elayan2@lboro.ac.uk

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by Professor Alistair Milne

ENDING THE EU-UK TRADE IMPASSE REQUIRES A ‘SACRIFICIAL LAMB’ Negotiations over the UK’s departure from the EU are in trouble.

The process has become political in the extreme, highlighting points of confrontation rather than agreement. Even now, 18 months after the referendum, the UK Cabinet has paid little attention to the practical details of leaving the EU, practicalities that will profoundly affect all British businesses and households.

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— “Being outside of the EU single market will not boost the City of London, but the impact is much smaller than many suppose.”

—

At least there has been some progress recently. Both the UK and the EU recognise that March 2019, the date for leaving the EU determined by the two-year Article 50 withdrawal process, does not give enough time for agreeing and implementing new trade arrangements. The UK is now seeking a ‘transition’ or ‘implementation’ period lasting around a further two years.

Analysis by myself and colleagues in “A briefing on the UK’s trading arrangements outside of the EU” examines these issues in greater detail.

Our conclusion is not that the UK cannot do well economically outside of the EU, but that this requires a long-term managed transition.

But the UK’s current proposals for leaving the single market and Customs Union, outlined in Theresa May’s September 2017 speech in Florence, are fantasies:

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detailed agreement on every aspect of regulation for more than forty industrial sectors in which the EU and the UK trade.

Given the UK’s strengths in information technology and project management (hint, some irony here), could something along these lines not be developed over, say, the next five or six years? Well, yes, maybe, but this is far longer than the time available. Agreeing an ‘implementation period’ under Article 50 requires in turn an outline agreement on future EU-UK trade arrangements. These trade solutions must be demonstrated by around October 2018 for finalising terms and then seeking national government ratification, perhaps even earlier, by April of 2018, to stop business moving capacity out of the UK.

• They are inconsistent with the UK’s commitment (under the Good Friday agreement) to avoid any physical barrier between the Northern Ireland and the Republic of Ireland. The proposed solution, a system of electronic monitoring of all goods and people crossing the Irish border, is imaginative, but it stands no chance of being accepted until it is developed and shown to work, requiring in turn a comprehensive supporting system of internal tracking across the EU and UK.

With the Florence fantasies put to one side, the UK must instead propose something realistic. But what? To the extent that the 2016 referendum expressed anything clear about the will of the British people, it was concern about uncontrolled immigration.

The overriding political imperative must be ending the free movement of people between the EU and the UK. There seems to be no alternative to a sector-by-sector deal, with some UK industrial sectors taken outside of the single market and Customs Union and others remaining. The political calculus is what is taken outside so the EU accepts the end of free movement of people with the UK.

• As outlined in Theresa May’s September 2017 speech in Florence, the UK seeks a trade agreement in which regulations are decided independently by the EU and the UK, but aligned to prevent substantial barriers to trade through an unspecified ‘mutual dispute mechanism’ standing outside of both EU and UK law. There is no precedent for such an arrangement in international trade. It will require a

Many of those who argued ‘leave’ in the referendum now propose a complete break. No requirement at all for conformity between UK and EU regulations since the EU will not accept any limitation on free movement if the UK is placed like Norway within the EEA for some sectors but not others. A complete break would mean reintroducing border checks on all goods that cross between the EU and UK,

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to ensure they comply with EU and UK import regulations, with a huge impact on UK manufacturing supply chains. Over a decade new supply chain arrangements could be developed, but the short-to medium-term impact of such a ‘hard’ Brexit will be substantial further decline in UK living standards. No democratically elected government can be expected to pursue such an outcome.

Instead, to persuade the EU to accept limitations on free movement of people (and the detail of those limitations are themselves a subject for negotiation) some major concession must be made by the UK. That concession must be to give up on a long-cherished place at the European table, an area of economic activity where the UK’s strengths are perceived as undermining those of our European partners. That activity is financial services. With this offer the EU could well accept limiting free movement.

So financial services must be the ‘sacrificial lamb’, sacrificed for the greater good, achieving trade agreement with the EU that fits with the spirit of the 2016 referendum without imposing great economic costs.

Most other goods and services then remain inside of the UK single market (though their regulations are then subject to the jurisdiction of the European Court of Justice, another ‘red line’ that will simply have to be abandoned). In a few years, the UK might achieve more, eg taking agriculture outside of the SM and CU, so ending CAP contributions and offering an opportunity to import lower-cost food from the rest of the world.

But is there not a flaw in this? Is membership of the EU single market in financial services - the right to ‘passporting’ which allows UK firms to sell financial services across the EU without the need

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to establish EU-based subsidiaries - not critical to maintaining the global position of the City of London? Have we not heard that otherwise many thousands of jobs will be lost from London to other European cities such as Paris? Will pulling the UK outside of the single market for financial services not result in politically unacceptable heavy short-term costs?

Being outside of the EU single market will not boost the City of London, but the impact is much smaller than many suppose.

This false impression is because of the great fuss made about the loss of ‘passporting’ rights, allowing City firms to sell services into the EU without further regulation. Only around 15% of UK financial services exports rely on passporting. Those that are affected can get around this by restructuring their activities (for example, opening an EU-based subsidiary but keeping much activity in London).

Alistair Milne is Professor of Financial Economics and member of the Economics group.

Alistair can be reached on a.k.l.milne@lboro.ac.uk

Above all, there is absolutely nothing to stop the UK unilaterally accepting passporting of EU firms into London and recognising the adequacy of EU regulations for a long period of time, at least the next five years.

Financial exports from the City of London are largely based on customers coming to London. Export of retail financial products and services will no longer be so easy. But this is not a substantial part of UK exports.

The overall impact is minor.

To conclude, the City of London should be the sacrificial lamb, an innocent creature that must at least appear to give up its life for the wider national interest, obtaining an agreement on a new trade relationship that ends freedom of movement of people, but otherwise maintains maximum possible trade integration between the EU and the UK.

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TRANSIT: HELPING MOVE BREXIT FORWARD Interview with Dr Huw Edwards

Brexit has become, undoubtedly, the biggest change in the British economic setup in our lifetime. With businesses and Government still looking for intelligence and counsel on how to plan for various scenarios in the midst of an uncertain economic future, it is timely that an advisory group has been established at Loughborough University to help advise on the deeply divisive and confusing issues surrounding the UK’s divorce from the European Union.

Led by the School’s Dr Huw Edwards, the group TRANSIT (Trade Realignment And Negotiation Strategy Impact Team) comprises multidisciplinary staff within the SBE and Loughborough University (London) who specialise in trade economics, foreign direct investment, financial services, regulatory policy and exchange rates, as well as experts in international negotiations, emerging markets, export promotion, and the use of big data and social media to gauge public opinion.

TRANSIT researchers have run major conferences for 20

policymakers and obtained substantial research grants from the ESRC, among others. They are in regular contact with policymakers at the Department of International Trade (DIT) and Department for Business, Energy and Industrial Strategy, as well as with the Confederation of British Industry.

In addition, they were just awarded ‘preferred supplier’ status for the DIT. “The expertise on this type of issue has been relatively lacking in Britain,” explains Huw, “and that’s partly because, particularly when it comes to international policy, so much

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has been integrated with Europe. But there is also the very real worry that the counsel the Government is currently listening to and more importantly, acting on - is not from a trade economist and is not based on any legitimate research or data. This is extremely worrying.”

Despite assurances from the UK Government that leaving the EU will be a positive change for Britain, Dr Edwards and colleagues across academia cannot see how they can achieve their goals by 2019 given how far behind they are at present.

“There are many areas of conflict between different departments as well as areas of overlap,” says Huw. “As an example, think of trade policy which has huge overlaps with financial regulation policy, or non-tariff barriers which are strongly linked to regulatory competition policy and procurement policy. They each have to develop their own internal networking and to develop links to external advisors to guide them, but it is a very, very timeconsuming process.”

There has been much speculation in the last 12 months about a US-UK trade deal, but as Dr Edwards points out, if we do a deal with the United States we are going to have to accept a number of products and market regulations that we may not have accepted under EU rule, and which we may not be prepared to accept: chlorinated chicken being an example that’s made it into the popular press recently.

Despite these concerns, international trade is certainly a bright light on the horizon. The other main issue that needs to be seized upon according to Huw is capacity building: “The Brexiteers who have been brought into the Government to deal with this are wholly unprepared - they have been in a bubble for so long, thinking that this is an easy process. They are being incredibly naive. We know that Britain’s negotiating power is already weak, but it is weaker still that we haven’t built capacity.”

To build capacity, the Government needs to invest heavily in infrastructure, including the UK’s borders: “We need to be in a position where if the EU said you’re out, no deals, we can continue to trade with the rest of the world and with Europe under WTO rules and with minimal disruption and as much cooperation as possible.

“At the moment,” says Huw, “the people who are in effect assuring us that we can do this are the ones who are damaging our ability.

They need to accept that we haven’t got the frontier capacity; we haven’t got the border guards; we haven’t sorted out the issue with Ireland; we haven’t even sorted out our WTO membership properly.

“Investing in infrastructure is key - and if we do it more slowly we can probably have fewer border guards. Either way, this is going to cost a fortune. In addition, the more you trade with international countries, the more businesses will need visa flexibility. And this is the paradox. One of the many. Unfortunately, we are truly in the midst of a post-truth era…”

— “Emerging markets are growing in size, but in terms of trade to Britain, China is currently as important as Belgium.”

—

“These choices involve both the DExEU and the DIT,” explains Huw, “and the moment we accept those things, products that come from Britain to Europe are going to have to be tested and labelled and face delays. Chlorinated chicken is the least of our worries!”

Huw Edwards is Lecturer in Economics and leader of TRANSIT and the Firms in a Global Economy research interest group. Huw can be reached on t.h.edwards@lboro.ac.uk

Emerging markets are an obvious option but, in Huw’s and many others’ opinions, should not be looked at as an alternative to trade with Europe: “International trade has grown enormously, but the biggest growth of trade is between neighbouring nations - gravity has become stronger not weaker. Emerging markets are growing in size, but in terms of trade to Britain, China is currently as important as Belgium. This will change over time, but emerging markets have a long way to go. China and India are certainly taking off, and Africa has great potential, as does the Middle East, but none will overhaul Europe.”

According to Huw, the Government would have to cut export prices by a large percentage to replace exports to Europe with exports to the US: “Evening out the tariffs between the two blocks would help, but it wouldn’t change it much.”

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Interview with Professor Mathew Hughes Poised on the brink of leaving the European Union, Britain is set for uncertain times ahead. How long they will last is unknown and entirely dependent on the various deals the UK and EU government negotiate. One thing is assured, however: businesses will need to begin looking outside the UK and EU for opportunities, opportunities that have the potential to be the making of a very strong Britain in the future.

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Mathew Hughes, Professor of Entrepreneurship and Innovation at the School, is well versed in the challenges companies will be facing - and indeed are facing already. His research expertise is in firmlevel entrepreneurship: how a firm is organised and managed so that it can capture entrepreneurship and develop innovation across its business.

“I tend to look at the management and strategy of entrepreneurship and innovation,” explains Mat. “If entrepreneurship is locked in an individual - the entrepreneur - what happens to the firm if something happens to them? And how do you unlock the untapped potential for innovation and entrepreneurship across an organisation? The latter question is now increasingly important.”

Looking at a firm across its life cycle, Mat dissects the problems and challenges that are most likely to arise, notably at the points of growth and renewal. When the business environment or marketplace changes - such as is beginning to happen now because of Brexit firms, especially established ones that have been in the marketplace for a long time, find it very difficult to evolve and innovate.

“On the surface, organisations are all very different, but it is also true that there are consistent similarities across organisational life cycles. When a young firm hits growth that’s when they often start to undermine their own entrepreneurship, because they tend to start creating specialisations and departments to create momentum and push people in the same direction.

But when you create those specialisations and departments, you create barriers, from the sharing of information to ideating to entrepreneurship.

“When you have an established firm that’s been in the marketplace for some time, the problems it encounters are when the environment starts to change, when the market changes. They are often not set up to have the apparatus to innovate. This calls for corporate entrepreneurship and entrepreneurial management.”

Mat describes how the global economy has in the last 10 years gone through cyclical major shocks: “In 2007-2010/2011 we had the financial crisis - which in some countries is still going. Then between 2012 and 2016 we went through a growth phase. Suddenly, we’re now in another shock - a spike in uncertainty which was brought on by the EU Referendum vote to leave the European Union.”

COMPANIES HISTORICALLY REACT TO UNCERTAINTY IN ONE OF TWO WAYS: PARALYSIS OR OPPORTUNITY. “Generally speaking, businesses don’t like uncertainty,” says Mat, “but at the same time, one of the reasons firms don’t like it is because uncertainty is different to risk - risk you can insure against, you can take some sort of action to mitigate it. Uncertainty is different; it’s harder to predict, it’s harder to see its outcomes, it’s harder if not impossible at times to take ensuring actions. But what it does do is create lots of 24

opportunities that the entrepreneurially minded and oriented firm can take advantage of.”

PARALYSIS: you lock down on your current activities and cut costs - this was common during the 2007 financial crisis. Firms cut down on R&D and marketing, both of which are classically treated as costs rather than investment, and some people are made redundant in addition to that. From an entrepreneurship point of view, this can put skilled human capital in the hands of competitors or startups, but also sets a series of conditions counter to future entrepreneurship and innovation OPPORTUNITY: you start thinking of what is valuable to both customers and businesses domestically and abroad in this new climate - what can we do to meet this new emerging narrative? The entrepreneurially oriented firm will search for new ways to innovate new value that can best serve the evolving needs of current markets while looking for new markets.

“We are in a ‘new normal’ now,” says Mat. “If firms don’t innovate and change, the chances of a start-up or entrepreneurial rival taking your market away from you are so much higher.”

Brexit is one example of the upheavals that have forced businesses to rethink. While uncertainty can be paralysing, it all depends on the mindset and orientation of the company. What Brexit will mean for many companies is an increase in export opportunities, a new opportunity to rethink the business, rethink where and how it sells its products and services and what those products and services should be.

“If you reorient to be more entrepreneurial,” explains Mat, “that is part one of the problem. Part two of the problem is making sure your company is set up for entrepreneurship and innovation. You can’t just turn innovation on like a tap. The histories and legacies of the firm often work against it, particularly if episodes or structures for entrepreneurship and innovation have been few and far between. So you have to think about how you reorganise the internals of the firm, how you create buy-in and how you effectively change the culture.”

What the organisation sometimes needs, according to Mat, is shock therapy. It has to unfreeze its culture by changing the structure or changing senior management, breaking effectively from the past.

But you need a bold vision and real determination.

Senior management vision is central to embedding entrepreneurship in the firm and support structures, rewards and control systems, and employee development are needed to help that vision take hold and reshape behaviour.

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— “Senior management vision is central to embedding entrepreneurship in the firm and to generate the necessary support structures.”

— WHERE DO THE OPPORTUNITIES LIE FOR BRITISH BUSINESS AND INNOVATION? “Countries in the EU will most likely remain very important as they are our closest trading neighbours,” explains Mat. “But personally I think it will be more dependent on businesses: what their products and services are and which markets they are attractive to.

“It will be interesting - one of the things hopefully it will do will make the UK more outward looking, and by extension, make its businesses more outward looking. Historically, there has always been a lot of red tape involved with internationalising, so if businesses perceive the barriers to internationalisation are too high, it won’t happen. And if that doesn’t happen then they’re going to be relying on an increasingly competitive domestic market.”

WHAT WILL THE STRONGEST SECTORS BE IN BRITISH INDUSTRY GOING FORWARD? “We have a strong legacy in science and technology but it’s a sector that needs continuous renewal,” says Mat. “Aside from a very strong venture capital sector in the UK, there is obviously a profitable service sector and a growing financial services sector - but they will take a hit. London is without a doubt going to take a hit.

“What the endgame looks like is uncertain, but there is a very obvious risk that they will lose passporting for example, so to safeguard against that risk companies are creating bases in Europe and moving jobs to Europe. The most important thing they can do is to think about how they can innovate and evolve.”

FIRMS: INNOVATION TIPS FOR

and organisation is designed 1. Look at the way your p, shi eur ren rep ent s ard how it incentivises and rew if it even does at all. the top are the leaders, both at 2. Next, think about who , and ion sat ani hout the org but also positioned throug the into buy on board and get them to bring people new vision. ut your resources and 3. Additionally, think abo that they are often capabilities and appreciate ies and trajectories that creating path dependenc ivities. lock you into certain act n . We are in times of ope 4. Look beyond the firm dge and wle kno as, ide ny rich innovation where so ma ries nda bou the e sid out lie resources for innovation of the firm.

WHAT IS THE FUTURE ROLE OF GOVERNMENT IN SUPPORTING BUSINESS POST-BREXIT? “In recent times, each successive government has supported small business,” explains Mat. “It would be electoral suicide if they didn’t! But entrepreneurs have been generally sceptical at engaging with governmentlevel support activities because of the red tape that is often associated with it or because often there’s a carrot and a stick.”

One thing Mat is emphatic about is that the UK Government should not think about imposing restrictions on the behaviour of firms, especially SMEs. Instead it needs to support businesses’ abilities to internationalise and innovate, and to encourage them to engage with universities and business schools.

Mat believes a transition period is integral to getting the negotiations right, but is uncertain as to how long this should be. The benefit of a transition period is that it creates some certainty for business, but as Mat points out: strategy is a long-term game.

For inspiration, Mat says we should look at South Korea: “They went through an incredible transformation in the 1990s and 2000s into what is now one of the most technologically advanced countries in the world. There is an opportunity to rethink what the UK as a country wants to be in terms of its economy, its services, products, its identity, and equally what UK companies want to do and become.”

ADVICE FOR BREXIT:

• Pinpoint the exact nat ure of your products, ser vices or solutions. What is it tha t you actually do?

• Rethink your customer or client. Where is it tha t your real customer is bas ed? Are they solely in a particular trading block?

Think about how you can enter an emerging marke t such as Africa, which has much potential to bec ome the next growth region for global marke ts.

Mathew Hughes is Professor of Entrepreneurship and Innovation and a member of the International Business, Strategy and Innovation group. Mat can be reached on m.hughes2@lboro.ac.uk

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AN EASY UK/US TRADE DEAL? NOT SO FAST! To a Canadian visiting the UK for 2017, the ongoing and wide-ranging news and discussion of Brexit is fascinating. It has also coincided with efforts by Canada, the USA and Mexico to renegotiate NAFTA at the insistence of US President Donald Trump. The two events share some common features, and the Canadian experience at the NAFTA bargaining table may offer some insights into one aspect of the path ahead for the UK.

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Having voted ‘Leave’, the UK’s trading arrangements with the EU and all its other trading partners now need to be negotiated. This is a daunting challenge on a long timeline, but the Brexit timeline is short. The target is for the UK to leave the EU by March 29th 2019.

There is widespread talk that the transition from being a part of the single EU market to whatever follows will take time and that a lengthy transition period will be necessary. Besides renegotiating the EU-UK trade agreement one key agreement will be with the US, accounting for about 25% of UK exports and 20% of UK imports.

Given President Trump’s very warm pre-Brexit reception of the idea of a possible US-UK free trade deal, one might expect it to be relatively easy and quick for the UK to settle a trade agreement based more or less on the existing trading arrangements with the US. Recent experience with the renegotiation of NAFTA suggests that caution may be in order.

As a presidential candidate, President Trump attacked NAFTA as ‘the worst trade deal ever’ and vowed to renegotiate it or tear it up.

Upon Trump’s election as President the view was that his election position about NAFTA could be addressed through ‘tweaking and updating’. Obvious updates were linked to digital trade and IP protections more in line with the TTP agreement whose text is close to final. Trump-proposed ‘tweaks’ in the first draft proposal were reducing the rights of non-domestic firms to be treated the same as domestic firms for government procurement contracts and addressing the ‘unfairness on the Southern border’.

But then bumps came in. As backdrop to the renegotiation, the US asserted that renegotiation would have to help reduce the massive US trade deficit. This goal is unlikely to be achieved through any trade agreement, since the US trade deficit is likely to be much more affected by US savings and the government deficit than trade policy. Nonetheless, it was perceived as a justification for the US making extreme demands at the bargaining table.

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As well as the complete elimination of procurement protections, the most recent US proposal includes a number of potential deal breakers including: elimination of the existing trade disputes mechanism, elimination of existing protections from unfair use of anti-dumping rules, and a new provision requiring that all cars entering the US duty free have at least 50% US content.

Since the renegotiation was initially viewed as ‘tweaks and updates’ it was planned to be complete in 2017, but the most recent US proposal has put that deadline out of reach. It has even led Canada and Mexico raising the possibility of walking away from the deal. A US proposal to remove the chapter covering the dispute settlement mechanism from the Canada-US Free Trade Agreement (precursor to NAFTA) caused the Canadian negotiating team to temporarily walk out on negotiations in 1987 and could have the same effect now. The likelihood that either of the ‘junior’ parties (Canada or Mexico) will walk away from the talks seems small, but the fact that the possibility is even suggested is remarkable given the importance of US trade to both Canada and Mexico.

Recent Canadian experience with NAFTA renegotiation has been rather sobering. What some believed would be relatively straightforward negotiations over a long-standing and largely successful agreement have turned rather nasty. The deadline has been extended and many expect that the negotiations will not be completed until well into 2018. Given President Trump’s ‘America First’ rhetoric, the unthinkable - that the negotiations could fall apart - is now thinkable.

What does this tell us about UK-US trade negotiations? It may tell us little but it does suggest two messages: In preparations for any UK-US negotiations, the UK will want to have explored all the options, even some that seem unlikely. It seems to be wishful thinking that the talks will be either easy or short notwithstanding Trump’s pre-vote enthusiasm.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) NAFTA is a wide-ranging trade deal between the United States, Mexico and Canada signed in 1994. It supersedes the Canada-US Free Trade Agreement (CUSTA) signed in 1988. While formal negotiations for both CUSTA and NAFTA took 18 months to complete, informal discussions had been going on for up to two years before in both cases. Ratification of NAFTA took a further two years. Total from commencement of negotiations to a ratified deal was over four years.

Over $US 1trillion in merchandise trade annually is covered by NAFTA. It features a dispute settlement process whereby anti-dumping and countervailing duties disputes are resolved by binational panels. The US is both Canada’s and Mexico’s biggest trading partner. Canada is the US’s largest trading partner. Canadian and Mexican trade accounts for over a third of US trade.

Randall Wigle is Visiting Professor of Economics at the School as well as holding Professorships at both the Balsillie School of International Affairs and Wilfrid Laurier University, Canada. Randall can be reached on rwigle@wlu.ca

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EMERGING MARKETS: COULD THEY HOLD THE KEY? Interview with Professor M.N. Ravishankar

Professor M.N. Ravishankar has had a long and active history of research and consultancy within the outsourcing field. Head of the School’s International Business, Strategy and Innovation group, Ravi says it was not only the international business dimension to outsourcing that sparked his interest.

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“Over a period of time,” says Ravi, “I began to realise that there were a lot of interesting things happening, digital technologies were increasingly at the centre of outsourcing and there were very creative business models being operationalised and used in the outsourcing sector. It was clear that there was something exciting going on. Research opportunities cut across academic disciplines.”

Most of Ravi’s work has had an emerging markets dimension.

Having grown up in Bangalore, India, with friends now in senior management positions at tech firms across the country, Ravi has had a ring-side view of key developments in the outsourcing sector.

And although he has also studied outsourcing in Europe and South East Asia as well, he asserts the general principles are the same or similar: If you cannot do something very well on your own, or if someone else can do it better or more efficiently, get that someone else to do it for you.

“Anything that can be delivered electronically can be outsourced,” explains Ravi. “In the UK (and elsewhere), things that cannot be electronically delivered are also outsourced, and that is where a lot of tensions crop up - for instance, when public services such as garbage disposal are outsourced, as well as much more sensitive and emotive services: healthcare and housing.

“You cannot always think in terms of economic value,” says Ravi, “there are other values to think about: kindness, quality, compassion. All of these are very important for a civilised society.

That’s where we face ethical dilemmas with some types of outsourcing.”

HOW HAS BUSINESS BEEN TRANSFORMED BY OUTSOURCING? “Sourcing has definitely transformed business - there is absolutely no doubt about it,” says Ravi. “The term ‘outsourcing’, however, has negative connotations in the popular imagination because the word ‘out’ suggests the removal of something you owned; ‘sourcing’ is a better, more neutral term - ‘outsourcing’ has a sense of loss associated with it.

“Because the world is now extremely interconnected and competitive,” Ravi continues, “firms are constantly looking for efficiencies and ways to improve operations, and outsourcing is an obvious choice.”

But, as Ravi explains, change management issues following outsourcing can be tricky. Take for example a UK company that decides to move part of its operations to India. Part of the process of the transition requires employees whose jobs are going to go to India to train the Indian team.

“Motivational issues are fascinating,” says Ravi. “What is the (UK team’s) motivation, and can they really do a good job or will they end up creatively sabotaging the whole project? It’s interesting.

Change management is a huge part of outsourcing. In most cases, companies don’t have a choice - if work is being moved, it’s being moved and people have to live with it. And it’s not always done in a very sensitive way, so there is unfortunately a lot of heartache and loss.

“As long as there is a clear plan in place, things can work smoothly,” says Ravi. “There is almost always an initial period when things are not clear, and it is confusing and sometimes chaotic, but as it settles down and you become familiar with the new processes, you feel it will work. You’ve hit the steady state.”

HOW DO YOU THINK BREXIT WILL AFFECT UK BUSINESS? “Because Brexit is such an unknown, what companies are doing is planning for certain scenarios that might emerge. But it’s such uncharted territory, and so not always clear how to do such planning!”

The main issue right now says Ravi is that the UK Government and civil servants are so involved in Brexit that public sector outsourcing contracts that were due to expire are simply being renewed. No one seems to have the time to look into the detail. And this is true as well for most other entities in the UK now because companies do not know what transitional arrangements will be agreed.

“Brexit is proving to be a huge distraction for the Government. At present,” explains Ravi, “there are about 300 medium-to-large contracts in the public sector that are just going to be renewed.

These renewed contracts could prove to be expensive for tax payers, and it is getting to the stage where there is no competition among service providers - do we have public tendering for these contracts or not?”

With outsourcing increasing in local councils it is unclear what the specific effect of Brexit will be. The likelihood says Ravi is that outsourcing will only increase as councils are asked to save money.

— “Because the world is now extremely interconnected and competitive, firms are constantly looking for efficiencies and ways to improve operations, and outsourcing is an obvious choice.”

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— “The relationship that the UK crafts with Europe post-Brexit is important for Britain’s future relationships with other markets.”

—

“Close to 30% of Government spending anyway is on external suppliers,” says Ravi, “and that might increase, notably on information and communication technologies (ICT), construction and facilities - these are areas where there is a lot of spending. For example, in 2016 UK Iocal councils spent more than £450million on outsourced IT.” But let’s turn our attention to outsourcing in the private sector: there are a few likely scenarios post-Brexit says Ravi. One is that the private sector will face skills shortages after the transitional period is completed. When skills shortages hit the private sector they may have to turn to outsourcing to fill the skills gap.

But if there are skills shortages, and if the UK Government makes it even more difficult for outside workers to enter Britain (say via intra-company transfers), it’s self-defeating: “On the one hand there are skills shortages,” explains Ravi, “but on the other hand you’re making it very hard for skilled migrants to come into the country this can create a very negative impact. And that’s why you see that emerging markets dominate many of these discussions, because one of the optimistic post-Brexit scenarios for the UK is a closer relationship with, and better access to, markets like India.

“It is important to realise that this access will not come for free,” stresses Ravi. “The Indian government will ask for a more flexible visa policy - not just for skilled personnel or intracompany transfers, but also in terms of post-study work visas for postgraduate students.”

ADVICE FOR COMPANIES: 1. Be pragmatic this should trump everything else.

2. Plan for various scenarios.

3. Begin to think about markets outside of the EU as Britain will undoubtedly need to build new trade partnerships with emerging markets.

LOUGHBOROUGH MBA INTERNSHIPS Companies looking to internationalise could employ our MBA students to gain a deeper understanding of emerging markets. The Loughborough MBA programme offers companies an excellent chance to employ an international student as an intern - who already will have had at least three years of professional work experience in emerging markets and completed the first year of our MBA programme. It is an excellent opportunity to understand emerging markets and to build relationships by using our students’ expertise and local contextual knowledge.

Because some Indian companies use the UK as a gateway to Europe, the relationship that the UK crafts with Europe post-Brexit is important for Britain’s future relationships with other markets. To be successful in creating new partnerships with emerging markets, Ravi argues the UK Government will need to relax its visa rules: “The reality is that places like China and India are going to be even bigger power centres and economies in the next 20 to 25 years,” says Ravi.

“The hope is that because the UK ‘knows’ India well, there will be great opportunities, especially given that India is growing at 5.6%, which in India is seen as an absolute disaster - European countries would give an arm and a leg for that kind of growth!”

M.N. Ravishankar is Professor of Globalisation and Emerging Markets and Head of the International Business, Strategy and Innovation group. Ravi can be reached on m.n.ravishankar@lboro.ac.uk

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MOVING FORWARD

BY DOING WHAT WE DO BEST

by Professor Steve Rothberg

With the exception of derby day in Manchester, I’ve never seen such acrimony and polarisation as characterises Brexit debate, nor so much passion at the expense of reason. But even when City play United, the passion in the heat of the moment gives way to analysis based on evidence.

Whether you agreed with the referee or not, we move forward.

Despite a certain Government minister plumbing new depths by stating that the British people “have had enough of experts,” I refuse to accept that the ‘posttruth’ era will prevail.

I think Britain’s academic community can and should lead the restoration of normal service before it is too late. Where better to host the informed debates, review the evidence, perform the analysis and offer the thought leadership that has been so chronically lacking since the big red bus first appeared? That is what we do best: objective examination of the evidence, not an outpouring of personal feelings on the subject.

Exactly when we will leave the EU is uncertain, but not so uncertain as the

precise circumstances of our departure.

Will we remain in the single market, the Customs Union or join the European Free Trade Area? These are not straightforward decisions, but they are imminent decisions.

The turbulence of the last 18 months is not likely to diminish anytime soon.

By the time Brexit finally happens, we universities will need to have dusted ourselves down and be back to doing what we excel at.

Let’s start with the things we hold dearest: the enormous value that our EU (non-UK) colleagues add to academia and UK society generally, the way EU students enrich our communities, the splendour of ERASMUS exchange and the extraordinary benefits of collaboration within properly funded EU research projects. But let’s move from moral outrage to a case built on evidence.

That case must show the benefits to the nation - we’ve been guilty of sounding too self-interested in some of our protests to date.

It is almost 45 years since the UK joined the European Community. Today’s graduates will likely feel the effects (good or bad) of our departure over their entire working lives. Through developing new curricula, we can ensure they have the knowledge and analytical skills necessary to take our

post-Brexit world forward. Mr HeatonHarris needn’t worry. We will invite him over for a cappuccino and an Eccles cake and let him hear evidence and analysis from all sides. I trust our free-thinking students to find the best ways forward to deliver sustainable prosperity for all citizens of the world.

And last but not least, let’s get busy bringing our research skills to bear on the immensity of this moment. What will be the social and economic consequences of the Brexit deal options in front of us, and what national interventions does Government need to make to optimise the outcome of the negotiations? Where should our trade deal priorities be, and on what terms? We need to study Brexit in its own right, but we need also to see it in a global democratic context that is so full of surprises right now, some of them potentially quite unpleasant and some quite close to home.

These are the things that we do best.

Steve Rothberg is Pro Vice-Chancellor for Research at Loughborough University and can be reached on s.j.rothberg@lboro.ac.uk

— “By the time Brexit finally happens, we universities will need to have dusted ourselves down and be back to doing what we excel at.”

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BREXIT SILVER LININGS

by Richard Taylor

The silver linings in the Brexit clouds are elusive. But I will try and be positive. In the uncertainty there may be some genuine areas of opportunity for our sector.

I’m going to set aside the extra costs in our supply chains caused by the fall in the value of sterling post-Brexit, and the understandable pay claims from our trade union colleagues as inflation bites into pay-packets, but for which the institution has no additional resource to fund.

I won’t worry for now about the deep distress my colleagues from EU countries other than the UK feel as to whether the place in which they have settled, joined the civil society of and pay tax in, value their important contribution.

I’ll ignore for now the concerns of the young people who study here who see their right to travel and work across the EU threatened.

After all I don’t want to come across as a Remoaner or saboteur.

So back to those silver linings. A vision of a post-Brexit Britain can at times seem to be an incoherent mixture of Little England, Imperial Preference and Workers’ Paradise. There is, however, one concept that should interest and perhaps even excite us in universities.

The Government is at pains to state they wish to see a dynamic, innovative Britain that faces the world with confidence.

Universities are international entities.

Indeed, they cannot afford - both intellectually and economically - not to be in today’s global arena. Our universities are dynamic, innovative, globally focussed and have a confidence that comes from being internationally successful (as a country, with just 0.9% of the global population, we account for 6.3% of the world’s scientific output, 9.9% of 34

downloads, 10.7% of citations, 15.2% of the world’s most highly cited articles).

A nation that produced Newton, Franklin, Turing and Darwin surely has nothing to fear?

Within universities, knowledge is a powerful product: it is created, disseminated and deployed to generate significant economic and cultural prosperity. Indeed, Loughborough University’s positive economic impact on the UK is almost £1billion annually.

The post-Brexit world has a clear and important role for our universities. In typical Loughborough style, we will do our very best to fulfil that role. We already have clear plans to support the Government’s Industrial Strategy through levering our many partnerships, enterprise activities and research links - not least through expanding our on-campus Science and Enterprise Park.

We will deal positively with the challenges placed in front of us, putting aside our deep personal misgivings to focus on the opportunities.

Universities have a vital role in helping a post-Brexit Britain succeed. The closer the ongoing ties to our friends in Europe, the more likely that success is. And soon, I promise, I’ll get over my belief that we’d have been far better off never leaving.

Richard Taylor is Chief Operating Officer at Loughborough University and can be reached on r.taylor@lboro.ac.uk

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SCHOOL OF BUSINESS AND ECONOMICS

BUSINESS INSIGHT

by Jeff Prestridge

Warning: Rough Seas Ahead IT SEEMS an age since the country voted to leave the European Union, triggering a period of great political and economic uncertainty.

Just think back for a moment: David Cameron’s resignation, the rise of Theresa May and her party’s near fatal fall at the ballot box - and, of course, the meteoric rise of Jeremy Corbyn, a man (individual) of the people. All in the space of 18 months.

Although we continue to stumble towards the exit door labelled ‘Brexit’ indeed, if we get there at all - the impact on our personal finances has also been profound.

Sterling has slid like a child down a greasy slide, frustratingly reducing our holiday spending power abroad.

Meanwhile, inflation, much of it imported, has tickled up, eating into our household finances and reducing the size of our Toblerones (other chocolates are available).

Interest rates, cut in the aftermath of the Brexit vote, have started to notch up again, although you would not know it if you were a saver judging by the parsimony shown by most banks and building societies in response to November’s Base Rate hike.

Quite remarkably, the UK stock market has remained resilient, fuelled in part by demand from investors in search of a half-decent income. Overall, UK dividend pay-outs show little sign of withering on the Brexit vine.

Crystal ball gazing is always dangerous - I was taught that while studying for my economics degree at Loughborough. But I would be mighty surprised if our personal finances improved in the near future.

Indeed, they might deteriorate before they get better - and that is pushing to one side the (disastrous) impact that Corbyn would have on our finances were he to seize power.

So what should you do? Batten down the hatches, take out a fixed-rate mortgage (five years minimum) and ensure you are getting value for money in every aspect of your household expenditure - be it your gas or electricity supply, broadband or bank current account. And of course keep saving on a regular basis - into your ISA and pension.

Then cross your fingers and hope that the country comes out the other end relatively unscathed.

But let us cut to the chase. For the foreseeable future, wage growth is going nowhere - unless you are the boss of a FTSE100 company. Inflation will persist, interest rates may move upwards a tad and sterling will remain a fragile currency. There is every chance that the stock market may wobble horribly, temporarily undermining our ISAs and pensions.

Unemployment may also start rearing its ugly head as companies, especially financial services businesses, relocate and the economy remains stagnant. And let us not forget the forward march of the robots, Brexit or no Brexit.

Jeff Prestridge is a Distinguished Alumnus and Personal Finance Editor of The Mail on Sunday.

He can be contacted via Twitter @jeffprestridge

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Loughborough University School of Business and Economics