Foreign direct investments (FDI)is made up of a collection of overseas investments usually to start up a newcompany, to expand their existing subsidiaries or take over national companies.Countries generally allow more inward FDI as it tends to increase productivityand economic growth which leads to higher output and income. The UK is one ofseveral major players in receiving FDI with an estimated FDI stock value ofover £1 trillion in 2015 (UKTIP, 2015) with other EU countries holding anestimate of half that figure. There are direct and indirect advantages of FDI.Direct benefits include income-earning opportunities created by foreigncompanies, higher wages than domestic firms and FDI are generally moreproductive. However, this also will mean the country recipient of FDI learnsabout new foreign technology and managerial strategies implemented by thatcompany and can be adopted by domestic firms as well as increasing competitionputting pressure on domestic and foreign subsidiaries to improve the quality ofservices they provide. On the 23rd ofJune in 2016, Brexit came to a conclusion and the UK voted to leave theEuropean Union for a number of different motivations such as better trade dealswith partner nations. Uncertainty rose on what will be the new rules and traderegulations and how was this decision going to affect the single market and theright of free trade.
This has led to panic amongst companies based in the UKwith the need to access the EU market, and many of them were observed buildingnew infrastructure in EU countries in order to leave the UK. The UK will have a2 years period to negotiate new regulations with the EU. Regardless, leavingthe EU will still decrease the level of inward FDI into the UK for at leastthree different reasons. Firstly, when the UK is fully in the Single market itmakes the country look more attractive as an export platform for MNEs becauseof the large costs from tariffs and non-tariffs barriers when they export tothe EU.
Secondly, the over-all uncertainty over the future direction the UK isheading, especially between the UK and the EU also will negatively affect FDI.Finally, supply chain for MNEs is usually complex and have many coordination costsbetween different EU countries (HQ & Branches) making it difficult tomanage if the UK left the EU.