How does Brexit impact franchising in the Eurozone?

This is a collaborative post. 

All eyes are on the UK after it voted 51.9% in favor of leaving the European Union last year. It was quite a shocking turnaround, which would have a substantial impact not only on the UK economy but also U.S. firms that do business with UK-based and Eurozone-based businesses.

While most news outlets are focused on Brexit’s impact on the global market, others are sympathetic to British franchisors who did not participate in the referendum debate. The British Franchise Association did not lobby or make their stand regarding the UK’s exit from the EU. Some experts suggest that if they had been more vocal in the debate, people would’ve been aware of the ramifications of what a leave vote would signify.

In preparation for Britain’s exit from the 28-nation partnership, the Bank of England unveiled plans to supply the nation’s banks with capital to weather the risks of potential bank runs. FXCM state that the Bank of England announced that “commercial banks would have three separate opportunities to borrow money both before and after the June referendum.”

Implications of Brexit

The effect of Brexit on franchisors depends on the relationship that the UK builds with the EU post-Brexit. If the UK joins the EFTA and the EEA, the economic stability of the country will likely remain unchanged. Experts say that this is the best option for the UK right now as there would be less upheaval.

However, if the UK fails to join the EFTA and EEA, it is likely that the UK will negotiate for a lighter arrangement with the EU through multilateral and bilateral trade agreements or rules in line with the World Trade Association, G20, and OECD.

Franchise regulation

Although there are some franchise regulations in Italy, Sweden, Belgium, Romania, Spain, and Italy, there are no franchise-specific regulations in the Eurozone. That being said, Brexit will have an impact in this regard. However, if in case the European Parliament’s decision regarding the UK’s trade relations leads to a EU-wide franchising regulation, then the UK will have no choice but to oblige to such regulations.

What franchisors should keep in mind

Every investor should keep in mind that Brexit could open up grounds for a termination of contract depending on the agreement given by a business operating under a Eurozone country. Some EU regulations and restrictions could well be scrapped under the Brexit ruling. If this happens franchisors will have to rely on legal advice to determine where they stand.

The increased tariff costs between the EU and UK will definitely have a significant impact on franchisors that built a network of clients in the UK and EU. What franchisors should look to do is expand their client base outside the UK and EU in order to weather the possible losses of clients in the coming years.

Categorised in: franchise information

This post was written by Dr. John Hayes