Comment by Ajay Sule, Practice Director EIA, and Adrian Drozd, Research Director, Digital Transformation, Frost & Sullivan
LONDON – 27 June 2016 – The tech sector accounts for around 10% of UK GDP, and is one of the fastest growing components of the economy. With a thriving start-up community, including a strong focus on Fintech, London is widely renowned as the digital capital of Europe. Before the EU referendum on June 23rd, a number of surveys of technology business leaders pointed to a strong preference to remain part of the EU – with access to skilled personnel, ability to strike better deals on trading relationships across the EU, and funding benefits coming to the fore. Proponents of Brexit pointed to the potential ability to be flexible and competitive in the global economy, and the possibility of removing some of regulatory burden imposed by Brussels.
After the vote, which will go down as one of the most important developments in UK history, the tech sector will seek to make sense of the new opportunities and challenges that lay before it. As with the broader economic context, there will be a period of uncertainty and adjustment, but business will move forward and embrace the new status quo. While there will be consequences across a multitude of areas; in addition to general question marks over trading relationships and logistics, 4 key points are the main areas of focus in a post-Brexit world:
- Skills shortage – the UK tech sector and all of the innovation that surrounds it needs highly skilled people to flourish. Today, it is able to tap into the EU – but even then, we still have a shortage in certain areas. By putting a brake on immigration, companies may struggle to find the people they need to drive their businesses forward. In addition, EU citizens working in the high-tech sector may feel their careers are best served elsewhere – there’s a real possibility that many will seek opportunities elsewhere in Europe.
- The role of the UK as a Digital hub – for many firms seeking to harness opportunities, the UK has long been seen as a gateway; especially for US firms, due to the cultural affinity between the two countries. Start-ups have also been attracted by the cultural of innovation fostered in London in particular. With such uncertainty, will major IT providers want to retain their European headquarters in the UK, or will the lure of operating within the EU work to the benefit of Paris, Frankfurt and others? In addition, not being a part of the Digital Single Market could result in further isolation and deprive the UK of the benefits of cross border online trade / e-commerce.
- Cutting the red tape, or just introducing more? – Data protection and regulation has been an area of hot debate for many years. While the UK may well adopt a variant of the EU General Data Protection Regulation, Brexit may make it harder for companies to navigate legislation and ensure they abide with the varying rules in different countries. Knowing where data is stored will also become more important than ever, to ensure that data is secure and privacy is maintained. Additionally, the EU has been driving policy on how US firms collect and manage user data it collects from Europe and negotiated the “EU-US Privacy shield” agreement. With Brexit, the UK will not be a part of this agreement post 2018 and will need to negotiate new terms directly.
- Access to funding and credit – although the Bank of England has been quick to state it has plans in place to support the UK economy and the financial services sector, concerns will be raised with regards to the ability to obtain credit and funding – especially among start-ups. The European Investment Fund (EIF) is the largest investor in UK venture capital firms – whether this funding stream remains in place, and for how long, is a major question mark.
There are many more issues that will come to the fore over the coming months as the dust starts to settle. For example, pan-European contracts will need to be renegotiated, and IP/trademarks may require separate treatment for the UK and the EU. Individuals and companies will be assessing their options – and many will not wait until formal exit negotiations are concluded to put their plans in place. Nevertheless, the UK has long demonstrated it has an innovative and resilient tech sector and we expect it to weather the initial turbulence and uncertainty resulting from the Brexit vote.
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