A considered look into how Brexit will affect the IT industry, and how this might affect you as a London based business.
General Brexit outlook
While Brexit negotiations are still ongoing, the UK will likely leave the EU in the next 1-3 years (maybe even more). This will have a big effect on the UK in many ways. Anything from the value of the pound, immigration uncertainty and higher inflation to more frivolous issues such as availability of certain foods and a decline in EU student exchange schemes.
The above examples are just educated guesses as Brexit has yet to be fully implemented – so there is a lot of uncertainty.
How will this affect the IT industry?
One issue that hasn’t been discussed in too much detail is how Brexit will affect the IT industry. Some experts have looked into it, and by applying some common sense you can also work out yourself what will/will not be affected.
For example, it could result in a serious skills shortage in the IT industry. Overseas recruits currently working in the UK may look to emigrate to pre-empt any sort of difficulties they may encounter post-Brexit. The uncertainty may also put off any potential IT recruits who had planned on moving to the UK to work.
The impact of Brexit on the technology and IT industry will initially depend on the model the UK adopts for its relationship with the EU. The UK can either remain in the European Economic Area (EEA) or move to the European Free Trade Association (EFTA). The EEA option should mean that impact is minimal, but if the UK decides to switch to EFTA and gain access to the single market, the future would be more uncertain. If the UK opts for neither and decides to look at options further from the EU, then changes could be more considerable.
The UK has a great reputation in technology, particularly London. A combination of high investment/funding, tax incentives and general research and development has made London very appealing for tech start-ups. The UK has also been supportive to tech giants like Google and Apple in the past, which should stand in good stead for the future. Indeed, tech companies like Google, Facebook, Microsoft, Amazon and Apple have all already indicated that they back a post-Brexit UK – with some even announcing major investments in the UK since the Brexit process began.
With GDPR only recently implemented earlier this year, once the UK leaves the EU the transferral of data to and from the UK will need to be reviewed. It should be noted though that big companies like Microsoft have UK based data centres – so data can stay within the UK.
When GDPR came into effect, the UK was still part of the EU and businesses had to ensure they conformed to the laws and regulations that outlined how data is managed. However, now the UK will first need to decide if it recognises GDPR as English law, and even if the UK does recognise GDPR, it still needs to be decided if the UK should be considered a reliable third country for personal data imports.
The UK Information Commissioner’s Office will push the UK government to follow GDPR regulations it has set out as it recognises that the Data Protection Act 1998 did not do enough to ensure data was being stored and managed correctly.
Although the UK has publicly opposed some aspects of the GDPR in the past, if it were to be considered a safe third country for data imports then it would be foolish to ignore the GDPR completely.
Global businesses, including IT companies like Dell and Google, would rather they didn’t have to account for different data protection rules in the EU to the UK and as a result some companies might not want to do business in the UK – which would mean less money flowing through the UK.
Procurement is something IT companies (and their clients) should pay particularly close attention to. For an IT services provider, procurement is something that is dealt with daily.
IT services providers work with a number of different suppliers to ensure they have access to the full range of IT equipment they, and their clients, want and need. It remains to be seen how big an impact Brexit will have on purchasing/trade in technology, however, what we do know is that all of this uncertainty regarding how the UK will trade with other countries is certainly not a good thing and is already having a negative effect on prices, with costs increasing (sometimes without clear justification) quarterly.
A survey conducted by the Chartered Institute of Procurement and Supply (CIPS), found that nearly half of European businesses with UK suppliers are already looking elsewhere for replacements.
IT service providers regularly purchase computers, cables, network equipment, phones and anything technological that enables businesses to work as efficiently as possible. Efforts will always be made to purchase from within the UK, but this isn’t always possible. If products have to be shipped from overseas to the UK, then there is a good chance tariffs and regulations will need to be applied to the product, and as a result, prices may need to increase to counter this.
The same may also apply to resellers of overseas products. Companies like Lenovo (who are based in the US) have a number of UK resellers, but due to potential trade expenses, resellers may need to start raising prices as a result - which will cost you, the consumer, more money to buy these products.
According to another recent CIPS survey, if the UK is unable to stay in the single market, then more than a third of UK businesses (including resellers) plan to just haggle down suppliers’ prices. We don’t know how effective this will be though.
A thorny problem will be deciding how to manage the escalation in costs, both of materials and administration, of the manufacture of common IT items such as servers and personal computers – with the assumption that any increases will be passed on to the end consumer.
Often companies such as Dell and Hewlett Packard source main components from a wide variety of suppliers and finalise assembly in several locations, often shipping the unit in progress between assembly sites in the UK, Ireland and mainland Europe. The potential complexity of increased repeat import/export costs and administration may lead large brands to centralise manufacture of high volume items – which may not be in the UK, leading to a loss of jobs and an increase in units costs.
There is no doubt Brexit will affect the IT industry, whether that be an IT services provider like EC2 IT or London businesses that rely on any sort of IT solution to enable them to work. However, it is still unknown as to what extent Brexit will have on the IT industry. Until then, we just have to hope that an agreement is made that will make the divorce from the EU as gentle as possible.