What does a Brexit mean for the IT industry?

Do IT businesses believe it is in their best interests to leave or stay? Billy McInnes explores the possible ramifications of a Brexit

This article can also be found in the Premium Editorial Download: MicroScope: MicroScope: May 2016:

The UK population is set to vote on 23 June 2016 on whether to stay in the European Union (EU) or leave it.

Whatever the consequences of the result (and, as we have seen during the campaign, there are widely differing views on whether staying in the EU is a good or bad thing), the fractures and fissures the campaign has exposed are unlikely to be mended quickly.

But what does the IT world think of the EU referendum? Do IT businesses believe it is in the UK’s best interests to leave or stay? Which areas will be most affected by a vote to leave and what would be the effects of a Brexit?

A recent techUK survey of 277 technology business leaders found 70% were in favour of staying in the EU, with only 15% supporting a Brexit. When asked why they wanted to stay in the EU, three quarters said it made the UK more attractive to international investment, gave companies a better deal on trading relationships in the EU and made the UK more globally competitive.

A healthy majority believed a vote to leave would create more risk and uncertainty for their business, make the UK less attractive to foreign investment, give the UK less influence on the issues that affect their business and force the UK to trade on less favourable terms internationally.

On the other side of the divide, more than 90% of those in favour of leaving the EU said it would give the UK more flexibility in a global economy, and 64% believed it would make the UK more globally competitive.

Just under 60% argued it would give the UK a better deal in its relationships with the rest of the world. The main disadvantages of staying in the EU were the UK’s lack of influence and the regulatory burden imposed by the EU.

Consequences for the channel

But what about the channel itself?

Jens Puhle, UK managing director at 8MAN, acknowledges that Brexit could test the relationships between vendors and their channel partners, but he also accepts it could have a positive outcome for the channel.

Vendors might choose not to have a UK base, preferring to sell through channel partners or distributors to avoid any additional UK trade costs. “Therefore, channel partners and distributors could see a rise in activity should Brexit be successful,” he says.

On the other hand, international vendors and partners may need to negotiate new contracts and arrangements, and questions could be raised over the level of vendor support provided and the possible effect on margins.

Jonathan Wagstaff, UK country manager for analyst firm Context, says: “There is uncertainty, ambivalence and worry in the channel at the prospect of a Brexit later in 2016.”

But the impact will be minimal for local distributors that do not have a large presence on the continent, he adds, while larger distributors often have a local presence in all major countries and operate with relative autonomy, so cross-border selling will be more easily managed. 

However, there is concern that pan-EU contracts with vendors for some corporate resellers and the channel will need to be renegotiated.

The market perspective

Brexit could have consequences for stock and warehouses, where fulfilment between existing EU countries will be easier than crossing out of the union. “There are also worries regarding import/export licensing for sensitive technologies,” says Wagstaff. “The general feeling in some pan-EU resellers is that Brexit will create more red tape than it will cut.”

Dave Stanley, director at Aditinet, believes Brexit will have minimal effect on the UK channel for sales made in the UK. In general, he adds, the UK channel market is quite closed and self-sufficient.

He says pan-European distributors are used to dealing with three currencies, and are buying currency on a quarterly basis. “From a market perspective, we’re not very joined up to Europe, in terms of  geography and currency. The changes will come if the EU were to push for better legislation where compliance-based selling could be affected.”

Peter Smith, regional sales manager for Europe at Netwrix, believes that if Brexit does happen, the UK will lead the way in changing to meet whatever market conditions emerge. “Whatever the outcome, UK customers will continue to look to the UK channel to guide them on their technology options,” he says.

But Michael Frisby, managing director at Cobweb Solutions, warns that economic growth for the UK channel is partly driven by the access UK organisations have to EU markets and from global providers using the UK as a stepping stone in to Europe.

“Many UK businesses will have to be compliant with key EU rules and standards, whether or not the UK is a member of the EU. It is essential for the UK to remain at the table, making the pro-innovation case on the big decisions shaping the future of Europe’s digital economy,” he says.

What about jobs?

One of the main areas of dispute is the effect Brexit could have on jobs.

Mark Proctor, managing director of European Automation, says while the debate has centred on reducing the amount of immigration to the UK, restricted access to potential employees could prove detrimental for businesses reliant on recruiting from the EU talent pool.

There are as many as 2.1 million EU immigrants working in the UK, many of them helping to fill gaps in construction, engineering and IT. “For example, our multilingual sales team, who mostly come from European countries, help us communicate with customers in 118 countries and speak 21 languages in total,” says Proctor.

“Their language skills and cultural intelligence allow us to communicate to more customers, close business deals and sell on an international scale, not just in Europe, but the world.”

In 2015, 81% of the company’s sales came from exporting. Leaving the EU would create obstacles for businesses hoping to recruit multilingual talent, but for organisations reliant on importing and exporting goods even more issues will arise, says Proctor.

Stanley at Aditinet says people are the biggest benefit of staying in the EU. “Businesses such as ours don’t have the talent or individuals to grow at the rate we would like to, so we rely on drawing the right skills into the UK,” he says.

“For smaller organisations in the channel, this is also key as they have been taking those skills back out to the wider European market through partners. So for employers, the benefits of being in, outweigh those of being out.”

Risk of Britons emigrating

Chris Meredith, CEO at Officebroker.com, draws attention to a survey conducted by his organisation, which found that just over 15% of 18 to 34-year-old Britons would consider emigrating if there was a vote to leave the EU.

“Those numbers reflect the desire for UK talent to do what’s best for them,” he says. “If skilled IT staff leave the UK, that causes recruitment issues because we'd see a shrinkage of available talent.”

If it became potentially harder to recruit staff from overseas depending on what the new visa rules looked like, it could be a very serious problem for UK businesses, adds Meredith.

Peter Chadha, founder of Dr Pete’s Technology Experts, is a Brexiter and he believes leaving the EU will improve recruitment. “Agile IT businesses believe that we do need migration to have sustained economic growth. We need to hire the brightest and the best,” he says.

But pressure from “uncontrolled migration from the EU”, is making it very tough to recruit individuals from other parts of the world. “This stifles our IT sector,” says Chadha. “Getting programmers from India – which is one of the few world markets able to provide the right kind of cost-effective resource – is nigh on impossible.” 

The IT currency problem

From an IT perspective, Brexit could also have a significant effect on the currency of technology, namely data.

Smith at Netwrix says the EU General Data Protection Regulation will no longer apply if the UK leaves. “Brexit will put the UK government under enormous pressure to protect its citizens’ data, but very possibly with less international co-operation.”

UK resellers and vendors offering services to EU customers will have to adapt to a far more stringent regulatory climate than the one currently governed by the UK Data Protection Act, adds Smith.

Frisby at Cobweb Solutions agrees that leaving the EU would have a significant effect on data protection and regulation. He says unified EU frameworks governing privacy, data collection and intellectual property make life easier and safer for users.

“Fragmenting these agreed rules will mean companies have to assess and develop their existing policies and ways of working to meet legislation in multiple countries,” says Frisby, adding that this is not necessarily a bad thing for the channel. “It could open up long-term opportunity for upselling and consultancy services, helping businesses to navigate the changing landscape.”

Brexit could lead to UK data being kept on UK soil. Businesses would be forced to conduct an audit of their data and poll cloud suppliers to check exactly where their data is stored and to guarantee it can be kept in the UK.

Frisby points to recent research by Vanson Bourne, which found 50% of businesses hadn’t made plans to investigate moving their data if needed, and only 10% were fully prepared to move their data to the UK if necessary.

“Replicate that puzzle over the country and then the continent,” he says. “If regulations and statuses change, it will mean huge disruption and potential cost just at the level of data storage and protection.”

Trading with the enemy

Chadha argues that Brexit would allow the UK to escape the EU’s bias towards “the dominant economies and manufacturing industries of the EU, such as Germany”. He quotes claims by Patrick Minford, professor at Cardiff University, that the UK could “instantly benefit from free trade and save costs of 3% of GDP” if it were free from the EU’s Common Tariff. 

But Puhle at 8MAN argues Brexit would have a direct effect on European companies already in the UK or looking to expand internationally. “It would also hinder the UK trading with its most important market [the EU] and other markets worldwide that have trade agreements with the EU [but not with the UK in isolation],” he states.

“It is inevitable that, at least in the short term, there will be an increase in costs of trading with the EU.”

He cites a survey by Bertelsmann Stiftung, which found 41% of respondents would decrease or relocate their capacity from the UK in the case of Brexit. 

What will US companies do?

Finally, there’s the thorny issue of what US technology companies might do if the UK votes to leave the EU.

Stanley at Aditinet is optimistic that US vendors won’t shift their focus to the continent. He argues that many have made the UK their headquarters for logistical – rather than commercial – reasons, as we’re closer in time zones, language and culture. He believes the strong profile of US businesses in the UK “has been dictated by US needs rather than the EU situation”.

Frisby at Cobweb Solutions accepts there is a risk US vendors could focus more on countries on the continent, but adds: “We need to remember the UK is a major market for US vendors, and we share a common language. [However] the UK may lose its place as a stepping stone to the EU markets if new barriers such as additional regulations and tariffs are put into place.”

“If Brexit occurs, there will be winners and losers but, without doubt, the UK would be in a diminished position for both US and other international vendors.”

Smith at Netwrix says the UK’s advantages in terms of language, good logistics and skilled staff will not change overnight. “But if the cost base in the UK rises as a result of Brexit, we would definitely expect US vendors to look carefully at moving their European headquarters to those parts of the EU where the cost of business is lower.”

Confused? You will be

Right now, it’s hard for anyone to give a comprehensive answer as to whether the UK is better in or out of the EU.

The “in” camp has more than 40 years of experience to draw on to demonstrate the benefits of being in the EU, but those campaigning to leave have their own perspective on those 40 years and of what the future might bring.

The confusion over which side is right is well summed up by Albie Attias, managing director of IT hardware reseller King of Servers. “It is very hard for me to draw a conclusion as to what is best due to the large amount of hyperbole in the media,” he says.

He points to members of Parliament sniping at each other via mainstream and social media, which has made it difficult to source facts on the effect it may have on the economy.

“I usually have a strong opinion, but this particular topic has become so saturated that it is tough to make a decision either way as a business owner and an individual,” he says.

This was last published in April 2016

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