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Channel thoughts on Brexit

With the Brexit decision still causing shockwaves Amro Gebreel took the pulse of the channel to get their views on the issue

It has been a few weeks since the momentous decision was taken to leave the EU and while the issue was still at the forefront of channel minds we asked the great and the good what they felt it would mean for the channel.

Barrie Desmond, COO, Exclusive Group told MicroScope that there is no doubt there will be costs added to doing business in Europe. It is going to throw up some challenges and there is some uncertainty and speculation, the market doesn't really like that, but I think we can manage. I do not think Brexit will stop us in doing anything, I have business in Switzerland that is growing, and in Norway. Those are countries that can still trade in equal terms with the rest of Europe and be part of the economic environment.

Craig Joseph, Chief Operating Officer at intY, told us that our partners will not face an increase in prices for our monthly cloud services following Brexit. With our existing and future cloud distribution business model, we have no borders. Since our inception, we have guaranteed a low-risk currency model where our pricing is set and traded in the currency that most suits our partners. We can reassure our partners that if they wish to trade in Pound Sterling, Euros or US dollars, we will continue to sell in those local currencies. We are not in the business of hedging bets on currency; we are in the business of selling cloud software. Our customers can feel confident that prices will remain stable during this turbulent time.

Ed Macnair, CEO of CensorNet, told MicroScope that the uncertainty will have an impact on the prevailing macro-economic climate in the short term.  No business will be truly insulated. However, I believe those offering cloud solutions are in a very solid position because they do not have the fixed cost associated with hardware.  As most hardware is bought in dollars and sold in pounds, this could present an issue if the pound continues to plummet. By comparison, cloud services do not require the upfront outlay.  In addition, the flexible monthly manner in which they are often billed provides much more flexibility in uncertain times when compared with significant IT infrastructure investment.

Seth Ravin, CEO, Rimini Street, told us that the uncertainty surrounding the impact of the Brexit vote for UK, EU and global companies doing business in any form within these territories, will unfold and persist for months and potentially years. The more immediate result will likely be deferred business spending, including deferral of significant new IT investments. We could see slowed hiring growth and even economic recession if the uncertainty is not resolved on an expedited timetable, which seems unlikely given the complexity of impact to laws and treaties and the fact there are more questions than answers. The spotlight will be firmly on CFOs and CIOs to drive savings and maximize the return on existing IT assets. More than 80% of IT expenditure is consumed by maintaining and supporting existing IT infrastructure. We anticipate that uncertainty and the need to drive savings will further accelerate the demand for options and business partners that can help organizations extend the life of, and maximize return on, existing IT assets and budgets.

Leigh Bradford, EMEA Sales Director, KEMP Technologies, told MicroScope that as a vendor with a European HQ in Limerick Ireland, all of our pricing for the European channel including the UK, is provided in euros. Our distribution layer in the UK also purchases products from us in euros and then sells out to the partner base in sterling. The obvious risks right now are currency fluctuations, potentially making products more expensive; but on the flip side it could also make them lower in cost, which would be perceived as a benefit to end users. Other considerations are shipment costs including duties into the UK, which may become more expensive. Outside of these we really are in a period of unknown and until Article 50 is invoked and negotiations for a full exit start, we do not expect the picture to become clearer. In terms of general market opportunities, price/performance leaders are better positioned.  With continued uncertainty we expect some major infrastructure projects to come under the spotlight, as to whether or not they continue or even start. This will affect more costly technologies and will likely drive the purchasing decision towards more affordable solutions such as KEMP.

Nik Churchley, EMEA channel director at FireEye, told us that when it comes to pricing, my view is that distributors will hold dollars in advance to protect themselves from fluctuations like this. I think there will be some pricing pressure which may cause vendors' pricing to increase, but this is very much something that the markets will get used to. We don’t expect customers to buy at a higher price if the pound/euro is stronger against the dollar so we just need to hold our ground. As far as business confidence in general goes, as an optimist I think this will settle down pretty quickly. The UK economy is strong: once everybody gets over the initial shock, sensible diplomacy starts on both sides and we get some clear direction from UK and EU leadership on the exit plan/timescales, I think things will calm down. Luckily it’s the start of the summer when much of Europe heads on holiday, so by the time people return back to work the plans should be well underway.

Michael Frisby, the former Microsoft western Europe SMB managed reseller lead, and first MD at Vuzion, the new partner-focused value-add cloud aggregator from Cobweb Solutions, told MicroScope that a  “Brexit” from the EU would create short term uncertainty for just about all businesses, whether they sell in to the EU or not, including those operating in the UK IT channel. The short-term ramifications would be significant. The entire technology industry is facing a huge battle for talent, with a forecast that the UK alone will need to fill as many as 1 million new technology jobs by 2020. A decision to leave the EU will bring an end to the current freedom of movement, and create insecurity for the many 1000s of EU nationals already working within the UK IT sector.  By creating potential barriers and limiting the talent pool from which the UK IT sector could recruit, the growth of the sector would almost certainly be negatively impacted.  Without certain access to the EU/EFTA this will make it much riskier and harder for resellers to expand into new markets. For pan-European distributors it would mean extra complexity, and hence costs, in needing to treat the UK separately to the other EU/EFTA nations.  Recent research by Vanson Bourne found that 50 per cent of businesses generally hadn’t made plans to investigate moving their data if needed, with a mere 10 per cent being fully prepared to move their data to the UK if necessary. Replicate that puzzle over the country and then the continent. If regulations and statuses change it will mean huge disruption and potential cost just at the level of data storage and protection. For the IT channel, a Brexit would also likely have significant impact on issues such as data protection and regulation. As part of the EU, we benefit from the European Commission’s ongoing Digital Single Market initiative. The GDPR is expected to come into force by 2018, with the aim of strengthening data protection for individuals and businesses across all EU member states. Unified frameworks governing privacy, data collection and intellectual property make life easier and safer for users. Fragmenting these agreed rules will mean that companies have to assess and develop their existing policies and ways of working to meet legislation in multiple countries. For the channel, this could present short term uncertainty but open up long term opportunity for upselling and consultancy services, helping businesses to navigate the changing landscape. A UK exit could spell stricter, independent data laws that businesses have to adhere to – including an effective requirement to keep UK data on UK soil. In such an instance, businesses would have to conduct an audit of their data to understand exactly where everything sits. Organisations will need to poll their cloud suppliers to check exactly where their data may be stored, and that if it is the UK, that the provider can guarantee it stays there. The IT hosting industry also needs to recognise these changes – being clear about their own service’s data governance model is the only way customers can understand if they need to consider the impact of using the service on their own compliance requirements.

Justine Cross, regional director at Watchful Software, told us that the UK’s exit from the EU will definitely be causing complications for the channel, particularly when it comes to cross-border currency exchange. At Watchful, we believe that our distribution strategy should allow us to avoid being impacted too much, as it relies on regional distributors instead of a pan-European approach - for example we have individual distributors in the UK, Germany and Poland. This ensures that we do not sell cross-currency, and our margins will therefore not be affected by the value of the pound falling in relation to the euro. Even before the Brexit vote, our most recent distribution strategy kept the UK spate from the rest of Europe as the economic climate is so different. Our main concern with Britain leaving the EU is what it will mean for Britain's data-protection rules, as it appears that leaving EU will remove the UK from the pending General Data Protection Regulation (GDPR) coming into effect in the next two years. It seems that UK-based businesses trading in the EU will still have to abide by the regulation, so businesses should ensure their data strategy remains universal. Hopefully similar data protection laws will be put in place in the UK to ensure the same level of security as the EU.

Peter Godden, VP of EMEA at Zerto, argued that now that Britain's EU exit is no longer a what-if scenario but a stark reality, partners need to be aware of their customer's growing concerns about data migration and the locality of their data. By using BC/DR as a key part of their IT strategy, partners and their customers can improve their IT resiliency, giving them the ability to pivot and dynamically react to such a profound geopolitical and economic seachange. Partners should be prepared to help their customers carefully assess their IT infrastructure to validate that their systems are ready for any disruption that the changing political landscape might cause and provide suggestions to ensure a smooth transition. Now that Brexit is a reality, companies may find themselves needing to move their data into or out of Britain to align with new compliance regulations, which will truly shine a light on the importance of BC/DR software as many will struggle to manage mission critical data across disparate systems without experiencing downtime.

Steve Turner, new business director at Aditinet, told us that exchange rates are likely to have the biggest short-term impact on UK channels and we'd expect deals that are already in process to be most affected.  That said, this might encourage more vendors to have multi-currency pricelists as well as encouraging the distribution layer to be more involved in smoothing the market trends. While exchange rates will stabilise over time, short-term instability could impact profitability, particularly smaller channels, which will be more exposed to cash flow challenges. Looking at the opportunity, diversification within the channel is one potential outcome, as channels re-position or re-focus on other areas. Innovation is another possibility - we might also see more home-grown products which could have an overall benefit to local channel and local businesses. Uncertainty is always an issue for business confidence. It is also a very handy excuse. Companies still need to protect themselves and good channels - so those that are proactive and committed to sharing their expertise and advice with customers - will still be well positioned to help.  There's an opportunity to help steer companies and vendors through the uncertainty ahead. Consulting and professional services will be vital here, leveraging the opportunity to partner with channels to protect their long-term business and enhance their customer relationships. We may see delays in purchasing which will help see out some of the exchange rate issue. Getting the right portfolio of relevant and immediate technologies to help is important here. The noise created by "and me" products will need to be reduced so that we can build confidence in the sector if not in the general business arena. We're an Italian HQ'd company and our intention is to operate across borders, blend our resources and help companies grow.

Ian Kilpatrick, chairman Wick Hill Group, said that currently it's a big opportunity to plan for the impact of Brexit. We've got two years from when we hit the big red button and start the leave process. While there is, and will be short term turbulence and probably a deflationary impact on the UK economy, I'd suggest that a short period of reflection, while we wait to see what actually happens politically and economically, is the best solution. As they used to say "Don't panic Mr Mannering!". On a more personal note, customers may (and it is only may) hesitate in some of their purchasing. But in the world of security, where Wick Hill is, life will continue with the same imperatives. Customers will still require security, and still require the channel to be their trusted advisors. The opportunities will remain unchanged.

Chris Field, independent retail analyst and managing director of Fieldworks, told us that rather than worrying about the negative impact of Brexit - which no one can really predict, other than what will hopefully be short-term loss of confidence which may result in some deals not being signed - let’s all use it as an excuse to focus even harder on our relationships. In an increasingly crowded, competitive and noisy marketplace, where users find it harder than ever to find the right solution, partnerships will really count. Users will look at the market and ask, who can I trust and who has the solution that I can implement right now to get an early result. No tech company can go it alone anymore, so, time to dust off your partnership agreements and decide who you think you can really work with for the benefit of the end user.

Rob Darby, sales director at Comms-care, said that apart from the obvious initial effects when both sterling and the financial markets took a battering, Brexit has left all industry sectors including the IT channel in the same boat. However, the conditions that Brexit may create means there will be winners and losers in the IT channel and some strong opportunities that will be there for the taking.  For example, companies that rely on buying products and services in dollars will take a hit, because those products will become more expensive along with the fall in value of the pound. Those who sell products and services that are priced in pounds such as professional services or cloud services will benefit from the weakness of sterling as they can offer more value for money. Break/fix services provided via a UK-based third party specialist versus an original equipment manufacturer will also look like better value and provide an opportunity for resellers to build that side of their business.

This was last published in July 2016

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