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On June 23rd this year, backers of the UK’s decision to leave the EU were busy celebrating the anniversary of the UK’s ‘independence day’. But what exactly were they celebrating after a year of massive political and economic turmoil? And with many predicting even more upheaval ahead as the UK seeks to untangle itself from the EU, what are the consequences for channel companies over the next 12-18 months?
KPMG’s head of Brexit, Karen Briggs, is under no illusions concerning the challenge faced by UK companies. In a statement to coincide with the anniversary of the Brexit vote, she said: “There is definitely a band of firms that are either in denial or yet to fully engage at board level. These organisations tend to argue that there is too much uncertainty and complexity or, post general election, they have unrealistic views on the Brexit outcome.”
She warned that they need to get on with the necessary planning urgently. “There is little reason to believe that the current levels of uncertainty and volatility around Brexit are going to change,” Briggs remarked. “Businesses need to take a more proactive approach to shaping their own destiny. The Government has a massive agenda to land and the nature of the deal means the current climate isn’t going to get a lot easier.”
Chris Sharp, Exact UK Partner Manager, accepts that the Brexit decision caused some uncertainty over IT investment and the weaker pound led to increased costs, but he argues the IT sector “can actually thrive in an uncertain environment”. He cites the example of the millennium bug which “resulted in record sales”. Exact’s channel partners are “optimistic about the next 12 months”, he adds. They are continuing to invest in marketing and increasing headcount as they see sales rise.
Michael Frisby, managing director of Cobweb Solutions, says Brexit has “raised questions on trading conditions and employment rules, data protection and regulation along with increased prices from many US vendors”. The volatility in foreign exchange rates in the last 12 months has led to significant price rises and contributed to the recent rise in inflation.
The general election result has also added to the uncertainty and could affect business investment over the medium to long term. “We won’t have certainty and more predictable market conditions until we see what ‘deal’ the government is able to make with the EU,” he warns.
The key to succeeding in uncertain times, he adds, is to focus on customers and what they need. “Helping customers achieve their business goals through providing quality and good value services, is the best way to deal with any market condition,” Frisby argues. “Focus on what you can influence, whilst keeping an eye on the broader market, but don’t get distracted by all the noise and take your eye off what the customer needs.”
Jessica Figueras, chief analyst at GlobalData Public Sector (formerly Kable), says the drop in the value of sterling has been the most tangible effect of the Brexit vote so far. “Since the UK imports most of its tech equipment from the US and elsewhere, that’s meant price rises in some areas,” she observes, “and that will continue for as long as currency markets believe that the UK’s growth prospects have been weakened.”
Figueras reports that technology companies have told her “the current political uncertainty is making it difficult for them to plan for the future. That’s not a good thing for the economy, as firms tend to delay investment plans while waiting for a clearer picture”. But she believes the IT industry should be ready to play a positive part. “Perhaps the biggest short-term political risk right now is that of the UK crashing out of the EU without a deal,” she reveals. “If this were to happen there would be significant disruption to supply chains, directly impacting the public, as the current legal underpinnings of UK trade with EU firms ceased to apply. Risk mapping and mitigation planning must start now and tech firms, both large and small, are often well placed to support this kind of work.”
For Peter Hannah, head of UK channel at Zyxel, much of the change to the channel “was felt in the latter stages of 2016, after the initial currency shock from the Brexit vote”. While 2017 has been more stable, currency fluctuations are still threatening sterling and the single currency. “While there are pricing pressures, the majority of businesses are doing their utmost to absorb any price changes to protect their customers from inflation,” he adds.
Hannah believes cloud service providers are better suited to weather the storm because on-demand contracts “are a more attractive prospect than large hardware deployments at times of uncertainty”. Focusing on the long term and reliance on ongoing contracts means a more reliable stream of income, reducing the impact of any currency changes”.
Dave Sobel, Senior Director of Community at SolarWinds MSP, notes that analyst predictions for IT spending in the UK in 2017 “have been way off – and Brexit is to blame for much of this discrepancy”. He agrees with Figueras that businesses need a degree of certainty before they invest in anything. “The uncertainty around what Brexit actually means for UK and EU law means a reluctance to buy the technology that will help meet the requirements for, as an example, GDPR.” Sobel says.
GDPR is almost certain to be part of UK law, he claims, and businesses will need assurances, which is “an opportunity for vendors and service providers. For the next two years, consultancy to help navigate this uncertainty will be as valuable as the products offered by IT providers”.
John Hughes, Enterprise Sales Director at Varonis, offers a different perspective, arguing that IT “is probably one of the sectors least impacted by Brexit. The internet has no borders. UK organisations will continue to use worldwide services and information from around the world will continue to flow freely to and from Great Britain”. He accepts regulations like GDPR will still matter to UK organisations but believes some have already started preparing for it “with great fervour despite Brexit”.
Hughes predicts the next 12-18 months “will certainly be interesting for the IT industry as a whole”. He says Brexit has made UK organisations that employ EU workers concerned about the lack of clarity regarding the status of those workers. It has also created instability in the minds of affected workers which could lead to a loss of highly skilled technical employees from the UK. “The IT industry is already under-skilled so we must ensure we are able to keep the right talent in our industry to enable us to grow,” he adds.
Tony Nevill, Managing Director for UK & Ireland at Westcon-Comstor, agrees with many that the most notable consequence of Brexit so far has been the effect on the pound. “Price changes up or down at quote stage always slow things a little, however, that’s very much business as usual. What has been unusual is the speed and volatility of the changes.” Nevertheless, he does not believe Brexit has had a seismic effect. “In the instances where the falling pound may have been an issue, we worked with our vendors to absorb whatever impact there was because one thing is clear, our partners need to be confident their customers have no cause to rethink or stall any current purchasing decision.
He says things have been “relatively calm” in the early days of the Brexit process but “now we’re underway, the realities of Brexit will become clear and, however things pan out, in under two years’ time customers will be in a far more certain position to make informed investment decisions. Which way will things go? If I knew all the answers I’d be working in ForEx and already planning my retirement”.