Boom or Bust? Brexit and the Tech Sector

As the UK continues its negotiations to leave the EU, what does this mean for the tech sector as a whole, and how individual business manage the impact Brexit could have on their businesses?

The final answer to the question’ deal or no deal’ could have profound consequences for all businesses and organisations connected to technology. How taxes and tariffs could be affected. Multi-regional contracts could be impacted. And the movement of data currently affected by GDPR and how data security is managed could all change, especially in light of the recent geo-blocking cases.

Julian David, CEO of techUK commenting after they recently polled the tech industry said: “In the nine months that have passed since we last surveyed our members, sentiment has not changed about the impact of no deal with the majority of respondents saying it would have a negative impact on their business. Even for those members, we spoke to who have taken steps to prepare for No Deal, mainly larger members, it is clear that No Deal remains an unattractive outcome.”

The government has continued to create documents and other resources all business can use to prepare for Brexit. The essential resources that all tech businesses should be using include:

• Government’s Get ready Tool
  No matter which sector your company operates within, this comprehensive tool gives an overview of the steps your enterprise should be taking now.
• The No-Deal Readiness Report
  This document sets out in one place what will change if we leave without a deal and outlines what the government is doing to get ready for Brexit on 31 October.
• ICO International data transfers
  You are a UK-based business or organisation, and the GDPR currently applies to your processing of personal data, and you send personal data outside the UK, or you receive personal data from the EEA, or you receive personal data from countries or territories which are covered by an adequacy decision.
• GDPR (General Data Protection Regulation)
  The national supervisory authorities of EU and EEA states and the European Data Protection Board, the independent body established by the EU GDPR to ensure consistency within the EU as regards interpreting the law and taking regulatory action.
• Personnel and tech skills
  Information for UK businesses on service provision if there’s a no-deal Brexit. Also, information about EU citizens moving to the UK after Brexit should be read in association with the advice regarding the provision of services.

The level of uncertainty across the tech sector regarding Brexit remains high. Worst-case scenarios place the UK’s GDP 4% lower over the long term, according to NIESR. Garry Young, Director of Macro modelling and Forecasting, said “Leaving the EU will make it more costly for the UK to trade with a large market on our doorstep and inevitably will have economic costs. We estimate the long-run cost of leaving the EU on the government’s preferred deal to be roughly equivalent to losing the annual output of Wales.”

Clear and present danger?

As the tech industry has many components all of which could be impacted by Brexit, Silicon wanted to discover how leaders across this sector currently view Brexit and how they are planning to ensure their businesses minimise the negative effect Brexit could have whatever deal or no deal is struck.

Commenting, the MPA Group said: “Britain’s booming tech industry has given the country potential to dominate and grow in IT and many other sectors. Mark Sewell, CIO of Microsoft recruitment partner Curo Talent, explains that for the many industries developing IT infrastructure, such as in financial services, there is a concern that there may not be enough IT talent available to match increased demand.

“The average age of the IT workforce is increasing, and Britain’s education system is not producing an adequate number of skilled workers to replace these employees once they retire. This is exacerbated by Brexit and its restriction on access to talented EU-workers. To continue this development, businesses need IT workers with the skills to deploy the latest technology. Unfortunately, this talent pool may become limited.”

Speaking to Silicon, Jack Mason is the CEO and Founder of Inc & Co, a collective of agencies based in Manchester said: “Until investors get clarity on what post-Brexit UK will look like, we will continue to see a decline in inward investment. The smaller early-stage and start-up business will be the hardest hit, naturally because of the lack of cash and contingency plans seen with larger, more established tech companies.”

Mason continued: “Brexit poses an increasing threat to the hiring of developers, which hasn’t been helped by the fact that Brexit leave date has been pushed further and further back. The uncertainty around hiring EU nationals has seen positive reassurance from the government, which has also removed the fee to apply for settled or pre-settled status.”

What the business environment will look like post-Brexit has yet to come into focus. Chas Moloney, Marketing Director of Ricoh UK & Ireland, believes the tech industry needs to think holistically to thrive in this environment: “To ensure that the UK continues to grow and thrive post-Brexit, it seems it will fall to business leaders to stabilise our company environments and create workplaces where employees can thrive.

“The ONS findings reflect a period of rapid technological advancement, yet as these figures demonstrate such huge leaps forward have not been matched by productivity. These statistics go to show that a reliance on technology alone will not solve the productivity puzzle, especially in a time of such political uncertainty. Ricoh’s Economy of People report, conducted alongside Oxford Economics, found that a holistic approach to productivity that considers culture, workspace and technology, could unlock £36.8 billion in untapped GDP for the UK.”

Olav Ostin, managing partner of TempoCap (European tech investment firm) also commented: “In general, London and other tech hubs will remain strong. One possibility is that individuals working in tech will look to locate to Berlin and Paris rather than London in the future. Following on this point, there may be the risk that in the future, some unicorns will now come from continental Europe. Another potential outcome is that US companies, in the future, may decide to open their first offices in continental Europe rather than the UK – this is potentially a risk for the UK market. Overall, the effort of the government to support technology investment in the UK is solid, including the BBB programme, and to date, we have not yet seen the effect of Brexit at all – which is a positive sign.”

The tech sector has always had a reliance on highly skilled staff. Silicon asked Bill Graham, SVP Adecco Professional Staffing – a leading provider of recruitment for his perspective: “To maintain its position as a thriving tech hub if we leave the European Union, UK organisations will need to ensure they uphold the capital’s reputation as a top spot for tech talent. This is particularly important as research shows that over half of employers fear a potential tech drain post-Brexit. Something they cannot afford, given the fact that there are already significant skills shortages in the sector.”

“The UK is currently experiencing a tech skills shortage, which could be exacerbated post-Brexit,” Graham concluded. “To address this concern, technology companies in the UK should broaden their horizon and recruit outside of their traditional talent pools. Over the past few years, for example, we’ve increasingly seen companies recognising the benefit of recruiting neurodiverse talent. As well as improving recruitment processes to attract more diverse talent, companies should consider rethinking their requirement criteria. For example, by considering whether a degree is really required for a certain role.”

Life after Brexit

As the UK will effectively become a ‘third country’ after Brexit, how will this impact on pan-European tech firms? Hans Szymanski, Chief Executive Officer, NFON AG who have headquartered in Germany told Silicon: “Our support of our UK subsidiary hasn’t wavered in light of the result of the Brexit referendum. We see tremendous market opportunities in the UK, which is why in the last couple of years we have moved to bigger offices in London and opened a new office in Manchester to enhance our support for our Northern partners. We believe in the UK team and the UK market. It forms part of our long-term plan, which sees the UK continue to maintain a key role in our overall company growth, whatever the outcome of Brexit.”

However, Inc & Co’s Jack Mason believes the UK will take some time to recover from Brexit whichever forms it takes: “There will be uncertainty for years to come. It will take time to rebuild the UK’s reputation as somewhere with an exciting and diverse tech sector. Like with any setback, it will be a while before investors have the confidence to want to invest, and talent feels they have job security in the UK. I’m excited about a post-Brexit world, as, with any change, it creates opportunities for companies to innovate, get better, become stronger. We’ll lose companies along the way; naturally, the fittest will survive.”

One of the most pressing issues is the movement and protection of data. In a post-Brexit scenario, regulations such as GDPR could become almost unworkable.

Says Robert Healey, IONOS Strategic Partner from Relentless Privacy and Compliance Services:

“The UK tech industry will want to maintain the integrity of data flows to and from the EU. This will put pressure upon cloud providers and for pretty much every tech company, all of which may have to, for example, update legal data sharing contracts, service agreements, data processing records, controller to processor addendums etc. to guarantee data transfers from EU to the UK remain unaffected.”

With David Smith, Head of GDPR Technology, SAS UK & Ireland also advising: “In a no-deal scenario, Britain would become a ‘third country’ – neither in the EU nor officially in line with EU regulations. That would mean that UK companies may have to employ a staff member within the EU to act as an intermediary on GDPR compliance. Furthermore, if a company has multiple European operations and has the UK as its lead supervisory authority, then they could no longer rely on the “one-stop-shop” provision and would have to deal with multiple European agencies. This would be expensive and time-consuming and, could lead to severe delays in compliance and potential data exposure during the changeover.

“UK companies’ use of data storage in the USA would also be in question under no-deal. We currently operate under the US-EU Privacy Shield agreement. If the UK crashes out of that framework, companies might need to re-evaluate their contracts with US-based storage providers to guarantee compliance with GDPR.

“Organisations need to prepare in advance to handle the data challenges of a no-deal Brexit. They need to have deep insight into the data they hold and where it’s stored – and under which jurisdiction – to ensure they can effectively plan their compliance efforts. By employing advanced analytical tools, businesses can quickly get a clear view of what personal and sensitive information they’re holding and where – as well as for deciding on the next best action to take.”

Prepare for Brexit

Already tech companies are planning for Brexit with a deal – and more importantly, for Brexit without a deal. The movement of data and how this is protected is one of the fundamental questions, tech companies are grappling with, simply because data in most cases, is their most precious commodities. Resolving how data will be able to move to and from the EU when the UK becomes a Third Country must be defined quickly to avoid disruption.

What did come out of the conversations Silicon had with tech business leaders was the need to protect the talent they need to remain in business and profitable. The potential for a knowledge and skills exodus from the UK if a No Deal Brexit were to occur was pointed to by many, as their greatest worry. Attracting the highly skilled people they need after Brexit to continue to evolve their businesses is a clear and present danger for my companies.

Tech companies, by their nature, are agile and able to leverage technology to help them meet their strategic goals. The trading environment that Brexit will deliver has not come into focus yet. Speaking to a diverse range of businesses in this sector, it’s clear that the uncertainty continues to be a concern, but one that isn’t insurmountable.