the impact of brexit on the tech sector

7/25/2019 The Impact Of Brexit On The Tech Sector

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THE IMPACT OF BREXIT.

ON THE TECH SECTOR.ADVISORY NOTE

WELCOME TO A POST-BREXIT WORLD

Britains EU referendum and decision to vote Leave hashad a profound effect on the countrys political and

economic landscape. Britains tech sector proportionally

the largest of any country in the G20 obviously wont

escape the impact of such a momentous change.

The vast majority of tech businesses wanted to remain

in the EU. They now have to adjust to a post-Brexit

landscape, even if none of us is entirely sure what that will

look like yet. But tech businesses are all about adapting to

changing circumstances, and their can-do attitude will see

them through even these difcult times.

So based on what we do know, what is Brexit likely to

mean for Britains tech sector? We think the impact can

best be compared to ripples in a pond, affecting virtually

every business over time.

1. IMMEDIATE IMPACT

The areas immediately affected will be data, privacy,

ntech, telecoms and talent. These are the areas most

heavily affected by current EU regulation and therefore

the most likely to be affected by the scrapping or rewriting

of those rules. In the absence of any clarity about when

and how legal changes might happen, these are the areas

suffering from greatest uncertainty. (To give you a sense

of the scale of the challenge: overall there are 80,000

pages of EU legislation that will need renegotiating and

rewriting.)

Data and privacy

The UK has traditionally lobbied for lighter regulation ondata and privacy. Without its voice in the EU, the likelihood

is European data protection and privacy rules will become

more stringent in the years ahead, while UK rules will

become correspondingly looser.

In the meantime tech rms will need to adapt to changes

already agreed and coming into effect soon. The EU

General Data Protection Regulation, which applies from

2018, establishes tough rules around the collection and

security of consumer data. British businesses will almost

certainly have to comply with these rules, regardless of

EU membership, if they want to trade with other European

rms. The ongoing negotiations around replacing the

Safe Harbor rules (whereby the US is viewed as a safe

destination for Europeans personal data) will presumably

carry on without a strong UK voice.

Fintech

The UKs booming ntech scene is particularly affected by

Brexit given that nancial services has beneted so much

from the existing single market rules. The UK currently

has passporting rights which enable British nancial

institutions to access the entire EU market. If these rights

are revoked, that will pose serious challenges to ntech

rms hoping to operate outside the UK. In the longer term

the nancial regulatory environment might become less

favourable if the UK isnt involved in the drawing up of

new EU rules.


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Telecoms

The EU has only just harmonised the telecoms market sothat roaming costs are in the process of being abolished.

The exact impact of Brexit on this new pricing structure is

unclear, but presumably operators will be loath to change

their prices again until the political situation is claried.

Radio spectrum is also being harmonised, in the run-up to

the launch of 5G services in around ve years time. The

UK wont have a say any more in EU discussions about the

allocation of this spectrum, but realistically will have to

follow these decisions to remain globally compatible.

Talent and skills

The UK will remain a member of the EU for at least

another two years and current rules on freedom of

movement will apply until that time. But the very fact of

the Brexit vote may well have a dampening effect on the

number of skilled workers wanting to move to the UK from

elsewhere in the world. Some skilled British workers may

also consider moving overseas. A skills shortage could

well ensue.

Digital Single Market

The UK was one of the strongest proponents of the

forthcoming EU digital single market. This will come into

force at the end of 2016 and harmonise Europes online

marketplace so that content, products and services are

available for the same price everywhere. It was designed

to help encourage Europes digital sector, and missing out

on its benets will be one of the most serious implications

of Brexit for British tech rms. Access to this single market

will presumably form part of the overall trade negotiations

the UK will conduct with the EU in the years ahead.

2. ECONOMIC FALL-OUT

The secondary impact of Brexit will be on the widereconomy in the coming months and years.

The referendum process itself was sufcient to make

businesses hold off on some hiring and investment. The

ongoing uncertainty after it potentially lasting until

October could well push the UK into a recession. In this

context it seems reasonable to assume that consumers

will be less likely to make major purchases and

businesses to greenlight large-scale investment projects

over the next three months, and perhaps beyond.

We can discern some other implications too. The

European Investment Fund (EIF) was the largest investor

in UK venture capital rms: if its funding disappears,

that could have a serious effect on the British startup

ecosystem.

An economic downturn combined with two or three years

of legal and regulatory limbo might well encourage tech

businesses to consider relocating from London to other

major hubs, such as Berlin or Amsterdam. The German

Startups Group has already said Brexit is good news for

the German startup scene. Whether larger businesses

follow suit remains to be seen.

One potential silver lining of a weakened pound could

be cheaper exports, helping British businesses that sell

abroad. That said, currency uctuations are already

making life difcult for companies buying cloud and data

centre power as they are now getting less for their money.


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3. CHANGING MOOD

The nal and least tangible impact is the change of moodthat has come over the UK. It isnt an exaggeration to

say that the UK is currently going through a moment of

national trauma, the likes of which it hasnt seen since

the Second World War. Traumatic incidents typically

involve violence, anger, shock and grief: Brexit so far

hasnt been much different. The after-effects stretching

far beyond the tech industry will last for many years.

Brexit is a once-in-a-lifetime event that completely

changes the prevailing narrative of daily conversation

and media analysis. As happened after the global

nancial crisis in 2008, previous assumptions have been

overturned and unquestioned certainties replaced by

doubts. Within this new narrative, every tech company will

need a view on what Brexit means for its business. The

focus on growth, investment and skills will become evengreater than before. Business plans will be scrutinised

harder than ever.

What we can say is that tech businesses are nothing if

not innovative. Their entire attitude is to capitalise on

disruption, embrace risk and solve difcult problems.

Those skills will certainly come in handy now. The

fundamentals of Britains tech scene remain strong:

an educated workforce, a heritage of innovation and a

positive business environment, combined with natural

advantages of language and time-zone, make the UK

an attractive place to start and locate a business. Most

tech businesses didnt want Brexit, but now its here their

attitude will be to roll up their sleeves and make the best

of the situation.

THE IMPACT FOR COMMUNICATIONS

From a communications perspective, we foresee a few

immediate effects that businesses should consider:

Everything will be seen through the lens of

Brexit over the short to medium term. Company

narratives will be need to be re-evaluated to chime

with the mood and broader business environment.

Certainly for the next few weeks this will reduce the

opportunities for non-Brexit related media coverage

and likely make non-Brexit social media content

and engagement less effective too.

One of the messages from the referendum is

that there is enormous mistrust of and lack of

condence in institutions, including big businesses.

This makes employee engagement, human-centric

stories and social selling more important than

ever, as people trust messages from other people

rather than from faceless brands.

Opportunities abound for fast movers. As many

companies are either distracted by Brexit

or frozen by its implications, those who are

condent, bold and fast to respond have the

chance to stand out.

Effective social listening systems will be more

valuable than ever to act as early warning systems

for potential problems and also spot opportunities

as the narrative evolves.

the impact of brexit on the tech sector

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