The potentially crippling effect of Brexit is all about movement: movement of data across borders, personal device mobility, and ultimately the potential movement of tech investment dollars (and talent) to other jurisdictions.
The June 23 referendum vote by the UK to leave the European Union is having shattering economic and political repercussions in Britain and around the world. The shock is only beginning and the impact, both negative and positive, is just beginning to be sorted out.
“It is a shock, really. We weren’t expecting this,” said an Info-Tech client tech manager at a UK-based multinational on the day after the vote. “The tendency in [close] referendums is to stay with the status quo. I guess we broke that trend for referendums.”
He also pointed to the drop in stock values the next day and noted that the leave supporters wanted to save “so many pounds a year that was going to the EU. That was easily wiped out by loss in stock values after the vote.”
This early financial impact foreshadows additional developments for IT leaders. There are three areas of potential impact in the technology sector.
- Movement of Data Across Borders
European security and privacy regulations are a source of controversy between Europe and North America. Storage and processing of personal data outside of the EU is problematic and EU countries have taken tough stances against multinational corporations and cloud companies over privacy and security.
The EU has been working on a Single Digital Market with common data protection laws for all European companies. Britain has advocated for less insular regulation but now Britain will be on the outside looking in. Notably, Microsoft Azure and Amazon do not operate data centers within the UK, causing short-term trans-border data flow concerns.
- Personal Digital Mobility (Internet Access)
Digital roaming for mobile devices is open
under EU regulations. Broadband access costs are lower due to regulation. The
cost for mobility and internet access will likely decrease within the UK as
they are no longer subject to EU regulation. Roaming costs, however, are likely
to increase for UK-based enterprises.
- Movement of Investment Dollars and Talent
The UK has emerged as a tech sector hub within the EU. The changing environment might make it more difficult for UK-based organizations to attract both investment dollars and, most importantly, talent. The UK has emerged as a popular location for early-stage tech investment from North American and Asia. Trade tariffs resulting from the Brexit vote may undermine this local advantage.
Young professionals in the UK were much more likely to vote for Remain. According to polling data from Yougov, millennials (aged 18 to 24) wanted to remain (64%). This situation might cause a flight of professionally-trained talent to other English-speaking jurisdictions. Canada is particularly well positioned to benefit.
This transition will take time. Another Info-Tech client we spoke to the day after the referendum said she doesn’t see a major short-term impact on IT talent:
“In terms of brain drain, I don’t think there will be a significant impact. The people who are here will stay here and there won’t be significant change at least for a couple of years.”
She noted that the European Union is a set of treaties and not all European states are full signatories on all treaties, particularly the treaties on freedom of movement.
“I think it’s a lot of media hype at the moment. Just because we are out of the EU doesn’t mean we’re just going to unravel all these many treaties.”
Recommendations
- Keep calm and carry on. Nothing is going to happen in the immediate term but change could come faster than anybody anticipates. Markets and economies abhor uncertainty. In the meantime, keep the lights on, back up servers, manage projects, and address the service desk. Brexit is now about IT planning. But you might want to pay particular attention to backup and long-term cloud plans.
- Factor the three implications into the three-year IT planning cycle. They might not emerge but they are valuable inputs for planning. The vote was a non-binding referendum so the UK government has no obligation to actually execute Brexit. It will, however, become a significant concern within the next three years. If Brexit becomes a reality, it will likely happen more quickly than many people anticipate. The lesson from the dissolution of Czechoslovakia is that these situations can happen particularly quickly.
- Squeeze UK-based suppliers. Currency exchange will be impacted during this period. Work with procurement to use pound sterling (GBP) when doing business with UK-based organizations. North American and Japanese companies may see particular benefits by consuming UK-based services due to the anticipated weakness of the pound as per the current situation with Iceland.
- Prepare for labor risks and opportunities. UK-based organizations will have to anticipate the loss of lower-cost IT staff from Eastern Europe. This staff will have to be replaced by domestic staff. Review current recruiting and training practices. Non-UK organizations should consider opportunities for recruiting qualified and English-speaking staff from the UK. Many of these professionals have appropriate professional credentials and resources to meet immigration criteria.
- Talk to an analyst. If you have concerns about your strategy or want to discuss trends with an Info-Tech analyst, we would love to talk to you. Please contact your account manager to set up a conversation.
Bottom Line
Brexit is now a reality. Plan now for the impacts on trans-border data flow and the availability of IT staff.