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Brexit and what it means for the tech services industry

A Picture of Charles Green
June 29, 2016 | Topic: Innovation   Technology  
Brexit and what it means for the tech services industry

With Brexit we’re witnessing the greatest political, economic, and social upheaval in the UK that we’ve seen for decades. For the UK tech industry, the research firm Gartner predicts that Brexit will wipe $4.6 billion off tech spending in the UK, Europe’s largest tech market.

But what does Brexit mean for the services industry? I see a few key elements emerging in the coming weeks and months:

  • Increase in use of contingent labor. Survey data from the Institute of Directors (IoD) suggests that a quarter of British businesses are putting hiring plans on hold; 5% are planning redundancies. Companies will put hiring and investments on hold until there is some clarity to what Brexit will mean and what the UK’s trading relationship with Europe will look like in the future. That will result in organizations looking to contingent labor in the face of this uncertainty.
  • Slower product and delivery innovation. Forrester Research believes that one of the key implications of Brexit will be that innovating becomes harder, because organizations are spending more time and resources delivering their products and services across borders. UK tech startups are already adjusting to face the new reality of Brexit, whether with regard to staffing, to how they can serve European customers, and their ability to scale internationally from a British base.
  • Alternative options come to the fore as nearshore service destinations. I think it’s also fair to say that there are (potentially) fewer benefits now for UK-based companies to use a nearshore service provider within the EU, in countries such as Poland or Hungary. Companies within the EU benefit from stability, standards, and overall ease of doing business with each other. With the UK out of the EU, organizations may be more willing to examine other nearshore destinations (and in more stable geopolitical regions), such as Latin America to fill their talent needs. Meanwhile, the leave campaign also highlighted its desire to sign trade agreements with a broader variety of countries across the globe, and countries in Latin America should make sure they look to these opportunities.
  • A greater talent shortage of tech professionals in the UK. How will UK-based organizations attract young, talented professionals from across Europe to work, when there is such uncertainty about their work and residency status in the next two years? Where will the UK government draw the line between access to the single market (and required freedom of movement) and controlling immigration? Would you expect any non-UK national to be willing to move to the country given this uncertainty? As a result, to fill skills gaps, many UK organizations may look to service providers to find much needed capabilities.

What does the future have in store? For the time being we’re in limbo, until the UK elects a new Prime Minister and the government decides what kind of future relationship it wants to have with the EU. However, I recommend taking a read of this analysis by Horses for Sources, which examines the impact of digital disruption, digital business models, and particularly the rise in automation, which are resulting in the disappearance of large swathes of low-skilled, previously stable jobs.

The exodus of stable employment lies at the heart of the disenfranchisement so many people feel. Every business leader and politician must now play their role in helping our societies adjust to this new reality. We must rethink the social contract, because too many people are being left behind by the rapid changes of globalization and technology. We must help individuals acquire the skills to play an active role in a changing work environment. Otherwise we will simply face greater uncertainty and more events like Brexit.

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