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Expected impact of Brexit on the UK tech sector

Technology companies are behind 24% of UK exports and 3 million jobs. However, the UK’s high-tech industry is likely to suffer as a result of the vote to leave the EU. This is expected to occur as a result of the significant network effects that impact this sector of the economy.

Network effects in this case refer to the dependence of a transactions value on the number of people doing related transactions. Network effects are cited as one of the main reasons why the technology sector is full of monopolies. Brexit is likely to have a significant influence on the tech industry in the UK and 4 reasons for this are outlined in the following sections of this post.

1. EU determines privacy and competition laws

The UK accounts for only 1% of the global population and 3% of world GDP. Membership within the EU gave the UK greater influential power, as the EU makes up a much larger proportion of both global population and GDP. Post-Brexit, the UK will have even less influence on IT markets.

The US isn’t as concerned about competition and privacy laws as the EU. This therefore means that the EU is effectively the world’s privacy regulator, as no other body has as great an influence on the world market. This means that irrespective of the deal that the UK comes to with the EU post-Brexit, the rules and standards set within the EU will still have a huge influence on UK firms. This will therefore increase costs for firms operating within the UK.

2. UK companies could face pressure to move EU data to European data centres

The first Data Protection Act was brought in by Margaret Thatcher in order to allow UK firms to process the data of Europeans. Without this banks in London would not have been able to store data on German account holders in their UK data centres. Post-Brexit there are fears that a tech startup in England may be pressured to use European data centres to store the data of their EU citizens.

The many international treaties that affect our trade can be obstructive and sometimes infuriating; they are the negative network externalities of the information age. The idea however that Britain can somehow ignore all these regulations is irrational.

3. UK startups may be more expensive after Brexit

Startups that serve customers directly are likely to be slowed due to the need to comply with EU privacy law. Startup costs are significant in the tech industry in particular due to the presence of network effects. When a new market opens there is often a race in which the winner will take all. This winner in most instances is the firm that is able to get the network effects running in its favour first.

4. Brexit will close doors for talented engineers and scientists

Generally speaking technology firms tend to cluster in specific areas. This occurs as a result of agglomeration economies or in other words the cost savings from locating in close proximity to other firms within the same industry. For example, in cities such as San Fransisco, Boston and Bangalore there are thousands of specialist engineers and scientists that are able to work for technology firms in this region. These cities offer specialist subcontractors, good universities and an environment in which tech workers can share information.

Britain has technology clusters in London and Cambridge currently but it is feared that these areas will become less attractive to workers once the UK leaves the EU. In most cases, tech clusters are located in areas in which it is a nice place to live. Usually, these tend to be open and liberal places in which diversity is accepted and thrives. The decision to leave the EU taints the UK’s image as an open and liberal place to live as many claim the Brexit vote was motivated by xenophobia.

Research commissioned by techUK reveals that British employers in digitally intensive industries are particularly reliant on overseas talent, with 45% of recent vacancies filled by foreign-born workers. If workers are deterred from coming to work in the UK, the tech sector may be unable to function and this could therefore lead to problems.

“There is no sector more dynamic, more innovative, more resilient than tech, but that doesn’t make it immune to Brexit,” said Jacqueline de Rojas, the trade group’s president and the UK managing director of the software firm Sage. The future impact on the tech industry yet to be determined. With negotiations set to continue for a significant period it is yet unclear what the future will be for firms in the UK.

With over 20 years of experience, Serviceteam IT design and deliver sophisticated connectivity, communication, continuity, and cloud services, for organisations that need to stay connected 24/7. We take the time to fully understand your current challenges, and provide a solution that gives you a clear understanding of what you are purchasing and the benefits it will bring you.

To find out how we can help you, call us on 0121 468 0101, use the Contact Us form, or why not drop in and visit us at 49 Frederick Road, Edgbaston, Birmingham, B15 1HN.

We’d love to hear from you!

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Brexit survival guide for IT

Brexit IT Survival: Following the outcome of the referendum on the UK’s membership within the EU, businesses in the UK face a period of uncertainty as Brexit negotiations take place.

In the UK Cloud Snapshot Survey 2017, Serviceteam IT conducted research regarding the future challenges businesses in the UK face and the subsequent effect this will have on their IT plans. The survey conducted as part of this research revealed that almost 20% of respondents felt that Brexit presented the greatest challenge to their IT plans over the next 3 years.  

When interviewed Ben Griffiths, the head of systems from Analysys Mason, argued that “anything to do with Brexit is uncertain” and “makes life more complicated”. In the face of this uncertainty and complexity it is imperative that firms don’t just remain passive regarding the changes happening around them. The following outlines some of the key things businesses can be doing to prepare for the challenges Brexit brings with it.

1. Assess and Plan

The first thing that businesses should consider are the elements of their business that are affected by the EU. For example, UK legislation may change as a result of Brexit as laws previously controlled by the EU may soon become invalid in the UK. As a result of these changes businesses need to be aware of any changes in existing contracts that may occur. For example, have you reviewed your software licensing agreements? Most EULA (End User Licence Agreements) refer to EU law or jurisdiction. Vendors could potentially revoke licence usage and enforce a new licence agreement, with new costs associated.

In order to mitigate any potential issues that may arise as a result of any changes that may impact businesses planning is essential. Businesses need to conduct a review of all aspects of their business that have any links to the EU and formulate a strategy to cope with these changes.

2. Think about your customers

Many businesses in the UK will have a customer base that includes individuals from within the EU. Prior to Britain’s exit from the EU businesses need to think about their customers and how they will be affected by the changes resulting from Brexit. This may include looking at potential customer base that may exist in other areas of the world, outside of the EU for example.

3. Supply chain

Another aspect that also needs to be considered is that of the supply chain within businesses. Additional licenses for exporting and importing within the supply chain may be required as a result of Brexit and it is important that this is considered before any changes take place. This helps to ensure that businesses are prepared for what lies ahead and therefore can avoid disrupting operations.

4. Regulation

It is also important to consider the changes in regulation that may occur as a result of Brexit. At the moment the UK is subject to the regulation imposed by the EU. These regulations may not continue to be enforced in the UK and therefore businesses need to be able to adapt to any changes in regulation that may apply to them in the UK post Brexit.

One significant change in legislation is the UK Data Protection Bill to the House of Lords, which will bring the European Union’s General Data Protection Regulation (GDPR) in to UK law. Read more about GDPR.

5. Staff 

Although it is not yet clear what the effect of Brexit will be on EU citizens living in the UK, it is important that businesses identify the members of their staff that will be affected and how they can help. In addition to this, businesses need to plan for the future and look at their recruitment plans. If it is likely that EU nationals will be hired in the future businesses need to gain an understanding of the immigration application process in order to be able to provide the best support to applicants.

6. Data protection

As of May 2018 the EU’s new General Data Protection Regulation (GDPR) will come into effect and replace the existing Data Protection Act. As the UK will still be a member of the EU at this point businesses in the UK must conform to this regulation. However, once the UK leaves the EU GDPR will apply to UK citizens’ data, and it will still apply to any businesses possessing data regarding EU citizens or businesses. This means businesses in the UK need to ensure that they comply with the demands of this legislation or face the risk of large fines if found to be non-compliant.

7. Data Sovereignty

According to the research conducted by Serviceteam IT, 62% of respondents listed GDPR as the biggest challenge to their IT plans over the next 3 years. With the advance in the adoption of the cloud, many businesses have data stored in data centres across the globe. Businesses need to be aware of the data sovereignty of their data in order to ensure that it complies with the appropriate regulation. Data concerning EU citizens stored in the US for example still needs to comply with GDPR 

There are a number of immediate steps that businesses can take in order to get ahead in the lead up to Brexit. A wait and see strategy is not an option for businesses in the UK and leaders of businesses need to look outwards to identify both the opportunities and challenges Brexit brings with it. Preparation and adaptability are key in order to succeed in this time of uncertainty.

With over 20 years of experience, Serviceteam IT design and deliver sophisticated connectivity, communication, continuity, and cloud services, for organisations that need to stay connected 24/7. We take the time to fully understand your current challenges, and provide a solution that gives you a clear understanding of what you are purchasing and the benefits it will bring you.

To find out how we can help you, call us on 0121 468 0101, use the Contact Us form, or why not drop in and visit us at 49 Frederick Road, Edgbaston, Birmingham, B15 1HN.

We’d love to hear from you!