How Will Brexit Effect the IT Sector?
The historic decision taken by the British voters to leave the European Union (EU) on 23rd June 2016 sent shock waves throughout the international business community and the global markets. It’s a topic that remains in most people’s lips and pops up in conversations every now and then. The world is still in awe, some people haven’t yet come to terms with the current British status, and the world is now wondering what next for Britain? While mostly it’s the European and British companies and citizens that will be affected by the “Brexit” (British exit) decision, it is also likely to cause some major problems for the global Information technology industry.
We say likely because nobody knows for sure what the turn of events will be. It’s like walking through smog not knowing where exactly you are going to, but you just keep going. This is a novel thing since, throughout the history of EU, no other nation has ever opted out and the whole situation is placing the world today in truly uncharted waters. It’s expected that this seismic shift in the political status quo is going to lead into several years of not only economic, social and political instability, but also uncertainty.
Although the lasting effect of Britain voting to leave EU may not be known for years, the immediate ramification for global technology is already palpable. According to a survey done by a technology group, 87% of the British technology firms opposed the idea of Britain leaving the EU, while 70% had reservations and felt that if Britain left, then it would severely hurt its reputation as a technological hub. For instance, Microsoft was front row in campaigning against the shift but since it’s already a lost case, let’s delve into some of the major issues Britain and the world at large will have to contend with following the decision.
No More IPOs
Potential investors prefer buying shares in an Initial Public offering when the environment in the global markets is less chaotic and sounder. Any tech start-up considering an IPO would probably have to wait for all the Brexit hullaballoo to cool down so as to see how to go about it. Considering the paucity of listings encountered this year, this decision does little to help.
Telefonica SA, which is a European telecommunication company, is reported to have postponed the plans to sell its infrastructure unit Telxius and UK wireless unit O2 shares. Elsewhere in the world, particularly Japan, its most popular messaging service is also planning to delay setting a price range for its IPO following the Brexit vote.
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Data Flow and Data Privacy
Brexit has opened up another challenge for anybody who cares about data protection. Britain is likely going to need some new data sharing agreements with both the United States and the European Union. Currently, Britain’s data protection rules are concurrent with the European Union’s Data Protection Directive, but it’s expected by 2018, it will be replaced by a more stringent General Data Protection Directory. If the UK wishes to freely move data between Europe and UK, then it has to offer equal levels of protection, and that will necessitate changes in the UK law.
Meanwhile, the UK and the US were in the process of making final adjustments to their latest data privacy agreement that would govern the flow of data between Europe and the US. It was expected to replace last year’s Safe Harbor Agreement. Following Britain’s back out, being a major player in the coalition, the questions that linger is, what happens to data flow between the US and the UK? But since the UK will no longer be protected by the EU privacy shield, it will have to renegotiate its own data sharing treaty with the United States.
This will also mean that countries that had the UK as their EU data processing centers will have to shift them to other countries so as to comply with the new EU data protective directives. The UK as a data processing Center for Europe will no longer be an option.
Loss of Tech Talent and Funding
Britain’s tech industry overwhelmingly advocated for its stay in the EU. Approximately three-quarters of the start-ups were against the decision citing how it would make it more difficult for them to secure any funding for their start-ups. Also, according to a study carried out by Silicon Valley, if Britain left the EU, then it will reduce the amount of funding the start-ups receive from US investors. This would undoubtedly throw Britain’s technology industry into limbo as the global market will no longer resonate with it as a technological hub.
Considering that London rode on the EU’s freedom of movement rule and established itself to such an important technology hub, Brexit is such a blow. EU nationals had enjoyed the freedom to work and live in the UK which enabled the top tech talent to work in whatever place they pleased. Since Britain’s Prime Minister David Cameroon plans to step down in three months and hand it over to his successor, we only hope that the successor will be smart enough to settle a beneficial agreement with the EU. But even so, maintaining the freedom of movement within the region seems to be such a far cry from certainty considering it was the leading impetus for the Brexit campaign, and the skepticism towards immigration labor still stands.
The UK’s presence did provide some counterweight against privacy-heavy countries such as France and Germany. But since its now out, France and Germany will have a more flattened ground to keep leading the charge against major American tech Firms, especially Google with the right to be forgotten rule.
The UK has always been such an attractive technology destination thanks to the free flow of people within the EU countries. The British tech companies are getting more concerned about how they will be able to fill positions for highly qualified workers and Brexit risks such a substantial shortage of labor. Amazon.com, Alphabet, Apple, Facebook and so many other tech gorillas have built large offices in the UK as their European hub to ride on the region’s lenient immigration policies and help recruit qualified engineers and other employees to bring to their teams.
Following Brexit, companies might consider moving their headquarters to somewhere else in the EU. These concerns are directly echoing the tech industry’s talking points calling for immigration reform, especially in the US at the moment. The tech industry has always pushed the narrative of how they need to recruit highly skilled foreigners from all over the world to meet its labor demands.
For some time now, the financial services startups have been the pride of the UK technology scene. One of these businesses’ strategy was the ability to use the regulatory approval in the UK that allowed them to sell their services anywhere in the EU. Unfortunately after Brexit, this will no longer hold, hence the UK Fintech companies will require regulatory approval from both the British regulators and EU jurisdiction.
Brexit’ happened when the world least expected it. The UK government clearly didn’t expect the turn of events, and as we immerse ourselves in the Brexit consequences, one thing that stands out is how the global technology industry will be significantly impacted. The British government had without any misgivings hugely invested money and time to develop such a vibrant technology scene to help supplement its financial sector. The vote has thrown the country into such an uncomfortable situation that most investors are now second-guessing if it’s a global hub.
The UK has always surpassed the American market since it has an addressable market throughout Europe. But with Brexit, it will no longer be the central position for any investor who cares for the European market. It is quite likely that investors are now brainstorming on the idea of doing it elsewhere within the European start-up hubs. This will mean more money pushed into other hubs like Tel Aviv and Germany.
The Biggest problem for the global technology industry is the length of the Brexit process. So many years of uncertainty can be quite detrimental to any business since it will make it difficult for hiring, investment, and capital investment. Until businesses have a much clearer view of what to expect in the long-term, they will most likely cancel or delay decisions to invest in the technology infrastructure. The tech industry is very interdependent, thus particularly vulnerable to regulatory chaos and the political uncertainty Brexit would likely unleash. The coming few years are going to be quite interesting and indeed uncertain.