For UK tech industry, change is the only certainty of Brexit

5 May 2017 10:52am

27 April 2017. By Max Fillion.

The biggest bogeyman for the UK tech industry is uncertainty over what Brexit will bring, particularly over free movement of workers and access to EU markets.

Responses will differ across the industry, with some companies looking to the US for a more favorable environment, some to Europe, and others hunkering down in Britain in the hope of domestic rewards after its divorce from the EU.

To understand why the tech industry matters, numbers do the talking.

The hallmark of the digital economy is scale, and Andrus Ansip, the European Commission's digital single market chief, cites a McKinsey study that estimates that data flows are swelling the global economy by close to $3 trillion annually. Tech giants such as Facebook, Google, Amazon and Apple have told their shareholders that they generated more than $430 billion revenue in 2015 alone.

But the global corporations are not the whole picture. Many thousands of ambitious startups promise to drive the next wave of economic growth for cities across Europe. Many are in the UK, and unlike Silicon Valley giants they won't be able to throw lawyers and lobbying dollars at the problem; instead they will have an existential decision to make.

Different philosophies

Job growth is at the heart of any politician's mandate. A UK parliament policy paper notes that Facebook, Apple, Google and Amazon have all announced plans for new headquarters in London. Google and Facebook recently announced they would hire 500 and 3,000 new UK staff respectively.

But new hires don't mean that these companies — or the UK's hefty home-grown tech industry — harbor no qualms about Brexit. Access to the 500 million potential customers in the EU's single market is still key for the success of most companies, and finding certainty over their future ability to trade across borders boils down to rules.

John Higgins, the British-born head of EU tech lobby DigitalEurope, says the first, crucial step to maintaining a healthy trade relationship is keeping similar regulations across borders. "What no one wants to see is different rules in different places," he says.

Immediately post-Brexit, the UK will have all necessary regulatory measures in place for tech companies to continue doing business in the EU, Higgins says. What is vital is ensuring that these measures are continued in UK law to minimize future limitations.

That's not as simple as it sounds, argues James Waterworth, another European tech lobbyist. An EU power shift post-Brexit will make it increasingly difficult, the Vice-President of the European Computer and Communications Industry Association says.

The UK has always been a strong voice for open-market legislation in the EU. After it has left, Waterworth says, stronger statists such as France will use their increased influence to push for more regulatory measures.

"It's a difference of philosophies," he says. "[The divergence] will definitely occur. The question is: how much?"

The little guys

For UK tech start-ups especially, ongoing uncertainty over rights for EU citizens to work in the UK has left many wondering whether they'll have access to a talent pool crucial to their success.

Typically, they recruit local and international graduates from British universities. But if the EU graduate tap is turned off, this hiring practice will be less fruitful. This has already prompted action.

Rodolfo Rosini, co-founder of artificial-intelligence platform, said his company is already considering moving operations to maintain access to this European talent pool. The company is considering either Nordic states such as Finland or northern European capitals such as Berlin and Amsterdam. Rosini said the primary attraction for these locations was their quality of life.

For those with more of a focus on the US market, meanwhile, the outlook has distinct positives.

First, size matters for smaller companies hoping to expand. "The US is the biggest market, period," said Tom Yeomans, co-founder of Yavli, which helps websites monetize sponsored content. His UK-based company focuses on the US as it only provides English-language content.

Moreover, Yeomans said, his company has benefited from sterling's devaluation, as dollars earned from US clients are translating to more pounds back at headquarters.

While British tech companies will be taking different steps along the unclear path charted by the Brexit negotiations, one strategy will certainly help: expect change and embrace it.

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