What a hard Brexit means for IT service providers

Posted by Mike Vizard on Jan 19, 2017 11:00:00 AM

Brexit.jpegBritish Prime Minister Theresa May appears to be trying to have it both ways when it comes to globalization. May signaled earlier this week that Great Britain would be employing a “hard exit” in terms of leaving the European Union (EU). A few days later, however, at the World Economic Forum (WEF) in Davos, Switzerland, she suggested that despite exiting the European Union Great Britian is still very much a supporter of free trade and globalization.

Naturally, IT service providers are trying to read British tea leaves to figure out on a practical level what this all means to them. In a report published this week, Patrick Heffernan, an industry analyst with Technology Business Research, noted that IT service providers and consultants that want to do business in the United Kingdom will probably need to go to the trouble and expense of setting up offices there. Those expenses, of course, include the payment of local taxes and the need to find, hire, and retain local IT talent in the UK, which is already in short supply.

Moreover, it will become much more difficult to move IT staff between the UK and other countries. Rules and regulations in the UK and the rest of Europe will also be substantially different. The EU, for example, is set to implement a General Data Protection Rule (GDPR) in 2018 that is not likely to be implemented in the UK. Instead, the UK will likely come up with its own version, resulting in IT service providers needing to navigate similar sets of GDPR rules in Europe that have lots of exceptions.

The cost of doing business in the UK

Of course, dealing with international business requirements is nothing new for most IT service providers that have been operating in multiple countries for decades. Many of them will view Brexit as a regrettable financial inconvenience as long as there is enough business opportunity in the UK to justify the cost of doing business there. The same return on investment calculus that would be applied to opening an office in a country in, for example, Africa or Asia now apply to the UK. The British government is betting there will still be enough of an ROI to make setting up a separate office in the UK worth the time and trouble.

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Where things can get out of hand is if more countries exit the EU in the years ahead. Europe would essentially disintegrate into a series of separate markets that would become significantly costlier to serve. There would likely always be enough business to warrant setting up an office in, for example, France or Germany, but smaller countries would find the number of IT service providers willing to devote resources to projects inside their country would be sharply reduced. There’s also no guarantee that the UK itself won’t break up as well. Many politicians in Scotland are calling for another independence referendum.

In the meantime, May is signaling that the UK hopes to put a “transitional deal” in place with the EU. Thus far, signals from the EU concerning such a deal have not been especially encouraging. No one can say with any certainty what the ultimate impact of Brexit will really be, but the total cost of delivering IT services across Europe is almost certainly going to be higher much sooner than later.

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Topics: IT Services Trends

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