How global IT services firms will react to Brexit

Posted by Mike Vizard on Jun 28, 2016 10:22:36 AM

Brexit.jpgIt’s difficult to say what impact the decision made by voters in Britain to exit the European Union (EU)—otherwise known as Brexit—will ultimately have on IT services firms that operate globally. But if that decision stands, two things are almost certain. Once the UK is no longer a member of the EU, the talent pool available to IT services firms headquartered in the UK will shrink because they'll no longer be able to leverage IT professionals who can freely move between jobs in the European Union. It will also be much harder for UK firms to hold onto those IT professionals because as the English pound weakens the cost of living in Britain is going to be much higher than most other places in the EU.

Just as significantly, the cost of acquiring IT products made outside of the UK is going to be higher as well. That means that over time there will be fewer IT projects in Britain itself. Worse yet, the companies that fund those projects may not be able to finance them when the products they make in the UK are more expensive than rival offerings made anywhere else. The end result is that companies in the UK will increasingly be viewed as IT laggards when it comes to employing leading edge technologies.

Rush to relocate

While the vote surrounding the British exist from the EU (Brexit) has all the hallmarks of internecine class warfare, as a practical matter most IT services firms are undoubtedly going to be weighing their European headquarter options. Some will find locations in France or Germany to be more attractive because that’s where many of their largest competitors are. Others will follow the lead of IT services firms such as Accenture that have established their worldwide headquarters in Dublin to take advantage of attractive tax rates.

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None of this means IT services firms will abandon the UK as a market, but it does mean that many of them will treat Britain as a secondary market in much the same way they might approach any other country. They’ll continue to have a division in Britain, but the bulk of the focus on serving European customers will inevitably shift to a city that is within the geographical boundaries of the EU.

Tough decisions

Of course, this whole situation may be temporary. Britain itself is in a state of turmoil. Parliament may decide to ignore the voters, who in turn may one day decide to rejoin the EU. Scotland may try to leave the United Kingdom altogether. But by the time any of that occurs, many IT services providers may have already headed for the UK exit.

Naturally, how Adam Smith would interpret Brexit as an example of the oft misquoted “invisible hand” theory of the impact society has on economies and vice versa is highly debatable. Democracies are by definition fickle. But IT services firms like most companies have a primary responsibility to their investors. As such, they tend to make hard economic decisions in ways that are in the best interests of the company no matter how they may feel one way or another about the patriotic passions currently dominating the debate.

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 Photo Credit: Rich Girard via Used under CC 2.0 License

Topics: IT Services Trends

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