Shockwaves were sent across the UK in 2016, when the public voted against staying in the EU. This was a shock that sent ripple effects across the business world, affecting various industries. Volatile fluctuations in the value of the pound have been experienced since, alongside the share value of some of the biggest businesses in the UK.
This has created considerable uncertainty, placing financial pressures on firms who have needed to prioritize cost-cutting initiatives to stay afloat. One of these is outsourcing, and one particular function commonly outsourced is IT. Brexit has already impacted UK businesses, especially what companies demand from their IT services. To better understand how Brexit will further impact businesses, this article will provide insight, with particular reference to how the IT outsourcing decision will change.
Diminished Talent Pool
Freedom of movement between Europe and Britain has reduced, restricting the flow of IT experts into the UK. This could influence IT standards, where there’s a smaller talent pool of IT experts to choose from. There are two main consequences of a diminished talent pool:
- An increase in wages of skilled IT professionals
- An increased focus on the automation process.
The IT professionals in the UK will receive a higher wage because there will be less IT experts entering from abroad. Companies who can’t afford local IT professionals may be forced to outsource to nearshore locations as a cost effective solution.
Companies will gravitate to cloud-based computer models, while focusing on automation as an alternative. This is a response to the lack of IT talent available at affordable prices.
Indian Outsourcing Companies
The uncertainty created from Brexit may force Indian IT companies, some of whom have set up shop in the UK, to either pull their contracts or demand more money for their services. The value of contracts will depreciate due to the British Pound’s devaluation, requiring UK businesses to make up the shortfall for agreements to remain viable.
London businesses seeking IT solutions may look a bit closer to home, discovering smaller, London based IT partners. Though more expensive, this will positively impact the economy, while companies enjoy benefits like:
- Native Speaking staff
- Close proximity
- Physical meetings
- Data held in the UK
Increased Security Risks
The UK once benefited from EU legislation on data protection, where cyber security required businesses to be vigilant to manage security risk. These requirements aren’t necessary today, and the UK can no longer take advantage of intelligence sharing with EU countries. If companies can find proficient IT partners, they will assist with the mitigation of risk surrounding data, while protecting IT infrastructure. The only difference is, this won’t be a legal requirement. As companies seek alternative IT solutions, they can decide whether they want to depart from overseas outsourcing or to outsource near-shore to remain competitive. IT outsourcers who manage to remain fully compliant with EU data protection will have a competitive advantage.
Network Effect
London is renowned for attracting many fintech companies, who are encouraged by the presence of fantastic financial institutions in the city. London has been a popular gateway into Europe for some time, but is this threatened by Brexit? All the nuances a technology company could want were present in a pre-Brexit UK, including freedom of movement of talent and European funding. The existing infrastructure has been highly advantageous for startups, facilitated by the presence of other tech companies.
Brexit has hit start-ups the hardest, who no longer have access to the aforementioned. New companies may decide to build their business elsewhere, and existing companies are choosing to relocate and access the single market. After becoming a lower prospect for technology companies, the UK is likely to experience network effects relating to IT outsourcing prospects. Though the impact remains to be seen, London is still benefiting from the infrastructure it’s developed over the past decade. It is a lack of appeal for new companies which may rear its ugly head in time.
Conclusion
To stay alive, outsourcers will need to adapt to market changes, but Brexit will arguably provide more opportunities than it does risks. If IT services can adhere to EU regulation changes, they will meet ever-evolving UK business demands. Though change is often met with resistance, implementing change can drive long term improvements.