BUSINESS MANAGEMENT
Will Brexit lead to the death of mid-tier tech companies?
Posted by Charlotte Trueman on February 27 2019
"Shall I be honest? Planning is quite a recent thing for us," laughs Eggplant's Chief Operating Officer, Antony Edwards. "Now, that might sound remarkably short sighted but at the same time, I think it sums up the surrealness of the whole thing."
We're talking Brexit because, well, what else is there to do at the moment other than talk about Brexit? Or, more specifically, we're talking about what the impact of Brexit will be on a UK-based SMB like Eggplant.
"Whenever we sit down and think all right, we need to start planning for Brexit the first question is always ‘What does that mean?'" Edwards tells me. "You go and try to find out from people like the Department of Trade about what the impact is going to be and what we should be doing, and you just get this response of ‘Well we don't know either, if we knew that we'd be in a better position to tell you.'"
Eggplant started to get properly nervous about six months ago, as it became increasingly apparent that the deal that was being worked on was unlikely to ever materialise.
"The feeling that most of our customers and clients have is that the biggest problem right now is the unknown. It doesn't matter what the target was, if we had something we could plan towards then we could do something about it but, in the absence of that, there's just fear, uncertainty and doubt. And that's really hard."
The feeling appears to be mutual across the rest of the UK tech sector, where months of speculation has now translated into a frustratingly stark reality. In late January, there were reports that growth in Britain's technology industry was the slowest it had been since 2015 and $35 billion in IT projects had stalled because of Brexit uncertainty.
Investment is the backbone of the technology industry, without it startups can't thrive and SMBs can't grow. Brexit, unfortunately, has seen a lot of that investment funnelled away from a promising British tech scene and it has Edwards worried.
"Investment is not as great as it was from VC and private equity and that's due to a mixture of just general uncertainty about business conditions and currency uncertainty. So, if you're a private equity firm and you've got extra investing in Q1 of this year, I'm not sure you can invest in the UK - you're going to take that money and put it into the US, Germany, Singapore or somewhere like Australia."
He also finds it ironic that limiting migration was so fundamental to the Brexit campaign when anyone working in tech would readily tell you that there's already a global skills shortage in the tech sector that Freedom of Movement has thus far failed to plug.
Is it too little, too late?
For many, the government seems to be saying nothing about Brexit whilst simultaneously refusing to talk about anything else - Edwards tells me Eggplant had a meeting with HMRC cancelled before Christmas simply because it wasn't about Brexit.
Despite the business impact of Brexit, when I ask Edwards what he needs to hear from the government, his answer is a reminder of the long-term and very real impact this is having on people up and down the country.
"Clarify the residency status of EU nationals," he says, without missing a beat. "That needs to be super clear and credible. People need to believe in it."
He explains that, like all employers, Eggplant wants to be able to support its workers, but the continued uncertainty has left them unable to do so. Already, two of their employees who are EU nationals have decided that staying in the UK is no longer an option.
However, other companies are clearly less willing to continue waiting around in the hopes of hearing something worthwhile. Around the time we spoke, James Dyson announced he was moving operations to Singapore and Sony had broken the news it was relocating its European Headquarters to Amsterdam.
"One of the things we're going to see over the next three months is a handful of companies doing things they've either wanted to do, planned to do or have been on the cards for years but they've never been able to do for various reasons, and they're going to use Brexit as an excuse. Whenever something dramatic happens you get all this corporate bad news as people finally get this thing they can blame.
"It looked like fairly significant hypocrisy when Dyson said they were going to move to Singapore but a friend of mine who works for them said that that's been on the cards for years, we've always wanted to do it and now just felt like a good time."
Like so many UK-based SMBs, for Eggplant, relocating was discussed but ultimately, it just wasn't an option. However, staying put means riding out the wave of disruption that is a now-inevitable fall out after months of government stone-walling.
"We used to just be nervous, now we're vaguely panicking. But that's about the extent of it. It's really hard to do anything until you actually know what's going to happen. Companies take six to eight weeks to do anything so, if we don't if we don't start doing something now we're going to be too late."
The challenges faced by Eggplant are not unique, in fact the majority of SMBs are caught between a rock and a hard place of wanting to plan but being unable to dedicate the necessary funds to hire a team specifically to deal with four different Brexit contingency plans.
"I think bigger companies do have their plans," says Edwards. "However, if you dig into them I think you'll find lots of gaps, lots of unknowns."
The anger from businesses has been palpable in news stories over the past two years. Most have accepted that Brexit is happening, they just want details, so they can minimise the long-term damage to business. Edwards believes that this lack of clarity will lead to a pause in the UK tech industry for most of April and May, having an impact on UK business revenue in the central quarter.
Can the UK tech sector bounce back?
In spite of everything, Edwards is cautiously optimistic about the long-term health of the UK's tech scene.
"I think that, although there's going to be this pause for April and May, we're also sort of expecting that around June, July, everyone will have worked out what they need to do, be starting to make sort of significant changes to their IT systems - maybe these projects that were on hold will come back live again - and then, maybe the third quarter, from July to September will go really well and there'll be a big business in the UK."
However, he's less sure about whether the landscape that emerges post-Brexit will have much of a likeness to the one that became engulfed in uncertainty back in 2016.
"In a year's time, I think what we'll not have had is those mid-tier companies emerge. One of the big problems with the tech industry in the UK is you don't get those mid-sized companies. There are so few 200 to 400 people tech companies in the UK. You can't walk around Shoreditch without bumping into a startup and, while there are a few really big tech employers, mainly banks or big companies like ARM and BAE Systems, that mid-tier doesn't exist either because they can't breakthrough or because they get bought out by American companies.
"And I think that those two factors will massively continue. I think it'll be really hard for startups to make it into the mid-tier if they're selling into the UK because that local market's not going to be there for the next year. And I think if you're a good looking startup in the middle of this year, given the exchange rate, I think you're going to get bought up very quickly by an American or Chinese investor. So, I think it might be great news for the successful startups but that's not great for the UK. What the UK needs more of right now, because it's where all the jobs come from, are those mid-tier 200 to 400 companies."
At the time of publication, the Brexit countdown clock is set at 29 days and right now, it's impossible to know what life post March-29th will ultimately look like; will Project Fear become Project Reality or is our sense of national pride going to see us clear? Unfortunately, with growth down and companies opting to leave, whatever happens, it looks like most of the damage has already been done.
Source:https://www.idgconnect.com/interviews/1501184/brexit-lead-death-mid-tier-tech-companies?connect_token=cHJlbWl1bV9hcnRpY2xlMTU1MTYyMzg0OA==
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