Brexit Increases Risk For Technology Companies: What You Need To Think About Now

Nadine Dias

What does Brexit mean for the UK tech industry? Well, for starters, 90% of UK technology founders were against leaving the EU.

Both tech developers in the UK, and those doing business with UK developers, will face added risk with the UK’s plan to withdraw from the European Union. At the end of the day, you have to make sure that you are prepared for the unexpected.

First, let’s talk about why Brexit has added an element of risk to technology developers in the UK and of course, through the vendor chain, to users of technology as well. Then, I’ll address how you can take steps to mitigate this added element of risk.

Why has Brexit Increased Risk for Technology Developers?

Physical Location (Offices & Employees)

Many technology companies have offices all over the EU which means that they need to evaluate whether or not they will continue to operate the offices based on what is negotiated with Brexit. As of now, the pound is trading at an all-time low which means that these technology companies will pay more to do business outside of the UK. Not all companies can afford the extra unforeseen increase in business expenses. This is an issue because shutting down offices means laying off employees and losing talent (Read: losing profit). If there are restrictions on border control, then employees who live in the other 27 EU countries and work in the UK are going to be worried about their job stability which makes for a difficult work environment. In addition, the talent pool for developers and engineers will now be limited to just the UK so the talent in the EU is not accessible as it was previously (again, read: $$$).

Data Privacy & Regulatory Compliance

As I’m sure you know, the EU has a pretty strict set of data privacy laws. With the UK leaving, the country will likely develop their own set of data privacy laws, and history has shown that the data privacy laws in the EU can make business difficult (Safe Harbor, anyone?). This means that companies will have to shell out the extra cash to develop products that adhere to multiple sets of privacy laws. Regulations could lead to an increase in trade barriers which again could make it difficult for the UK to do business with the EU. I’m sure the EU is going to purposely make it difficult for the UK to do business there, if not purely to make a point to the other 27 countries still in the EU that it is in their best interest not to have an exit of their own.

Investor Funding & Market Size

The EU is about 500 million in population. The UK is about 65 million. Although it isn’t certain, the decrease in market size could potentially bankrupt certain companies. Competing globally may become difficult if pound remains devalued. This will make the UK a very expensive business environment. Already, EU investors are pulling funding out of UK technology companies since they won’t be part of a single market.

All of these issues brought on by Brexit are adding risk and complexity for technology companies. And, nobody wants to willingly add on another layer of risk to their own company by investing in another risky company.

What Can You Do to Mitigate this added Risk?

Technology developers and enterprises that rely on technology in the UK really have two options. You stay, or you go.

UK technology companies that stay are willingly taking on added risk. In this case, you want to make sure you refresh your business continuity plan. For users of technology, are you prepared to handle the aftermath if your developer goes under – or leaves the UK?

Brexit may shake up the technology sector enough that many companies will be scrambling to find new providers. Of course, moving to new vendors always has an added element of risk as well. When evaluating new software vendors (for on-premises or SaaS applications), businesses should make sure the new vendor has a solid a business continuity plan, including technology escrow.

No matter which option you choose. Remember, your provider’s business continuity plan is not your business continuity plan – make sure you are covered by reviewing and negotiating your contract terms.

If Brexit has taught us anything, it’s that unexpected things do happen.

Click here for our 7-step process to technology escrow best practices.

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