Last week’s historic announcement that the United Kingdom would be leaving the European Union continues to send shockwaves throughout the world economy, and across many industries – including information technology.
And while the predictions vary, the experts agree on one fact: Good or bad, nothing is certain.
“Our guidance right now to our tech provider clients is simple,” John Lovelock, chief forecaster with consulting firm Gartner, Inc.’s technology and service provider research division, says. “Don’t panic. Nothing is known right now, and nothing can be known right now. What we have to deal with is the uncertainty, and watch for overreactions from our client base.”
In general, Lovelock says, the so-called “Brexit” won’t affect spending in the tech industry at all: in its current forecasts, Gartner is projecting $3.5 trillion in IT spending worldwide, and with the U.K. representing between five and six per cent of the total, a drop in growth of between two and five per cent will hardly bring the industry to its knees.
“Canada and the U.K. have always had a very good trading relationship for IT, and that’s not at all impacted by Brexit,” Lovelock says. “The organizations that we buy IT from in the U.K. aren’t going to change, and the organizations in Canada that have had a good relationship with and sell IT to the U.K. won’t be changing either.”
That said, he admits that for U.K. firms, staffing could become an issue.
“Certainly the U.K. can consider its status as a bright spot for IT professionals coming into question,” Lovelock says. “You now have people who are in the U.K. questioning how long they can stay, so long-term business plans there are certainly going to be disrupted.”
Canadian firms, on the other hand, could use Brexit as an opportunity to create closer ties with the U.K., Tuna Baskoy, an associate professor with Ryerson University’s Politics and Public Administration department, says; after all, the U.K. did not want to join the former European Economic Community (EEC) in the 1950s in order to maintain relations with its former colonies, which were more lucrative trading partners at the time.
“The Canadian IT industry should see the referendum result as a double-edged sword,” Baskoy says. “There may be adverse effects in the shorter term, but the industry may also take advantage of the absence of the E.U. in the U.K. to build closer ties.”
However, Baskoy doesn’t deny that Brexit’s impact on world financial markets is only “the tip of the iceberg,” noting that, for example Canadian telecommunication companies – both manufacturers and service providers – could lose a useful stepping stone in their relationship with the E.U., one that has proven especially fruitful in boosting technology standards and competition among services.
“The U.K. was a major player in the E.U. in putting forward new European standards, many of which eventually became global standards,” Baskoy says. “Now, Canada may not have that stepping stone anymore.”
Canadian companies also collaborated with British firms such as British Telecom in the past to reach continental European markets, where the E.U. has agreed to abolish roaming charges by next July, Baskoy says. Without the U.K., Canadian service providers might require new partners in continental Europe.
Finally, he notes the crucial role of high-tech industries in the Canada-European Union: Comprehensive Economic and Trade Agreement (CETA), which both parties signed last year.
“Now, Canada has to develop a two-pronged trade policy: one geared toward the U.K., and one toward the E.U.,” Baskoy says. “This may create some conflict, confusion, and uncertainty for the Canadian IT industry down the road.”
Tony Bailetti, director of Carleton University’s technology innovation management program, is more pessimistic than his contemporaries about Brexit’s impact on Canada’s tech industry.
“Brexit has disrupted the ecosystems firms use to advance and adopt technology globally,” he says. “Even if Brexit could somehow be reversed, you could not repair the disruptions caused in many product and market sectors.”
For example: cybersecurity, in which several British firms serve as anchor companies for two or three Canadian startups.
“So the British companies provide the Canadian startups with distribution channels, funding, and a pre-set customer base, so that it’s easy for Canadian firms to develop something and the Brits to integrate with it,” he says. “The value of that relationship on the Canadian side will go down, given what we saw last week.”
Demand for Canadian products and services in the U.K. will also decrease, he says.
“Canadians are known for building small stuff that goes into big platforms,” Bailetti says. “Defense for example. So many platforms in the defense industry are being built by the U.K., and Canadian firms build the applications on top.”
An example from the enterprise world is BlackBerry Ltd., which of late has positioned itself as a solutions provider, offering its top-of-the-line security and productivity software for other manufacturers’ smartphones and other devices.
“So the moment one of those smartphones is no longer wanted in a market as large as the E.U., it becomes very difficult for Canadian firms to continue building the applications that go on top of these platforms that the Brits sell,” Bailetti says.
Constellation Research, Inc. principal analyst and founder R. “Ray” Wang says that if any country is likely to benefit from Brexit, it will be the U.K.’s closest neighbour in the E.U.: Ireland.
“We see R&D there, we see testing, we see good infrastructure with the right talent, the right mix of start-up companies, funding thanks to tax breaks, multinationals – and now it’s also going to be a hedge against what’s happening with Brexit,” Wang says. “There’s a lot of expertise already in Ireland, and I think the Irish are going to benefit a lot from it.”
With their headquarters and datacentres in Dublin, Wang says, several multinationals will have the ability to reach the E.U. while also remaining close enough to the U.K. border, both for business purposes and to serve as the logical beneficiary of the U.K.’s likely exodus of talent.
“You’ve got about two million people with E.U. passports in the U.K., and so it’s logical on the talent side for people to hop to Ireland instead of remaining in the U.K. if they have to make the move,” he says. “One challenge is financing – there’s a lot more money in London – but given the way VCs are operating on a global basis, almost every Silicon Valley VC has an office in Ireland anyway.”
Like Gartner’s Lovelock, however, Wang cautions that none of Brexit’s projected impacts are set in stone.
“Nothing has happened until article 50 is put to a vote, and even when that is put to a vote, it’s going to take up to two years or longer to actually conduct the separation,” he says. “So a lot of this is speculation – but if you want to hedge, hedge to Ireland.”