Tech companies operating in U.K. should brace themselves now that the country has chosen to split itself from EU. Though tech businesses work without borders, they will now have to face the possibility of being isolated from the entire European market, with devastating effects.
Increased brain drain from U.K.
EU technology professionals will no longer be able to easily work in U.K. over tougher rules in immigration. “We voted to take control of our country and its borders,” said Nigel Farage, leader of the UK Independence party, which campaigned for the “Leave” vote. Of course, these workers will look for jobs elsewhere, while U.K. tech firms struggle with skills shortage.
Rise of international outsourcing
Since it will be harder for U.K. tech firms to hire foreign workers, companies will be outsourcing work instead. A downside of outsourcing is directing the cash flow outside of U.K., as remote workers will spend their money in their home country and pay taxes there.
Business relocation to EU countries
Businesses that are originally based in U.K. will now transfer their operations to other EU countries to maintain access to the entire European market. An alternative location for tech enterprises to relocate would be Ireland or Germany with its business-friendly policies. Large companies that are already planning to relocate include JPMorgan, HSBC, Amazon and Samsung.
Issues in complying with laws in EU and U.K.
Tech businesses now have to comply with two regulations since EU and U.K. are separate entities. Initially, businesses that want to operate in the EU have to obtain a U.K. license from the Financial Services Authority or the Financial Conduct Authority, which are supportive of private fintech firms. With Brexit, it is now unclear where businesses would have to get their license to operate in EU.
Higher prices for imports and new taxes
Brexit has plunged the value of pound to a 31-year low, which makes imported goods such as oil and gas more expensive. This will also make it more costly for U.K. tech firms to buy software and hardware from overseas, eventually hurting their profits. Since U.K. is now separate from EU, U.K. startups will also have to pay taxes or tariffs when they sell goods and services to other regions in Europe.
Difficulty for enterprises to expand in EU
To successfully operate in the entire Europe, businesses will have to establish a separate entity for EU and another for U.K. For smaller companies, this will be expensive to accomplish, making it difficult for them to expand their business throughout Europe.
Decrease in venture capital funding for U.K. startups
Tech startups in U.K. will now have limited access to venture capital funds after the country abandoned its place in EU. “The reality is that it may be a decade or more before venture capitalists considering investing in the UK have any clarity over what environment they will be operating within,” writes Haakon Overli, a founding partner of Dawn, which is an early-stage venture capital firm.
London will no longer be the center of finance and tech
London may soon lose its status as the hub for technology and finance after U.K. separated itself from EU. The city will no longer be the ideal location to establish a startup, with potential skills shortage and large companies leaving for other EU countries. Brexit places an obstacle for local and international companies to expand their businesses throughout Europe. Though it will take two years for EU and U.K. to fully separate, enterprises should now be taking steps to protect their business from the damage caused by Brexit.
One way they can do this is by using a border-free payments solution that will allow them to continue selling their goods and services in U.K. and in the entire EU. Paymentwall can help enterprises maintain market coverage in Europe, and survive the impact of Brexit. Learn more about Paymentwall on its website.