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What Does Brexit Mean for IT?

Posted on: July 5, 2016

Having just completed our recently announced transaction with Vodafone, it hit close to home when we learned that our new partner was considering moving its corporate headquarters out of Britain after that country recently voted to exit the European Community.

The uncertainties that Brexit brings to the business community are especially profound for Vodafone given its international presence. These uncertainties in regulations, taxes, and labor laws, to name a few key areas, not only influence where Vodafone and other companies choose to base their headquarters, but also how, when, and where these companies choose to spend their IT dollars.

Bill Martin, CIO of Anschutz Entertainment Group, was quoted in a recent Wall Street Journal article as saying “This is truly unchartered territory. We’ll monitor closely and prepare wherever possible, as quickly as possible, the uniqueness of this will take some time to work through.”

Research firm Canlys adjusted downward its earlier estimates of IT spending in the UK. Originally, they forecasted UK IT spending to come in between $90 billion and $100 billion; they now believe these estimates will fall by up to 10% in 2016 and by 15% in 2017. Gartner also lowered its UK IT spending estimates, changing its earlier forecast of a 1.7% increase to a decline of between 2% and 5%.

One key driver of this reduction in IT spending is the steep decline in the British pound (to decade lows) which immediately made dollar denominated IT products and services more expensive. Another key driver is the general uncertainty in what new IT requirements will be. For example, will Britain still be subject to the EU’s privacy laws? Or, as another example, will the U.K. continue to be recognized as a “safe third country,” allowing data to be transferred to the U.K. from the E.U.?

There are other more subtle but perhaps more profound enterprise IT consequences of Brexit as well. Forrester Research is predicting that innovation at U.K.-based firms will slow down because companies will be focused on dealing with more critical but mundane trade issues. Additionally, tighter immigration laws could negatively impact the UK IT talent pool, making it harder for British companies to attract skilled resources.

There remains a tremendous amount of uncertainty around Brexit, including some serious discussions of having another national ballot to reconsider leaving the EU. For now, enterprises must remain vigilant and watch the political situation and do their best to understand all the various ramifications and make contingency plans as the financial and regulatory situation stabilizes.

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