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Brexit – does it matter for IT?

Manish Khandelwal | computer weekly | 12 august 2016

The technology and infrastructure wouldn’t change and neither would the art of delivering IT services – so does Brexit matter to an industry that is predominantly borderless in the way it operates?

It does, with both short-term and long-term implications for the industry. There will be challenges.

Firstly, offshore suppliers will look to increase charges and re-negotiate contracts.

The UK is the second largest market for Indian service providers and accounts for 17% of export revenues. This is a significant number and so Brexit is bound to have an impact on the books of many of the 800 technology service companies who have a UK presence. As Sterling slips, contracts that have been priced in pounds and costed in rupees will become unattractive on the books of the offshore providers. While companies hedge the currencies, account-specific profits will inevitably take a hit.

This will prompt service providers to think through their strategies when contracts come up for renegotiation. As potential deflation sets in, this could include de-linking the annual rise to the retail price index, adjustments to the workforce pyramid for existing fixed price contracts and adjusted rate cards for new business.

Secondly, skills will be in short supply – and not only from the EU.

Most immigration debate assumes that immigrants want to come and settle in the UK. While this holds true for certain sectors, it is not a sweeping generalisation that can be made about the IT workforce. India’s IT talent is sought-after and,  with opportunities available globally, many highly skilled potential immigrants may reconsider plans to work and settle in the UK.

Employees of many large Indian service providers have traditionally preferred the US and with increased uncertainty, depreciating value of potential savings and perceived inaccessibility of mainland opportunities, that trend is only expected to strengthen. Brexit is, therefore, sure to have an impact on the talent available to UK companies – not only from Europe but also from India.

Thirdly, the cost of doing business will go up for the service providers.

Many service providers have traditionally used the UK as the base for their European operations. This is particularly true for mid-sized and small firms. Brexit may mean that some of these organisations will need to invest in their offices and workforce in mainland Europe to cater for their customers there. For some, the cost may be prohibitive and for others increasing the cost of doing business by having duplicate UK and European offices will hit profits and ultimately charges.

But Brexit brings opportunities.

Locations within the UK may get a boost. Many suppliers and user organisations will need to invest in developing the skills of the local workforce. Industry may need to look at developing local silicon valleys – clusters of IT-literate workforces – to offer credible competition to nearshore centres. Such initiatives can, though, only be expected in the long term and will require policy changes – but IT and IT-enabled services could help the UK to rebalance both over-reliance on financial services and over-reliance on London.

Technology solutions will gain further traction. With movement of skills increasingly constrained in the UK, Europe and elsewhere, suppliers may redouble their efforts to develop new technologies and solutions. Platform-based solutions are increasingly taking centre stage in the plans of offshore providers. Investment in solutions and technologies that decrease the need for manual intervention may increase – not only to boost the balance sheets but also to counter the challenges posed by the changing global political landscape.

In conclusion, Brexit is bound to have an impact on the IT service providers and end user organisations – particularly from the perspective of service costs and availability of skills. But it also presents an opportunity for the industry to rebalance offshoring, outsourcing and insourcing, and focus on developing solutions and a workforce that is close to and integrated with the business.

Manish Khandelwal is an IT transformation expert at PA Consulting

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