Looking back at the past few months, one could argue that 2020 missed the memo and decided to show up for the party bearing all the wrong gifts – from Australian bushfires and the threat of a nuclear arms race, to the ever-isolating Covid-2019 pandemic and the dawn of a new recession, it is only natural to wonder what this (highly disturbing) year still has up its sleeve. In our anticipatory anxiety we might, however, forget about one of the biggest challenges facing the European business environment, which, even though no longer in the spotlight, is still unfolding – Brexit, with its impact on businesses not yet fully understood.
The UK is not only a brother in arms to the rest of the world in the global health crisis caused by the novel Coronavirus, with prime minister Boris Johnson and the Prince of Wales having battled this vexing illness, but its struggle for composure in the face of the recession is complicated by the transition to a new economic status quo: trade, supply chains, and businesses have been disrupted, and UK companies must reconsider their strategies and adapt their organisations to an environment of uncertainty and rapid change. However, with the right set of tools and strategies, what is currently seen as a nuisance can prove to be a blessing in disguise.
Adaptability is what will make or break a company in these trying times, and we are ready to walk you through a few key steps which could not only protect your business, bult also increase its profits in the long run.
This is going to be a long post – even though we recommend going through the article in its entirety, feel free to jump to the section that interests you the most:
- Brexit Timeline
- The Brexit Impact on Businesses: How Your Company Could Be Affected
- The Brexit Safety-Kit
- How to Thrive in an Unstable Business Environment and Accelerate Growth
- Final Thoughts
Brexit Timeline: What to Expect
The UK stopped being a member of the European Union on the 31st of January 2020. And while it has decided the terms of its EU departure – commonly known as Brexit -, both sides still need to determine what their future relationship will look like. This will all need to be worked out during the implementation period, due to end on the 31st of December 2020.
During the following months, the UK will continue to follow all the EU’s rules, with its trading relationships remaining unchanged. Meanwhile, the parties involved need to negotiate and consider all aspects of the UK-EU relationship (e.g. trade, transportation, law enforcement, security, aviation, etc) and establish a common ground which will facilitate an exit strategy designed to protect the UK industry and minimize disruptions.
The Brexit Impact on Businesses: How Your Company Could Be Affected
The UK is well known for supporting technology and innovation with initiatives such as tax incentives, investment and funding and R&D, encouraging entrepreneurs and start-ups to materialise their business ideas and boost the economy. However, after Brexit, the speed and profit of these projects might change, as the impact on the technology and innovation sector depends on what model the UK adopts for its relationship with the EU. There are three possible scenarios:
- if the UK remains in the European Economic Area, changes will be minimal and everyone can sigh with relief;
- if the UK joins association and negotiates sector specific access to the single market, tech and innovation depend on the nature of the partnership between the UK and the European Free Trade Association;
- if the UK distances itself further from the EU, the changes may be more extensive.
Even if the exact changes remain to be seen, analysts have come up with some possible ways in which Brexit can impact businesses and industry sectors:
Telecom and media – will UK consumers benefit from the same services they used to enjoy before Brexit (roaming taxes, internet access, etc.)? As UK will have to negotiate an appropriate partnership agreement with the EU, UK consumers may or may not have the same rights enjoyed by EU consumers.
Data privacy – transfers of personal data from the EU to the UK will only be allowed if they provide adequate safeguards for personal data transfer and storage in the UK. To achieve this, the UK has two options: it either gets an ‘adequacy decision’ from the European Commission, which decides that the UK is a safe third country for personal data imports, or it doesn’t, and all businesses operating in the EU will need to revisit personal data flows whenever they require data transfers to the UK.
Compliance with the General Data Protection Regulation – once Brexit takes effect, will the UK implement legislation reflecting the new GDPR, or will it keep the existing Data Protection Act of 1998? This point is crucial for businesses operating via subsidiaries sited across the EU and the UK that want to operate a single process of collecting, aggregating, and processing personal data relating to its EU/UK trade activities.
Outsourcing – whereas there are many to be said about this particular topic, as it bears both challenges and a great deal of benefits, let’s focus on regulation for a moment: if the UK chooses to recall the Transfer of Undertakings (Protection of Employment) Regulations 2006 – in short, the TUPE – , outsourcing business models will be impacted. The TUPE is an important part of UK labour law, protecting employees whose activities are being transferred to a different business, as part of a service agreement. So far, the Government has confirmed that there will be no change to employee rights in the short term. Still, in the medium to longer term, if TUPE no longer applies in the same form in the UK, those assumptions would need to be revisited, and thus pricing models could vary.
Intellectual property rights – copyright, trademark, design and patent rights will remain unchanged, as many of these intellectual property rights have not been obtained by the means of European Institutions. Nevertheless, businesses are urged to review their patent protection and enforcement strategies, with applicants being advised to consider seeking separate UK trademark protection, and proprietors of existing Community registered designs to obtain separate UK coverage based on existing Community registered design right.
Increased prices for technology – the 2016 EU referendum has caused a 20% depreciation of the GBP (against the USD), and as a consequence several manufacturers have used the plummeting value of the pound to push up their prices in the UK. For instance, the cost of Microsoft enterprise software such as Microsoft Office went up by 13% in January 2017, while Dell increased prices by 10% in the UK, with HP quickly following suit.
With respect to the software development/IT sector, some agree that by imposing new trading and tariff related regulations, Brexit might complicate and disrupt supply chains. Thus, it can create a diverging regulatory context that demands companies to rethink their software development capabilities.
When discussing the Brexit impact on businesses in the IT sector, we are mainly referring to either large corporations or to small businesses and start-ups. While the former have already planned to relocate their headquarters post Brexit, or are actively rethinking their operating model to accommodate Brexit, the latter have found it more difficult to adapt. Declining investments from small business owners and uncertainty over regulations, coupled with loss of access to the Common Market, have made the small businesses sector significantly more fragile. That is why optimizing costs and developing effective adjustment strategies is crucial for minimizing the impact of Brexit on small businesses.
The Brexit Safety-Kit
Whereas it would be irresponsible to say that the current landscape is not at all complicated, it is not all gloom and doom – there are effective steps a business owner can take in order to ensure that s/he is well equipped in face of Brexit. In this sense, Deloitte analysts have come up with a few useful suggestions and solutions to Brexit related issues:
- Keep monitoring key sources of information such as Government advice from reliable sources, the EU, trade associations and industry bodies (e.g. Tech UK).
- Organise all the information related to your workforce – (1) encourage your existing workforce to certify their residency status; (2) review recruitment strategy for critical roles; (3) monitor information from countries in which you operate to ensure you understand local visa and work permit requirements; (4) decide what employee (s) will be regularly travelling into the EU to provide services.
Moreover, in the context of Brexit, it is essential that companies revise their long-term approach towards workforce and talent. To fill gaps in talent capabilities, employers are advised to digitise key processes and change operating models, with outsourcing being highly encouraged.
- Organise all the information related to your products and services – (1) learn how to complete and submit the necessary customs declaration procedures and forms for imports and exports; (2) concerning GDPR, try to understand what the regulatory changes could mean for your products and services in lieu of delivery, production and sales locations; (3) conduct a trade continuity and market access review to understand your placement within the EU market.
- Don’t forget about intellectual property rights – (1) review refiling requirements with the UK Intellectual Property Office for pending IP applications; (2) consider usage, cost, and need for duplicate filings of both European and UK trademarks; (3) review the territory provided for in licence agreements and future assignments of rights.
- Manage all key stakeholders to understand commitments and expectations – engage with audit committees and liaise with trade bodies and regulators on preparations.
How to Thrive in an Unstable Business Environment and Accelerate Growth
Now, let us briefly go back to the Covid-19 situation. The software development/ITC sector is at a critical crossroads. Recent events, which are virtually forcing almost all companies to incorporate remote capabilities within their operations, are challenging the ways in which most businesses look at productivity and communication. Smart entrepreneurs should take what works from these endeavors and see how to use newly established processes on the long run. A digitized remote environment can not only cut utility costs, but will also optimize one’s business model on a much deeper level. With this shift in mentality concerning collocation, outsourcing development is just one of the trends we expect to see in the next few years. And what better way to outsource, if not in an agile framework?
Agile represents one of the most effective ways to optimize the software development process, serving as the go-to work methodology for numerous companies, including those with remote capabilities. At its core lies the value of short iterations, allowing customers to see fast results at lower costs, and developers to implement changes quickly.
McKinsey conducted several interviews with executives at about 50 businesses across the UK and results revealed that owners who adopted an agile style of conducting business/work were 1.5 times more likely to report financial outperformance, and 1.7 times more likely to report outperforming their peers on non-financial measures such responsiveness to customer needs or employee engagement.
Within an agile organisation, leadership shows direction and provides resources, but teams are empowered to take initiative, collaborate across silos and quickly create and implement new value-creating solutions. As a result, performance improves in situations of uncertainty. By ensuring flexible resource allocation, funding and skills can flow swiftly where they are needed most. For instance, projects with collaborators that work in different time zones can be sustained with flexible working hours.
A further step in achieving agility is embracing rapid-cycle ways of working (at every level of the organisation). For instance, at a team level, organisations can move away from ‘waterfall’ and ‘stage gate’ project-management approaches.
In the wake of Brexit, many companies will be faced with the need to radically rethink both their organisational model and the technologies they use for their products and processes. In addition to keeping an eye for regulatory changes and to embracing an agile approach to development, business owners will need to also ensure that their traditional products and services are digitised or digitally enabled in order to minimize Brexit impact on businesses. Hence, the technology that companies adopt should progressively incorporate new innovations such as containers, microservice architectures, and cloud-based storage and services.
Tech companies can continue to flourish outside the rigid confines of EU legislation, and the UK can take advantage of this ‘liberation’ to attract even more investment to grow the ITC sector further. Let’s not forget that Norway (which is not in the EU) is a prime example of how this sector can develop effectively outside of the EU.
All in all, the winners will be those prepared to rise up to the challenge.
We, at Bytex Technologies, have embraced this change a long time ago, and are ready to provide all the assistance your company needs in order to thrive in a time when most risk failure.