IT Outsourcing and Brexit – Either The End or a New Beginningby QArea Team on July 13, 2016
The United Kingdom has been an important member of the European Union since 1973. The British have tried to enter the organization two times before being accepted.
Charles De Gaulle (French military leader) reasoned EU’s decision to reject UK’s applications by commenting that Britain’s economy is “incompatible with Europe”. However, some changes were made and in 1973 the United Kingdom had finally entered the EEC.
The British citizens haven’t called the EEC anything but “the common market” ever since. And they have treated it accordingly.
The United Kingdom built economical connections with Europe and other international markets during the last 4 decades. Yes, they had varying results and many core problems still remain unsolved. But, at least, it was an ongoing process.
What will happen to all that work after Brexit?
Let’s take a look at the situation in the UK’s IT outsourcing market and outsourcing in general. Will Brexit open wide new doors or will it cause more trouble?
Businesses voice their opinions
The United Kingdom holds 2nd place in outsourcing according to sharedserviceslink.com. Since 2010, UK has shown 47% growth in contracts per year and roughly 16% growth in annual contract value. We are talking about £3.75 billion worth of contracts annually!
The National Outsourcing Association (UK) just conducted an open poll for the industry members. More than 100 companies participated in the study. CEOs, CIOs, and CMOs expressed personal opinions on Brexit and they pointed out it’s possible to affect on business in the UK.
The report says that over 35% of participants believe that remaining in the EEC preserves valuable existing relationships.
At the same time, NOA’s report points out that roughly 34% of the participants think that the EEC membership should be justified by better deals. Over 73% of the participants strongly believe that it can be beneficial to remain part of EU. But only as long as that membership receives reformations.
They demand active changes in taxing rules and legal interactions as they have conflicted with the interests of the UK’s business community. And the new rules seem tied to shiny benefits and new prospects!
The United Kingdom has always been a strong autonomous economy. Their desire to build independent international business bonds is nothing but reasonable. In fact, 19% of surveyed expressed their desire to work closer with the contractors outside of Europe.
With cohesive connections between the UK and India, this desire is understandable. We should not forget about Eastern Europe and its rising outsourcing capabilities.
And yet – as we would expect from the calm and calculative British – only 15% of business representatives polled by NOA believe that the country should immediately withdraw from the European Union. After all the process of regaining control over business and outsourcing regulations is marathon, not a sprint.
What about IT Outsourcing?
Obviously, many IT companies are loyal supporters of globalization and think that EU membership makes the country more competitive on the international arena and allows British businesses to acquire better deals for themselves.
TechUK has proven this statement with a survey. They questioned nearly 300 participating UK businesses that operate in the IT industry.
About 70% of the companies would like to stay in Europe as leaving the EEC disrupts their targeting channels that connect them to over 500 million potential customers.
Simultaneously, 76% of poll participants strongly believe that being a part of Europe allows UK businesses to attract more investors.
However, the growing amount of available professionals outside of Europe is a factor far from being close to other aspects of the relationship between the UK and Europe.
Aside from obvious benefits, there are other considerations that we have to account for: labor movement and talent availability, currency stability, regulations, etc.
The United Kingdom – around the globe
Huge financial structures enjoy cutting their expenses and outsourcing, so do the outsourcers. Nonetheless, the very way the UK interacts with the world needs reformations as positive long-term solutions shall be healthier for both the outsourcers and the enterprises. This demands the UK to regain its sovereignty and focus on creating better policies aimed at regulating outsourcing, taxations, and public sector interactions.
These demands have decent reasoning. While the whole world is still adapting to the considerably new niche of outsourcing, the United Kingdom embraces the idea of outsourcing numerous business processes to Europe, Middle East, Africa, and Asia.
The report by the International Services Group highlighted that the UK generates up to 80% of all the outsource contracts in listed regions. This is an incredibly high number and the amount of businesses that depend on these contracts is no joke.
This particular issue concerns many politicians and economists. In the long run, outsourcing too many processes leads to overall regression that will be felt mostly by the public sector and regular citizens.
At the same time, the Coalition for a Digital Economy AKA Coadec conveyed their own survey. Coadec is a well-known union of startups and investors and their opinion should not be ignored. Their key finding was that 81% of surveyed business owners would like to stay in the EEC.
Now that was far from a shocker as startups desire business channels that would connect them to Europe.
These are the key factors that concern startup owners and their investors:
- EU membership affords startups an access to a considerably large united market that complies with the same regulations;
- Professionals can move freely within the Union, which is a critical issue for every talent-seeking startups;
- Being a part of European Union allows the UK to impact some decisions and protect interests of domestic businesses that operate internationally.
The UK’s startup community is made of various people from all over the world and isolating from a big shared market will bring nothing but new trouble. This is, even more, concerning if we account for the vast majority of startups operating in the IT industry.
With less access to European talent and cheaper high-quality outsourcing, many startups will struggle to stand firmly on their feet.
How will Brexit affect large outsourcers?
There are two major countries in which we have growing outsourced IT industries – Ukraine and India. The former rapidly grows in Eastern Europe and provides residence for companies like Samsung and Netcracker.
The latter is one of the cheapest countries to outsource software development. Thousands of professionals aim solely at the international market and foreign clients.
Until now Ukraine was less attractive for the UK businesses. The country is in the middle of political uncertainty and development costs are slightly higher there.
On the other side – Ukrainian specialists provide high-quality IT expertise and professionalism. That’s why those UK companies that seek higher quality tend to prefer working with outsources originating in Eastern Europe.
At the same time, many Eastern European companies prefer working domestically and most of them have no local offices based in the UK.
This means that Brexit may force some companies to establish additional bases of operations in the UK and this will also increase outsourcing prices. The growth of wages is a good thing for Ukrainian specialists, but it may decrease the overall amount of contracts between the UK and Ukraine.
The decrease looks even more depressing if we consider the fact that Ukraine has never been the go-to market for UK businesses in the first place.
And yet, Brexit might give an unexpected advantage to Ukrainian companies with global presence. Large and trustworthy teams like QArea, NiX Solutions or SoftServe will become fairly more attractive.
What about India?
India is the biggest outsourcer for the UK. Simultaneously, the UK is the second biggest IT export partner for India accounting for over 17% of IT export.
Due to traditionally good relationships between India and the UK, Indian specialists used their connection in the UK to enter other European markets. Now, this channel is closed for many Indian IT companies. This means that they will also have to establish their offices in Europe. That noted, India might not be as cheap as we all want it to be.
Then there is the labor mobility affected by Brexit I mentioned earlier. Not only new regulations may hinder the capabilities of professionals and work from Europe to the UK and vice versa, but the problems caused by the changes in financial system and banking will cause issues for all employer/labor interactions.
This is actually good news for Indian companies!
Sure, the situation can be solved by hedging currency and establishing local offices, but the issue still limits the opportunities for businesses both in the UK and Europe.
Indian IT companies employ over 100 thousand people in the UK. Therefore, Brexit may encourage the UK to build even stronger relationships with Indian companies. It’s just easier this way.
And as for the downsides: : it is widely expected that British pound will lose value due to political unrest in the country. All of the contracts that are tied to the Pound will lose in value. Many outsourcers will demand re-negotiations and this may also cause some unnecessary issues.
Brexit may trigger mixed consequences for the outsourcing industry and IT outsourcing in particular. While many British citizens believe that exiting the EEC is a good move, many professionals tend to disagree.
The vast majority of business owners and experts built the consensus that enforcing EEC reformations and staying in the European Union is a better decision. We, as IT industry members, wholeheartedly agree with this stance.
The UK will change many regulations and their market is likely to become more isolated. This means that many contractors will be left workless and many businesses will have to reconsider their existing contracts.
In the long term, enforcing healthier social policies and focusing on developing open-minded business regulations may improve the very way the UK interacts with foreign contractors. Let’s all hope the British will choose this path over any other bold decision.
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