How will Brexit impact the UK's SSC industry?
Last week, SSON columnist Fatmir Hyseni wrote about the "big push" towards automation of services as a result of Brexit. One of the significant side effects, he says, would be the enormous additional demand for IT services to tackle changing regulations around data protection and security issues. With the UK the world's second-largest outsourcer, its economy is dependent on the kind of flexible sourcing practices that outsourcing provides.
British companies will, of course, still want to avail themselves of the outsourcing option especially if, as is foreseen, the traditional flood of skilled IT professionals to the UK from Europe slows down. Britain's loss, of course, may well be Europe’s gain.
SSON Analytics, the Shared Services and Outsourcing Network’s data center, recently evaluated the potential impact of Brexit on the UK’s 328 shared services centers. Only 9% of these SSCs have an EU-based headquarter, whose corporate taxes are currently paid to the UK. Post Brexit, these entities can choose to pay tax to the UK or their EU government. Overall, the impact of Brexit on UK-based shared services, in terms of tax revenue, may not be as significant as thought given double taxation treaties.
One of the big concerns, of course, is availability of talent. The UK has, for many years, attracted a significant brain drain from Europe, of individuals seeking challenging and rewarding positions. Brexit may well make the transfer of this workforce more difficult. For now, the majority of individuals working within UK shared services are indeed from the UK (91%) although in the greater London region, 1 out of 8 shared services professionals is curremtly from Europe.
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One of the fallouts of Brexit, however, may be changes to terms and conditions of employment. Based on SSON Analytics' evaluation, corporations may stand to benefit at the cost of employees, once the UK is no longer beholden to EU directives. For example, currently, TUPE legislation (Transfer of Undertaking Regulations) acts as the UK implementation of the EU Business Transfers Directives, and preserves employees’ terms and conditions when a business is transferred to a new employer. After Brexit this protection no longer applies.
From a macro perspective, 44% of UK exports currently go to the EU, and 53% of UK imports come the EU. The top 10 industries leading both import and exports represents a third of the most popular shared services industries across the UK. From a goods trading perspectives, therefore, there should be significant fallout post Brexit, which shared services will feel first-hand.
The big challenge for SSON's members is how the shared services landscape might shift once the UK opts out of the European Union. The UK currently holds the leading position across Europe as the most popular location for shared services.
There has been very little clarity, and no clear changes of strategy, for UK-based shared services to date. With many shared services operating as a pure provider and not profit center, the concern around potential impact of tax are probably moot. Nevertheless, we are all keeping an anxious eye on developments.