Brexit: A small window of opportunity that outsourcing vendors must explore if they are to hang on

Few people predicted it would happen, but in June of last year, Britain voted to leave the European Union. Since then, there has been a great deal of debate surrounding just what impact this move will have on the global economy, and especially on the technology services market. So far, though, all of this debate has been mere speculation – the Brexit talks have only just begun, and it will likely be a long time until we see just what the results of the process will be.

The impact won’t just be domestic, though. Britain is an open economy and as a result, all industries that have import or export arrangements with the country will feel the effects. In particular, the outsourcing industry will be greatly affected, especially the IT outsourcing sector.

IT outsourcing companies work with a wide range of clients across multiple UK industries, from banking and financial services, to energy companies, and even the government. The UK is a vital market for many service provider ecosystems across the world – for instance, many large India-based vendors depend on the UK for more than a quarter of their revenue. It’s clear, then, that the current uncertainties in the business climate post-Brexit will have a dramatic, dampening effect on the international IT outsourcing industry.

"The outsourcing industry will be greatly affected, especially the IT outsourcing sector."

The UK’s National Outsourcing Association (“NOA”) recently conducted a survey to find out how its members felt about the possible impact of Brexit. The UK is actually the world’s second-largest outsourcer, and its economy is therefore significantly dependent on outsourcing. It’s unsurprising, then, that 73% of those surveyed felt that it was better for the UK to remain in the EU than leave, with the most common reason being to maintain current outsourcing and business relationships. A third of respondents felt that the benefits of being in the EU far outweigh the costs and that to leave would be an impulsive, ill-informed decision.

In addition, the UK’s outsourcing market is one of the most advanced in the world and is already leading the way in adoption of and migration to the cloud, AI, and automation applications. The increased need to save costs post-Brexit could lead to an increased push towards automation, which would save clients more money, but would lead to job losses in the outsourcing industry.

Other short-term issues that could be caused by Brexit include currency exchange risks, as the Pound dropped in value dramatically after the initial referendum result, and has been less stable since then every time Brexit negotiations rear their head. There will also be disruption to operations and the labour market, and the loss of free movement could mean a loss of business in the UK.

"The UK’s outsourcing market is one of the most advanced in the world and is already leading the way in adoption of and migration to the cloud, AI, and automation applications."

However, there could also be upsides to Brexit in the outsourcing industry, especially for Eastern European outsourcing providers. In addition, British companies will still want to make use of outsourcing, especially if a lack of skilled IT professionals migrating from Europe leads to a shortage within the British economy. These European companies could well benefit from Brexit, then, since there will be an increased demand for their services. 

In the medium to long-term, though, outsourcing vendors and customers alike should be ready to take advantages of the unique opportunities posed by Brexit. There will be a big push towards the automation of services, and there will also be additional demand for IT services to tackle changing regulations around data protection and security issues. There will also be a shift in demand from the UK to Eastern Europe and even outside the UK. It is clear, then, that while outsourcing vendors need to have risk management plans in place, they should also make the most of what is happening right now, and help forge a future where the outsourcing industry is in an even stronger position than ever.

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