Blog Article 25 Oct 2018

by Paraic Hayes, IDA Ireland

The impending exit of the UK from the European Union has set off deep ripples that are being felt in many directions. With less than 6 months to go until Brexit; it’s looking like it could mean potential disruption for US Tech  companies doing business in the EU in 2019.  Despite the current Brexit anxiety and changing political situation, US firms still need to craft a game plan for whatever the relationship between the EU and UK will look like in 2019 and beyond. With that in mind, here are some key issues to consider for U.S. companies that are worried about their European business in 2019.

Anticipating a "hard" Brexit

The UK won't officially leave the EU until March, 2019, and spirited negotiations are taking place now to define the exit process. At the moment, there are fears of a "hard" Brexit transpiring in which the UK fully exits the European Union and its taxes and trading systems without any transition in place. This will impact every company in the UK -- foreign or domestic -- doing business with the European Union. While no one yet knows for sure how the various concerns will be resolved, U.S. companies should be aware of what might happen and plan accordingly.

Three issues should be top of mind in 2019

There are three key areas of most concern to US companies doing business in Europe: access to markets, access to labor, and navigating the regulatory environment.  For example, should the free movement of goods between the EU and UK end, there's a strong potential for the re-introduction of tariffs on goods and services going in or out of the UK. Not only might this increase the cost of these goods and services, including software,  but the added complexity boosts the general cost of doing business.

The movement of people will get much more complicated after Brexit. It is possible that  a visa system may be instituted in the UK for non-citizens which could become an issue for any U.S. company that has EU citizens based in their UK office, or is planning to establish one.  The number of software engineers applying for visas to the UK is down significantly this year and in 2019 this is likely to continue.   Companies that are keen on hiring engineering and tech talent in 2019 will have to look where the pool of talent is and how easy it will be to get visas for key staff.

In 2019 establishing a European office is still a viable strategy

The  600-million-strong European market is too attractive to ignore for any company that’s looking to grow globally. As Europe's largest English-speaking market the UK has played an important role in international growth plans of US start-ups, and will continue to do so. But a hard Brexit may necessitate changes. Companies that currently have an office in the UK might need to employ specialists to address the complex new world of trading and complying with new regulations.  2019 may see more companies set up offices in both the UK and another country within the EU.

Companies setting up a new EU hub will need to examine the availability of skilled tech workers, labor costs and other issues when choosing a location.  However, hiring staff for this hub from within the EU avoids the visa problems likely to transpire with Brexit.

International hubs require international teams, so even with an office in an English-speaking country like UK or Ireland, a large percentage of the workforce will likely need to be foreign born. Companies scaling up European operations often need 20 to 30 or more languages and nationalities on site to serve customers and build growth in a complex region currently composed of 28 countries.

Brexit significantly complicates EU privacy and regulatory requirements

In 2019, complying with European regulatory processes such as the EU's newly adopted General Data Protection Rule (GDPR) will become more complicated, particularly if your sole EU office is currently in the UK. For example; the GDPR mandates a strict new approach toward consumer data privacy in the EU, with large fines for non-compliance.  American firms that have customers in Europe, will need to work with a Regulatory Authority in an EU country  to comply with GDPR. Post Brexit, that country can no longer be the UK. Regulatory processes will also change in other industry sectors ; for example; passporting of Financial Services, Medical and Pharmaceutical products, and Broadcasting services. 

Selling within the EU and complying with GDPR and other regulations possibly make the establishment of an EU office post Brexit unavoidable. To that end, a smart strategy is to seek out an EU country with a proven business-friendly government, large supply of educated workers and history of successfully hosting American software companies.

Europe is a great, and a growing market, full of mature tech savvy customers. But it can also be a complex place to do business, and unfortunately, there are still a lot of unknowns about expanding internationally in a post-Brexit world.  The watchword for 2019 is uncertainty, so it’s a good idea to proceed with caution, get good advice from well established partners, and examine your options before you make the leap. 

Paraic Hayes heads the US West Coast team at IDA Ireland, where he works with leading global Tech firms and emerging companies to navigate the process of international expansion. Ca. 1400 companies have chosen to manage their European operations from Ireland. paraic.hayes@ida.ie

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