At the end of June 2016, citizens of the United Kingdom approved a referendum to leave the European Union (E.U.), after more than 40 years of membership. How this British exit, or “Brexit,” will pan out is highly uncertain, but it will likely impact the ability of citizens of E.U. member-states to live and work in the United Kingdom and the European Union, and could limit U.K. firms’ access to the E.U. market. It could be that freedom of movement (and associated migration), as well as market access, will both be significantly reduced. But it is also entirely possible that an agreement will be reached that will still allow for significant freedom of movement, as well as highly favorable market access.
Let’s consider the potential impact of Brexit on companies focused on the Internet of Things. While there are undoubtedly challenges to overcome, the United Kingdom has many underlying strengths that should continue well beyond the time that Brexit comes into force.
A Leading Role in the IoT
The United Kingdom has contributed real leadership in emerging Internet of Things markets. In spite of Brexit, there are many reasons to believe that Britain can maintain and grow a leading role in the IoT.
To start with, we are a nation of creators and innovators. London is Europe’s startup capital, and there are tech clusters in cities U.K.-wide. The influx of foreign nationals from the European Union and elsewhere has helped to fuel this growth, injecting diversity and dynamism. Many U.K. startups contribute to the Internet of Things, including in such areas as payments and blockchain technology, which will play important roles as the IoT shifts from pilots toward wide-scale adoption.
The startup scene is part of a large and growing digital economy landscape, valued at £161 billion ($211.5 billion) in TechNation’s 2016 report. Within this, the single largest area is related to data, software and analytics, accounting for more than a third of the total. Regardless of how Brexit pans out, there will continue to be many opportunities to combine data from connected devices with other information, analyze it and deliver a wide range of apps and services. So the United Kingdom’s strengths in these areas mean it is well placed to capture a significant slice of the value related to the IoT.
In addition, while the U.K. manufacturing sector may be small relative to services, there are many areas of excellence in high-tech design and production. Chip technology company ARM is the foremost among U.K. businesses—around Cambridge and beyond—that are leading the way in IoT hardware. The fact that Japan’s SoftBank is acquiring ARM for $32 billion is a positive sign, proving that major players are still looking to make large-scale investments in the United Kingdom. Moreover, such investments can help to underpin growth and job creation, as we have seen in industries such as car manufacturing.
More broadly, the United Kingdom’s capabilities across professional services, its leading role in setting international standards and the use of U.K. law in many international commercial agreements all convey advantages that should continue well after Brexit has come into effect. For example, Britain has created the Hypercat specification for the automated discovery of IoT data. The specification was recently certified by the British Standards Institute (BSI), and the BSI itself is one of the leading global players for the development of smart-city and wider industry-related standards.
Meeting the Challenge
In spite of the United Kingdom’s many strengths, Brexit will undoubtedly create significant challenges.
If U.K. firms were to lose access to highly skilled E.U. nationals, then this would make a serious dent in the available talent pool. In other words, it’s possible that if the United Kingdom pushes to significantly reduce the level of immigration from the European Union, this would make it difficult to recruit large numbers of E.U. employees. To get a sense of the potential scale of the impact, a survey conducted by DueDil found that one in five startup directors in the United Kingdom are immigrants, while the total number of E.U. nationals across Britain has reached around 2.1 million out of a total population of approximately 65 million. A pragmatic approach to ensure that the U.K. still has access to this flow of talent will be an important part of the country’s continued success regarding the IoT.
The type of trade deal reached between the United Kingdom and the European Union, and the specific arrangements for digital related sectors, will clearly have a major impact on IoT businesses. It is simply too early to tell what the end result will look like, so this is one area in which firms need to consider and be prepared for a range of eventualities. Again, though, if pragmatism prevails, then it is entirely possible that a favorable deal with low or zero tariffs can be agreed upon.
When it comes to investment, the initial signs are mixed. The planned acquisition of ARM, as well the announcement that GlaxoSmithKline plans to invest heavily in expanding its U.K. manufacturing operations, suggest that major players are still willing to place large bets on the strengths of the U.K. economy and workforce. At the same time, there have been a few anecdotal indications that financing deals are harder to close. If this is occurring, then the hope must be that this is a temporary pause while investors start to digest what Brexit might mean for the British economy. U.K. firms and academic institutions also stand to lose out on some future financial support from the European Union, such as the Horizon 2020 research and innovation fund, and this will need to be replaced with alternative public- or private-sector finance. It will also be important to ensure that it remains attractive for global corporates to keep their headquarters in Britain
Fresh Opportunities
Brexit will create new opportunities for U.K.-based firms. For example, the devaluation of the pound that has occurred since the referendum passed makes our exported goods and services more attractive. This is particularly exciting for software providers and other businesses that have a low import dependency, and which export outside of the E.U.
Fresh impetus could also be given to trade and investment deals with non-E.U. countries. This could help to open up large IoT and smart-city opportunities in places like India, China, North America and Australia.
Planning for Uncertainty
None of us has a perfect view of what the future will bring as Brexit unfolds. Forward-thinking IoT businesses and their customers will want to systematically harness and analyze the data that helps them assess how different scenarios could impact their risks and performance. If they can turn this insight into action, then they will be even better placed to withstand the impacts and reap the benefits from Brexit.
Nick Monnickendam is the marketing director at IoT platform provider Flexeye, which has developed Hypercat, a specification designed to support interoperability between Internet of Things services and applications. Previously, he ran marketing operations for smart-metering and machine-to-machine products at British telecommunications firm Arqiva.