The U.K.’s decision to leave the European Union not only has major implications for the world economy, but will undoubtedly have a negative impact on the tech sector around the globe, say experts and analysts.
“The [U.S.] tech sector has the most offshore earnings of any S&P 500 sector company,” says Atul Lele, chief investment officer at Deltec International Group. In the immediate term, he says, currency fluctuations in the U.K. are likely to have a negative impact on earnings in upcoming quarters.
“At one point after the vote, the British pound fell more than 10%, a low not seen since 1985, and currencies will likely remain volatile,” notes Cam Hoang, partner at the international law firm Dorsey & Whitney. The sinking value of the pound could also affect tech hardware companies like Apple, which would have to raise product prices in the U.K. in order to maintain the value of its products. There’s also a chance Britons will be less inclined to buy new smartphones if the economy takes a downturn.
In the long term, there could be deeper impacts as a result of changing legislation. Once the U.K. is no longer part of the European Union, it will have to redraft trade agreements and a slew of other legislation, which will ultimately impact U.S. companies that have operations within U.K. borders.
One area that is unlikely to see a change is data and privacy laws—a hot topic in Europe. The European Union has tough rules around how consumer data is obtained, used, and distributed that affect American tech companies like Google, Facebook, and Microsoft. But these companies will likely push the U.K. to write its laws to align with E.U. legislation to make sending data across borders simpler.
Meanwhile, some analysts believe that the U.K.’s new laws could be beneficial to U.S. tech companies. Still, since the change is a long way away, it’s hard to predict what direction the country will go in. As one American tech company representative told me off the record, “We’re in the great unknown.”
That said, Lele doesn’t anticipate major changes to the overall U.S. tech economy as a result of Brexit. “We’re still bullish on the technology sector,” he says.
The companies that are more likely to suffer are tech companies and startups based in Europe.
“You had a union to reduce friction and now you increase tariff, border control and regulation and its going to create friction for businesses in general,” says Erik Engellau-Nilsson, head of communications at Klarna, an e-commerce company based in Sweden.
He says its hard to say how difficult the U.K.’s exit from the union will ultimately make it for European businesses, but he’s already anticipating how it might affect his company. “We recruit a lot of people out of the U.K. and move them to Sweden,” he says. “That’s going to change as well. We don’t know what the visa situation will look like two years from now.” Some say that the U.K.’s departure may lead to a talent exodus.
In the meantime, the vote does have one positive impact, according to Lele. “People know which way the vote’s gone and therefore can go ahead with their investment and spending plans.”
Right, onto business as usual.