As of press time, the United Kingdom was scheduled to leave the European Union on 31 October. However, there has been chaos in the British parliament, and it is still uncertain if the U.K. will exit on that date, or if it does, on what terms. One thing that has become clear is that Brexit will inflict significant hardship on small- and medium-size enterprises (SMEs).
As we reported in our September 2019 article on the flow of tech workers from the U.K. to Ireland, large multinationals have the capital to move operations in order to mitigate disruptions. For SMEs, the kind of measures that can be taken in the wake of Brexit are far more limited.
“All the stories about Brexit in the Financial Times have been about big multinational companies,” says Ross Brown, a professor at the University of St. Andrews, in Scotland, and coauthor of a paper on the potential impact of Brexit on SMEs. Brown says that small companies are unable to implement the kind of contingency plans that larger companies developed to deal with the chronic uncertainty of the Brexit process: “There have been a number of detrimental impacts on U.K. SMEs, and I think that’s been the hidden aspect of Brexit.”
If you go by the numbers, the impact of Brexit on SMEs should not be so hidden. Currently, SMEs make up over 99 percent of all U.K. companies, according to Brown. (In the U.K., a company having 250 employees or fewer is considered an SME. For comparison, in the United States the threshold is 500 employees.)
There are about 5.7 million SMEs in the U.K., according to Brown, and together they constitute about 60 percent of all private-sector employment. Brown estimates that 14 percent of these 5.7 million SMEs are high-tech engineering companies, meaning approximately 800,000 affected SMEs in the U.K. are in high tech.
Brown’s research indicates that two-thirds of SMEs have already reduced their capital investment. Capital investment is the lifeblood of a business, he points out. “Unless companies are investing, they’re not able to grow, they’re not able to create new products, and they might become less competitive in the marketplace,” he says. “If that’s happening across the board, it’s not going to be small beer.”
Estimates on the number of Brexit-related job losses are problematic, according to Brown. However, he remains certain that the short-term impact (the next five years) will be significant, possibly translating into a loss of around 20 percent of jobs for SMEs in the United Kingdom.
While SMEs can’t match the preparations of multinationals, there are efforts to take some advance measures, according to Brown. “Some capable and innovative companies might have set up offices in other European Union countries so they can continue accessing the single market without potentially having too much disruption,” he says.
Unfortunately, these measures are not available for all SMEs. And companies that are highly R&D focused may suffer the worst: One of the key points of concern for R&D-based companies is the potential difficulty in employing EU citizens.
This is a great fear, especially for companies in a sector like video games that is heavily reliant on Eastern European employees. “For a big company to open up a plant in Eastern Europe is fine, but for a small company of maybe 10 people to open another overseas office is really quite a major undertaking,” says Brown, who believes that many such small companies may downsize rather than take on this kind of additional risk.
This article appears in the October 2019 print issue as “Brexit Threatens British Tech Jobs.”