Wednesday, June 29, 2016

(The Big Disrupt) Brexit: Why Brexit could bad news for Tech and media companies.

For years now officials and proponent of a more united Europe have dreamed of expanding the single market to digital commerce dubbed as the "digital single market" and with the UK voting to leave the EU after just over 4 decades in it, the dream may well be over.

While members of both the remain and leave campaign have stated their desire to trade with the EU and take part in the digital single market, It's very likely that the Brussels will drive a truly hard bargain to discourage other nations looking to follow the UK's example which may mean companies operating in the UK may become highly disadvantaged to firm based in remain EU member states. 

Tech and media stocks  were hit hardest when the UK voted leave confirming tech and media companies' apprehension of a leave victory wasn't unfounded. However, the real damage is likely to be long term as UK based tech firms will be at a serious disadvantage to firms still in the EU as while the UK may still take part in the digital single market, the EU may also hobble UK based firms by imposing freedom of movement and capital restrictions on the UK. 

While nobody is entirely clear on what happens next as the UK hasn't applied to leave the EU and EU leaders are unwilling to negotiate an exit until they do, should they impose freedom of movement and capital restrictions, it will almost definitely trigger a  number of tech companies to consider moving their headquarters elsewhere, most likely to be Germany, Ireland or France. Vodafone's CEO Vittorio Calao stated publicly two days before the vote that the world's second largest mobile phone company would consider moving their HQ if the freedom of movement and capital were restricted and with the EU having a strong incentive to make an example of the UK, the odds of the EU either severely restricting either one or both is not entirely out of the question. 

The biggest problem for tech and media firms is that the digital single market, which offers a streamlined set of rules and benefits, is now fractured . What this means is that tech and media firms have to follow two sets of rules to do business in Europe and this seriously put the UK at a huge disadvantage tech and media firms would largely do business freely in the UK but face a mountain of red tape as soon as they want to enter a market anywhere east of the English channel.
While the proponents of Brexit have a point when they say that the EU has no choice but to allow the UK to access the single market as it's comfortably one of the biggest and most lucrative markets in Europe and strategically important to a number of Silicon Valley giants (particularly Google and Apple) who represent just over half of the digital single market, all this likely won't stop tech and media firms jumping ship to other EU members to avoid the red tape that the EU would likely impose on the UK to access it. 

Proponents know this than most which is why very few have called to end the current limbo the UK finds itself in as it has dithered to trigger article 50 which would start proceedings for a UK exit out of Europe. There is even strong support for the EU blocking UK's access to the digital single market altogether with German finance minister Wolfgang Schauble adamant that a vote to leave the EU also means an exit from the single market. While it's currently unclear whether this will happen or not, it's more than likely it will be hotly contested for what looks like months and years to come. 

In sum, Brexit looks like it could be a disaster for tech and media firms for reason stated above but with the current state of uncertainty over what will happen next, the true effects of this historic vote has yet to reveal itself.  

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