Ben Wright, CEO at leading global expansion solutions provider Velocity Global, addresses recent government data on the UK’s tech sector and explores how businesses utilise international growth to safeguard against potential economic instability at home.
The UK technology industry received more than £5.4 billion of foreign investment during the first seven months of 2019.
Not only is this figure from Tech Nation larger than the total sum generated during 2018, but it also means the UK (c. £100) overtook the United States (c. £77) for investment per capita – a clear sign of confidence in British tech. Why then, do the latest figures from the Office for National Statistics (ONS) show there are 40 per cent fewer IT jobs now than in 2017?
Velocity Global recently conducted research into the international growth ambitions of the UK’s tech sector that offers an answer to this question. The survey of 500 UK-based technology companies revealed an almost unanimous response from senior decision-makers: nine out of 10 firms plan to go international. Of those surveyed, almost half cited Brexit uncertainty as the driving factor behind their plans.
Far from being confident, these figures from The State of Global Expansion 2019 Report highlight that the UK tech sector is using international expansion to ensure it is not solely reliant on an increasingly uncertain domestic market.
Uncertainty vs. opportunity
Global expansion makes a business more resilient to the potential negative impact of Brexit. It helps businesses act like an investor by diversifying its assets to balance risk and reward. This makes it less vulnerable to economic change in one region because its customer base and workforce are spread over multiple locations.
More than half of the technology companies surveyed said that a key expansion driver is to boost their customer base. Four in 10 also cited access to talent. Other benefits include achieving efficiencies of scale and accessing cheaper resources, which are each a motivator for roughly one third of the businesses.
While these are all facets of international expansion, diversifying on a global scale creates a robust business in the face of economic headwinds.
Recognising the challenges
Many view international expansion as a lifeline to guard against the effects of Brexit. However, these benefits can come with challenges.
Navigating a business expansion is rarely straightforward; it can present a number of difficulties, like legal risks and significant hidden costs and complexities. Businesses must understand the risks and the requirements of international growth to take advantage of global opportunities.
Moving into a foreign market can seem like a daunting and unmanageable task, particularly for the UK tech sector’s thriving start-up and SME community. Often times, these companies do not have the in-house resources to manage such an undertaking, especially when dealing with multiple markets simultaneously.
One of the key struggles for businesses is acquiring and managing people in foreign countries. In fact, four in 10 firms see managing employee immigration as their top headache, followed by recruiting overseas (38 per cent), finding expert consultants (28 per cent), and long-distance employee communication (22 per cent).
Meanwhile, far fewer respondents cited weaker-than-expected demand for products and services (23 per cent) and changes to global strategy (19 per cent). Seemingly promising expansions can fail because of very practical complications on the ground.
More than one third of the tech businesses included in our research said they exited an international market after setting up operations there initially.
Lightening the load
Setting up a legal entity in a new country can be both time-consuming and costly. But it is not the only option, and is often not the quickest or easiest way of establishing a presence in a new market.
Exploring more agile options to establish an overseas presence helps firms reap the rewards of international expansion while minimising the inevitable stresses and strains that come with it.
Employer of Record services – also known as an International Professional Employer Organisation (PEO) – provide one alternative. An Employer of Record handles all the administrative burdens of payroll and local employment requirements that crop up when hiring overseas. This frees up management time while also making it possible for a business to be up and running in a new market quickly.
An Employer of Record provides the flexibility to test out a new market without the significant investment needed to create a fully-fledged legal entity. This agile employment solution allows businesses to build a customer base and employ local talent with a much lower level of risk and commitment. If it goes well, the option to set up a legal entity is always available.
Our research into the UK tech sector revealed that many businesses expand globally to make themselves more resilient to economic change. For these companies, faster, more flexible approaches to global expansion are the key to successful international growth and steeling themselves against whatever the post-Brexit era throws at them.
Ben Wright, CEO, Velocity Global