Impact of Brexit on the UK Outsourcing Industry

There’s no doubt that Brexit created a slowdown in European outsourcing during the last two quarters, especially in the UK. How long will the slowdown last? Let’s look at what’s really going on.

The reason Brexit contributed to slowdown is because it created indecision and senior management attention was captivated by the unthinkable prospect of the UK exiting the EU. That indecision caused the slowdown.

Having just returned from the UK and talking to UK leaders, I believe that the indecision has passed and decisions are reversing back to their normal rhythm. I expect there to be a little ongoing hangover; but going forward, I expect an increasingly low impact on outsourcing growth due to the UK exiting the EU. Yes, it’s still uncertain as to how the UK will exit, but that’s different from the indecision based on whether or not it would actually happen. I’m seeing signs that the indecision and senior management attention necessary to do outsourcing deals has now reverted back to running the business.

On their earnings calls, a number of outsourcing executives called out that they expect Brexit will create an imperative to do more outsourcing and to accelerate deals. I see no indication that is likely to happen. Here’s why:

• The UK has a mature outsourcing market, which is already well along in its shift to cloud, automation and cognitive computing.
• The imperative for UK businesses to save more money due to Brexit is likely to be resolved in an acceleration of the automation strategies, not an acceleration of further outsourcing in the labor arbitrage model. Work that has been available to move offshore has already moved, so I don’t see an uptick in demand for further offshoring. If Brexit has an effect, I believe it will accelerate the move to automation, which provides even greater savings than labor arbitrage.

Summing up, Brexit has had a modest impact on growth of UK outsourcing; but I think that impact is lessening dramatically by the day and will have little or no impact within a month. Where it does have an impact, and counter to well-publicized prophecies, I believe Brexit will not lead to further growth in the labor arbitrage space, but it’s likely to impact the transition to automated solutions.