There is no question that Brexit will have a direct impact on channel, with resellers, particularly those focused on equipment resell, the hardest hit, but the magnitude of this impact will be highly dependent on which of the three scenarios highlighted by IDC play out.
The impact will also be highly dependent on individual company’s business models. For example, those which have already reduced their dependency on equipment resell and have built sustainable services, solutions and cloud businesses will face less impact than those still heavily reliant on resell. Industry will also play a role, those with a very high dependency on UK public sector or financial services industries will be more concerned than those with a more distributed customer base.
The stronger US dollar has already had a strong impact on IT prices, and with more currency fluctuations anticipated, channels, particularly distributors, will need to ensure that they are able to react quickly to any cost-changes within the supply chain, particularly in the first two scenarios.
Whilst the full impact will only be determined once trading terms are finalized, the cost of trading with Europe is likely to increase. What is fairly well understood is that none of the alternatives will be quick and easy to implement and it is extremely unlikely that the UK would be able to negotiate the burden-free trade deal the Pro-Brexit lobby suggested. If the UK remains part of the EEA (European Economic Area) and EFTA, channels with Pan-European operations would still retain complete access to the Single Market and this is unlikely to require significant relocation of staff. However, channels with Pan-European presence will need to very carefully consider their resource and investment plans during this transitionary period.
With channels already grappling with massive pressure on existing resell businesses, the economic impact of Brexit will exacerbate these challenges. It will also make it harder for channels to invest in highly skilled resources, and newer, riskier solution propositions. This will have an impact on the channel’s ability to transform, to innovate and to deliver 3rd platform solutions, particularly more complex and technically challenging solutions such as next-generation security, big data analytics, complex hybrid cloud and digital transformation. They are going to have to do more with less and their reliance on their vendor partners is likely to increase. Pricing pressure is almost guaranteed in the first two scenarios, competition is likely to become fiercer and vendors will face more special bid and discounting pressure.
Ultimately, channel participants need to prepare for each of the scenarios laid out and be able to respond quickly to changing dynamics. We suggest accelerating investments and activities around more repeatable, automated and remote services (notably cloud and managed services) to minimize the impact of lower project-based revenue and a constrained workforce. No doubt challenging, but we also strongly believe that it is critical that channels don’t lose sight of their broader transformation goals and innovation initiatives during this period of uncertainty. Market fundamentals will remain. Customers will continue to look to digital as a means of differentiation and optimization. Demand for solutions that meet these requirements will continue and in order to retain relevancy by 2020, 3rd platform investments, upskilling and new solution development must continue.
If you want to learn more about Brexit and its implications for channels, please contact Margaret Adam. You can also find more insights about the current Brexit and tech situation from IDC’s Three scenarios for how Brexit will impact Information Technology spending in Europe.
In addition to this press release and posts, we now have a 35-page report on the impact of Brexit on UK as well as European IT spend available: The Brexit Impact on IT Spend in the U.K. and Western Europe: A Scenario Analysis. The report outlines the scenarios in more detail, the associated assumptions as well as the expected impact across hardware, software and services for each of the scenarios. If interested, please contact Sara Fernandez for more information.