For Europe's tech sector, Brexit is an opportunity to shift power away from London. We explore how this will affect US tech startups making inroads into the region.
At Atlantic Leap our mission is to help digital startups to become global leaders, and in this context we’re often asked which cities US companies should head for in Europe. Although there are plenty of lively and thriving tech-savvy communities across the continent, three stand out in particular: London, Berlin and Stockholm.
The dust is settling on the EU referendum, with the UK and the rest of Europe coming to terms with the reality of Brexit. Many of the doom-laden prophecies suggested by the Remain camp have not materialised (yet).
European growth has not ended; US investment in UK-European business continues. In recent weeks, GlaxoSmithKline and London City Airport have confirmed significant investment into their European operations. Shareholders of Deutsche Börse have voted to continue their merger with the London Stock Exchange.
This good news could soon end, however. Once the British government triggers Article 50 to formally leave the EU, the ability for UK-based businesses to trade with their European neighbours will come under strain. To take advantage of such disruption, US firms looking to head across the Atlantic might consider a dual-European expansion strategy, combining an established London head office with a satellite office on the continent (or indeed vice versa).
It’s not surprising that many US businesses have looked to run their European operations from the UK capital in the past. A common language is one factor, but a light regulatory touch, stable legal framework and falling corporate tax rates have also played their part.
Equally important has been London’s access to the European single market – one of the most contentious issues facing the Brexit negotiators. Like all of the EU members, the UK currently enjoys the ability to trade with all other member countries without barriers or tariffs, making trading within the EU no different to trading in the UK.
The EU have intimated that access to the single market is contingent on the free movement of labour across EU borders. As migration has been a red flag issue for many supporters of Brexit, it is difficult to predict whether the UK’s access to the single market will prevail.
US business with offices in the UK only may find themselves locked out of Europe if access to the single market is withdrawn, particularly given the possible delays if Britain is forced to negotiate new trade deals, either with individual EU members or with Europe as a whole. New tariffs and restrictions could make cross-channel trade particularly complex.
Establishing a satellite office in continental Europe now means US businesses could reduce any future upheaval for themselves – in turn leaving them well positioned for new opportunities that may arise.
Lure of Europe
Continental European capitals are looking to pick up the spoils from a UK exit, offering preferential treatment to businesses looking to expand beyond London. Madrid and Barcelona are drawing draw up a package of tax breaks; Amsterdam is prepared to loosen its rigid limits on bonuses. Berlin, meanwhile, hopes to be the number one target for tech startups in the coming years.
The Estonian e-Residency offers a different approach to establishing a European office. This transnational digital identity is open to anyone and allows a business to be established and operated in Estonia from outside the country. Still in beta, the e-residency is ideal for digital startups and could inspire similar schemes elsewhere.
Establishing a continental office will allow businesses to hire local talent in situ. Free movement of labour remains one of the central tenets of the EU and a key point of contention for Brexit negotiators. The British government have yet to offer solid assurances about the right of EU nationals to reside in the UK following Brexit. Any decision made by the UK is likely to be reflected by changes to the rights of UK citizens residing in the EU. By recruiting locally to a satellite office on the European mainland, US businesses can ensure continuity should movement of workers be restricted in the future.
The time is now
Whichever route high-growth US businesses choose to take when moving into Europe, current conditions mean that now may be a good time to make the move. The recent weakening of sterling (and to a lesser extent, the euro) against the US dollar as a result of the referendum vote has resulted in the best value-for-money climate for US investment in many years.
Brexit shouldn’t mean the end of US-EU expansion. Forward-thinking firms will take advantage of the uncertainty that Brexit offers – spotting the opportunity to speed up their European expansion while using a dual strategy to ensure security and continuity.
For support making the leap from the US to EU, get in touch. For more Brexit insight, follow the Atlantic Leap blog.
Brexit signpost via Pixabay.