The NE Digital Revolution: Is It Under Threat?

As we reach the end of what’s been a defining year for the technology industry, it feels like the North East digital scene has finally found its forte and established itself as a brawny competitor amongst the southern technological powerhouses.

However, the looming uncertainty of an exit from the EU has thrown an unwelcome spanner in the works, putting many strains on the Toon’s businesses flourishing in the current marketplace…

By ROSE MCLEAN

Thursday 1st November 2018

Investment

Funding for new businesses within the North East has been a major catalyst to their success, particularly amongst start-ups striving to make their mark in an increasingly competitive industry. Brexit reducing the availability of venture capital in the area is a massive worry, and may well lead to a lack of new businesses entering the tech sector – perhaps halting the region’s undeniable rise in the digital scene.

After the referendum, experts warned that investors would shift their attention out of the UK, leaving our companies with a shortage of funds and potential guidance. However, our region is blessed with supportive local initiatives which have helped build the foundation to many blossoming local organisations.

IP Group’s North-East Technology Fund invests between £50,000-£1,250,000 in businesses either hoping to relocate to, or enter the North-East Tech marketplace. Tech North is another leading scheme, offering support and investment to new technology businesses within the area. One notable programme they offer is ‘Northern Stars’, a pitching competition aiming to showcase the best tech startups in the region. The winner receives invaluable opportunities in the shape of media training, access to investor networking events and exclusive web support – unquestionably a great stepping stone for further success.

Thankfully, it is unlikely that these initiatives would suffer as a result of Brexit, as they are already established and focused on localized trading, dedicated to helping these businesses grow within the North-East marketplace.

Expansion

But, subsequently, does this limit local businesses potential to grow their companies globally? Sage Group is the world’s third-largest supplier of enterprise resource planning software, operating in 24 countries and employing over 13,500 people. Having started its monumental ascent in the cozy clutches of Newcastle, it’s a shining example of what can be achieved by new, local start-ups when they spread their bionic wings.

Below: With CEO Stephen Kelly at the helm, Sage has grown to be a major pacesetter in the global software industry.

Image courtesy of Sage Group Plc

In the light of the UK’s vote to leave the EU, the issue surrounding intra-European trade weighs heavy on the shoulders of the technology industry. The current EU single market has undoubtedly been utilized by businesses like Sage, who have thrived in a number of countries and grown their company to overwhelming avail.

But, a vote to leave the EU leaves equivocal circumstances, whereby tighter trade barriers may inhibit cross border data flow – generating many complications for our North-East tech companies when developing operations overseas. Also, the UK’s failure to reach a Free Trade Agreement will incur additional costs for trade, introducing market access measures such as tariffs and quotas - lessening available funds for new organisations.

This problem is heightened when recognizing that both motor vehicles and electronic equipment are categorized within the top 5 commodities exported to the EU, accounting for 20% of the total exports from the UK to EU. Furthermore, in 2016, the North East sent exactly half its services exports to the EU, but just 17% to Americans (HM Revenues and Customs)- outlining the region’s reliance on EU trading.

Talent Shortage

In addition, the loss of the principle of free movement has the potential to be massively detrimental. The law currently facilitates access for workers and services, which has proven to be beneficial for UK companies when recruiting tech-savvy talent from abroad. This was vindicated in a recent study carried out by Tech UK, which uncovered that 45% of vacancies within the North East’s digital sector were filled by overseas workers in 2016.

In a recent plea from the North-East England Chamber of Commerce, they stated that; “To facilitate growth in new industry sectors, particularly those that are highly innovative or rely on the latest digital technologies, businesses need access to a pool of highly-skilled workers”.This highlights how the region benefits from free movement, accentuating the damaging effects a change in law could have on the local industry’s workforce.

It’s impossible to embark on the subject of technology without mentioning the momentous influence of Silicon Valley. The area in California is home to many leading tech corporations and accounts for one third of all venture capital in the US, justifying its iconic status within the digital world.

If there’s one similarity of the North East to global tech front-runner Silicon Valley, it’s that we accommodate 2 of the country’s most technology-apt universities in Newcastle and Northumbria, hoping to replicate the success of Silicon’s Stanford University – ranked 1stin the world for engineering and technology (Times Higher Education).

With state of the art facilities and sturdy links into the industry, churning out tech-savvy graduates ready to establish themselves within the local marketplace has become a given. Northumbria in particular has taken considerable strides towards developing its computer and informational sciences department, with a new state-of-the art £7M building having opened earlier this year – very much reflective of the ambition shown by our region’s digital scene.

Below: The impressive new IT building at Northumbria University will be sure to attract the attention of overseas tech-starlets

Image courtesy of Steve Ellwood

However, the impending ambiguity of Brexit means there are complex regulations for EU students to tackle if they are to study at one of the North East’s universities. EU students will now be classified as International if the UK withdraws from free movement policies, meaning they may need to apply for short-term visas to study in the UK, and, as a consequence, their fees would increase substantially. Furthermore, universities have made their eligibility criteria more rigorous for students applying for a place to study overseas.

There’s no doubt that all of these implications could deter high-caliber academics from joining the North East’s universities, subsequently leaving our tech businesses short of promising talent to add to their books.

So, What Does It Mean?

Undisputedly, Brexit threatens to knock the North-East technology sector off its pedestal; with various complications that have the potential to impact local companies negatively. However, with the strides the region has taken in the digital industry within the past 5-10 years, it will be difficult to eradicate the undeniable progress that’s already been made.

With localized support systems such as Tech North offering training and investment opportunities, and universities making significant movements to better their digital departments, the scope for development remains huge and indicates that the future is still bright.

It will take a lot more than an untoward Brexit to clip the liberated wings of the high-flying North-East digital revolution.