How Brexit will impact Indian IT-BPM companies in the long run?

BANGALORE, INDIA: As Britain voted overwhelmingly to leave the European Union(EU), Indian IT services majors have started bracing up for the upcoming changes.

Europe being the second largest market for the Indian IT-BPM industry, contributing up to 30% of the industry’s export revenue of about $100 billion, it is certainly a concern for them. UK has traditionally remained a gateway for further investment across the EU and hence plays a key role within this market also.

While it is still not clear as to how it would impact the operations/projects of Indian IT and BPM companies in the EU market, NASSCOM sees Brexit announcement as a phase of uncertainty in the near term but a mix of challenges and opportunities in the longer term.

Impact on projects & operations:

The initial commentary from the policy makers in UK indicates their commitment to minimize the possible negative impact of this referendum. While the current business flow from UK and EU also may continue, but how will it impact new business orders?

In a statement, NASSCOM explained the near term impact on technology and services sector:

-Likely decline in the value of the British Pound, which could render many existing contracts losing propositions unless they are renegotiated.

-The uncertainty surrounding protracted negotiations on the terms of exit and/or future engagement with EU could impact decision making for large projects.

-Indian IT companies may need to establish separate headquarters/ operations for EU, may lead to some disinvestment from UK.

“NASSCOM urges policy makers in Brussels and London to provide greater clarity and guidance on the next steps as soon as possible, so that our businesses have the certainty they need to continue to invest in UK and Europe,” said NASSCOM President R Chandrashekhar.

Impact of currency fluctuations:

One thing which is quite evident here is that the IT-BPM companies will have to bear the adverse impact of the currency fluctuation ensued by the Brexit. Decline in the value of British Pound might reduce the margins. Around 20-30% of the revenue of TCS, Infosys, HCL, Tech Mahindra and Mindtree come from Europe alone, and this will affect their revenues badly.

Prabhu Srinivasan, Chief Strategy Officer at Intelenet Global Services said, “The UK has traditionally been a passport and a financial hub for Indian firms to access European shores and conduct business with European financial markets by virtue of having operations in London. So, there will be some immediate adverse reactions as it is likely to see some more fluctuations in the forex market.”

Impact on workforce mobility

But will it create a concern for workforce mobility across EU and UK? Alka Dhingra, Assistant General Manager, TeamLease Services said, "From a mobility perspective the spilt may cause some concern. Mobility of IT resources might become difficult as visa’s will be more specific to the regions now. However, from a long term perspective, Brexit could lead to strengthening of India-U.K’s economic relationship. Brexit will open up many opportunities for skilled IT resources from India."

Will it open the floodgates of new opportunities?

In the long term, however, Brexit could lead to strengthening of India-UK economic relationship as UK seeks to compensate for loss of preferential access to EU markets. This could open up new opportunities for UK and India as well, according to NASSCOM.

With the existing 800 Indian companies employing 110,000 individuals in the country, a deeper partnership with India may be in Britain’s interest. Additionally, with UK less dependent on intra-EU immigration into UK, it could become more open to high-skilled immigration from other non-EU countries including India.

Further, UK would be under no obligation to adopt restrictive EU data localization norms which it does not subscribe to in their entirety. All these factors could benefit India-UK bilateral economic relations, said NASSCOM.