Brexit – a short hop from the UK to the EU?

Since the United Kingdom declared its intention to leave the European Union, the news around ‘Brexit’ has consisted almost entirely of resignations and in-fighting or wild speculation about the future. But if you pick through some of the more responsible studies and articles focusing on the potential impact on business planning, it does look likely that, while it may not drive businesses away overnight, in time Brexit will open up more opportunities for continental Europe, and Amsterdam is likely to be one of the winners.

Eric Boonstra, Managing Director, EvoSwitch

As the dust slowly settles following the UK’s recent vote to end its 43-year membership of the European Union, it is still difficult to see exactly what will happen next. Working on the assumption that Brexit proceeds as originally envisaged in the referendum, what are the key questions and answers, firstly for business investment in general and secondly for IT infrastructure?

 

Q: Will we see a shift of investment?

A: Yes, but it is unlikely to be dramatic – more of a ‘continental drift’ than a sudden shift.

I believe we will see redirection of planned investment in jobs and locations to EU locations, rather than businesses packing their bags and getting the next flight out. There are signs this may be starting already: a number of leading businesses (Easyjet, Vodafone, Goldman Sachs, JP Morgan, HSBC1) have indicated their readiness to move to the continent, but more by way of reassuring investors than announcing concrete plans. Some external investors (Siemens and Visa have both made recent announcements) also seem likely to spend money earmarked for the UK elsewhere. Key factors here are likely to be:

 

– EU passported business activities: where the departure from the EU will inevitably lead to significant additional market complexity, for instance for airline operators and banks/financial service providers.

– Cost per employee: skilled international employees (e.g. programmers or designers from elsewhere in the EU) are likely to be more expensive in the UK in future.

– Electricity prices and security: this is of particular significance not only to the power-intensive data center industry but also to the emerging electric-powered era of smart cities and electric cars.  As a major importer of energy whose power prices are already high (in 2014, for example, a UK kW hour cost 76% more than a Dutch one2) the UK will need to tread very carefully and establish new secure energy planning that does not rely on current EU frameworks.

– EU-funded activities: these will definitely move, including ICT research projects in which the UK has shared. Some of these, like the €80 billion Horizon 2020 program, have huge budgets and also contribute to talent retention and generation.3

– EMEA HQ selection: this is potentially the biggest investment shift, as London has traditionally been the HQ city of choice for US tech businesses. These moves have to made with conviction, and while uncertainty over its commercial relationship with the EU lasts, it simply would not make sense to select the UK as a gateway to Europe.

 

Q: Which places are most likely to benefit?

A: Dublin, Paris, Frankfurt and Amsterdam. 

Dublin should do well where 100% English fluency is a critical factor or there is already significant investment in the country, which includes a large number of tech firms. Paris has size, standard of living and exceptional cultural attractions on its side, but there are (English) language, tax, transport and labour law issues. Frankfurt will have particular appeal to some financial players, with excellent transport and internet infrastructure, plus the fast-growing DEC-IX and the Frankfurt Stock Exchange. For financial firms it runs a very close second to Amsterdam – at least that is what a recent New York Times piece4 suggests, awarding Frankfurt 54 points to Amsterdam’s 55. The author assessed a number of relocation-related factors – employment, transport and communications infrastructure, office and housing availability, schooling and culture/night life. It is ultimately subjective, but it makes interesting reading.

 

To these one might add a few infrastructure-specific factors:

– The Netherlands offers low energy costs (much lower than in Germany) and stable supply with high availability of renewables and exceptional levels of energy efficiency among newer data centers

– Amsterdam is home to one of the world’s leading Internet exchanges – AMS-IX – and is a landing point for 11 of the 15 transatlantic subsea cables.

– Amsterdam has a total of around 1.4 million square feet of datacenter space, with around 20% of this space currently available and rapid capacity growth.2

– The Netherlands is home to a third of Europe’s current multi-tenant data centers (by operational square feet)

– Amsterdam is perfectly located for transport as well as low-latency data reach, adjoining Germany and Belgium and just a short hop away from Europe’s biggest market – London.

 

In conclusion, I wish the UK well as they chart their course outside the EU. We all know it is impossible to predict investment trends with any degree of accuracy, and in a fast-changing world they have every chance of success. That said, it is reassuring for the Dutch workforce and its infrastructure and colocation providers to know that we can make a strong case as a European base for successful firms looking to expand, and also that this is appreciated and echoed on the other side of the Atlantic.

 

Further Reading

– Vodafone is threatening to move UK jobs to the EU, and Goldman says banking jobs could go’ – Oscar Williams-Grut, UK Business Insider1

– ‘These Companies Are Already Threatening to Move Jobs Out of the UK’ – Clare Zillman, Fortune Magazine1

– ‘Amsterdam Multi-Tenant Datacenter and Hosting Market: Market Forecast, Sept 2015’– Penny Jones and Rory Duncan 451 Research2

– ‘The British exit and tech: After the shock, uncertainty is the only certainty’ – Andy Lawrence, 451 Research3

– ‘After ‘Brexit,’ Finding a New London for the Financial World to Call Home’ – James Stewart, The New York Times 4

 

Eric Boonstra has been Managing Director of EvoSwitch since 2009.  His focus on attracting international customers to EvoSwitch has been helped by his multi-sectoral experience, which includes a degree in Law and senior management roles in Siemens, Staples and ABN Amro.  View full bio

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