Brexit in Perspective: How It Is Likely to Impact R&D

The United Kingdom’s exit from the European Union is sure to influence innovation

15 July 2016

The British vote to exit the European Union—known as Brexit—was announced in the wee hours of 24 June and came as a surprise to many. Even European leaders appeared to be totally unprepared to deal with the fallout.

I started writing this post to cover the overall impact of Brexit on the world economy, but I quickly realized the task was well above my “pay grade.” Most of the opinions in the media are little more than speculation at this point. So I decided to scale back to address the impact of Brexit on my IEEE colleagues, many of whom work in research and development.

I contacted executive directors of professional associations in the United States and Europe, and a few business leaders I know personally. Although many are unwilling to take a position, here are four things I did learn and some steps that can be taken:

  1. The near-term impact on R&D expenditures in the United Kingdom is likely to be minimal, given most large projects are multiyear programs already under way. However, it is not clear whether the U.K. government will fill the funding gap moving forward, because 18 percent of university R&D money comes from the EU. There is also likely to be a brain drain, given many graduate students in the United Kingdom are not citizens and may not be able to attend the programs once the withdrawal is finalized in two years.

    Action: Britain should actively recruit students and professionals who are U.K. citizens to bring them on board for R&D projects and programs. 

  2. The industrial sector will be disrupted. The added cost of cross-border projects is likely to hurt U.K. companies.

    Action: This could be an opportunity for companies outside of Britain to take advantage of the strong U.S. dollar and acquire U.K. and EU companies that are in financial trouble. (The pound is at a 30-year low relative to the dollar.)

  3. Sales of industrial products will slow because companies tend to postpone making capital investments when they are facing uncertainty as a way to reduce inventory.

    Action: Keep close tabs on customers to help make more accurate sales projections.

  4. All parties involved are likely to negotiate what they get out of Brexit according to their interests, because decisions are often based on self-preservation.

    Action: Make decisions for your organization based on what was projected prior to the Brexit referendum and not on what will be decided after. This is especially true for U.S. companies. Exports to the United Kingdom account for less than 4 percent of the U.S. GDP.

There is no major cause for panic. Although the exit might temporarily shake things up for innovation, it could potentially have a positive impact in the long run.

Godspeed, as the British would say.

IEEE Fellow Milton Chang has taken two high-tech startups public and has helped incubate nearly a dozen more. He is now an angel investor at Incubic, in Los Altos Hills, Calif. Reviews of his book, Toward Entrepreneurship, can be found at miltonchang.com.

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