May 28, 2017      

As the U.K. gears up to leave the European Union in the wake of the so-called Brexit vote, the country’s robotics sector is busy assessing the likely long-term implications. How has British automation been affected so far, and what can we expect over the next few years?

Business Takeaways:

  • Although the Brexit decision was a setback the U.K. robotics and autonomous systems sector, trading performance is holding up so far.
  • British automation businesses should consider whether they can benefit from post-Brexit exchange rates via investments in new products and technology.
  • Potential reductions in the supply of cheap migrant labour may make investment in new technology a more attractive proposition for many domestic end users of British automation.

Exchange rate boost

The Brexit decision was “clearly a blow and disappointment,” according to Tudor Aw, a Partner at KPMG. However, he said, the U.K. robotics and autonomous systems (RAS) sector has “shown its resilience” in the immediate aftermath, with trading performance “generally holding up.”

“I believe the biggest impact to date for the RAS sector is not so much in the tangible aspects such as investment or sales, but more in the psychological impact, particularly for those organizations with a high level of non-U.K. staff.” Aw said. “One CFO I spoke to said, ‘It’s not that people think they are about to be deported, but there is a palpable change in mood, and so we have moved quickly to try and address this.'”

The referendum has “not yet actually triggered or changed anything,” said Clare Francis, a partner at law firm Pinsent Masons.

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Instead, Brexit’s effects have been limited to market volatility, particularly on the exchange rate. This is “great for exporters,” since it means U.K. goods and services are “more attractive to overseas buyers,” Francis said.

In addition, where sales are in other currencies but costs are in British pounds, profit margins can “automatically increase just by virtue of the exchange rate,” she argued. Many RAS businesses set to reap the short-term benefits.

“We have seen complex changes in investment decisions as a result,” Francis said. “Generally, investments have been more cautious, with international investors more cautious about investing in the U.K. market given the uncertainty.”

“However, the exchange rate short-term benefits mean some companies have cash to invest and are using that wisely to invest in R&D now and get ahead of the competition,” she added. “Therefore, the changes are very localised.”

British automation provides resilience

Aw said he is optimistic that Brexit will have very little impact, largely because robotics is a key technology, along with artificial intelligence, the Internet of Things, and clean energy, that will help the country “overcome the uncertainties and challenges presented.”

“For example, should macro-economic factors deteriorate, operating efficiencies offered by the RAS sector will be even more crucial in ensuring companies remain competitive,” he said. “It won’t be a case of ‘Can you afford to invest in RAS?’ It will be a case of ‘Can you afford not to?'”

Multinational strategies

Both international and British automation providers and end users need strategies for geopolitical developments such as Brexit.

The first key step for any RAS company is to carry out a strategic risk assessment of the U.K.’s departure from the EU, recommended Aw. Business and robotics leaders must ensure that their strategies are updated as things develop.

“Actions need to address the obvious tangible risks such as foreign exchange exposures, but just as importantly, also the intangible aspects such as addressing staff concerns,” he added. “Equally important, given the government’s stated policy of developing industrial policy post the Brexit vote, is to continue to ensure the RAS sector stays front and center of government focus.”

Mitigating investor risk

Beyond the need for British automation and government to maintain clarity are longer-term negative consequences. These include a potential lack of regulatory harmonization and a restriction or halt in access to EU funding.

The British automation sector will have to “work harder to collaborate and ensure it remains at the forefront of innovation,” said Francis. Uncertainty around how Brexit will affect the U.K.’s trade relationships will be “unsettling and drive uncertain investment decisions,” she said.

“Within the RAS sector, this is of particular concern, given the R&D requirement to drive forward,” Francis said. “Where access to markets is uncertain, investment may be delayed or decreased, meaning development of technologies and solutions may not be as rapid.”

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Creating certainty

While Brexit presents a “range of impacts and opportunities” for the U.K. economy, immigration policies will have “particular implications for automation,” predicted Adam Corlett, an economic analyst at the Resolution Foundation. Any potential clampdown on low-skilled immigration, whatever the broader rights and wrongs, could increase British automation demand but also provoke a backlash.

“There are a number of sectors that have relied heavily on low-paid workers in recent years, and it is likely that reductions in the supply of labor will make investment in new technology a more attractive proposition for many firms,” he said.

“Of course, this may not always be plausible,” Corlett noted. “But many sectors, such as parts of agriculture and food manufacturing, have both a reliance on cheap migrant labour and the potential for further automation. If Brexit pushes companies in sectors like these towards increased investment in technology, that would be very welcome after years of sluggish productivity growth.”

Francis urged British automation businesses to develop plans to “create themselves certainty, make the most of the opportunities that arise ahead of their competition, and not to be complacent with regard to the benefits they may be seeing from the exchange rate.”

“Businesses should take this opportunity to consider where they can utilize those benefits through investments in new products and technology,” she said. “This is particularly true for R&D organizations. Those that invest now will be better placed to get a march on the competition and maximise the opportunities in the future.”