August 22, 2016      

The U.K. vote to leave the European Union on June 23, 2016, surprised many people in Europe and beyond. How will the so-called Brexit influence Europe’s economy and U.K. industrial automation? Will technology companies leave the U.K.?

The initial reaction to the British exit from the EU is primarily related to a bigger uncertainty, said Torben Juul Andersen, a professor at the Copenhagen Business School. He is director of the Department of International Economics and Management in the Center for Global Strategic Responsiveness at the Danish university.

“No one really knows what the final economic and political effects will be, and this uncertainty influences the investment propensity negatively,” Andersen said.

Immediately after the vote, stock prices fell at the London Stock Exchange (LSE), and the same thing happened at the other European stock exchanges. Although all the benchmark stock indices at the LSE recovered again in the following weeks, there was a recognition of the interdependence of U.K. and European markets, he said.

However, the exchange rate of the pound sterling has dropped significantly compared with the euro. This is not necessarily bad for the British economy because it encourages competitiveness. It could also help deflate the inflationary housing bubble in London, which has become unaffordable to normal workers.

Less trade, more robots?

Some industry observers have predicted that restrictions on labor and trade could encourage greater adoption of U.K. industrial automation.

“If there is a shortage of migrant workers to fulfil low-skilled jobs, such as those in logistics and warehousing, then it could encourage manufacturers to invest in and integrate robotics into their production processes,” wrote Claire Francis, an expert in commercial contracts in manufacturing at law firm Pinset Masons. “It could serve to increase U.K. productivity levels, which have largely remained static since the financial crisis of 2008.”

For instance, Cisco Systems Inc. has invested $1 billion in the U.K. and Ireland to improve productivity.

“The country is 17 percent below of the G7 average on productivity,” said Phil Smith, CEO of Cisco U.K. and Ireland. “It is obvious that there are some key industries, like manufacturing and retailing in the U.K., which clearly have got some very good examples [of success], but at the bulk of what they do is unproductivity, and there are real opportunities for productivity improvement which we are intending to work on as a company.”

“There are also things like automation and robotics, logistics and inventory management, environment design, process control, etc.,” he said. “All these areas, which we are not doing as well on [as a country]. But not all is bad.”

The idea of a “national living wage” and spread of U.K. industrial automation to retail from warehouses could also prompt more robotics investments.

Money for U.K. industrial automation

In the meantime, Innovate UK is offering a total of £5 million to companies to develop robotics and autonomous systems (RAS) for various sectors of the U.K.’s economy.

“These technologies have the potential for an annual economic impact of $9.8 trillion to $19.3 trillion [£14.5 trillion] in 2025,” said the British government. “The U.K. has world-leading strengths in the underlying science and engineering that contributes to RAS. It also has access to the markets that could exploit them.”

Innovate UK and the Engineering and Physical Sciences Research Council are looking for proposals for both hardware and software automation. Although the projects can “focus on technical feasibility, industrial research, or experimental development,” the organizations are looking for technologies that can be commercialized.

The registration deadline for the competition is Oct. 19, and the application deadline is Oct. 26. Any work must be completed by March 2018.

Looking for a negotiated solution

“It is highly uncertain what the final economic effect will be [of the Brexit], and it will largely depend of the results from the forthcoming negotiations with the European Union,” Andersen said.

Torben Juul Andersen has written about economic strategy, which includes U.K. industrial automation.

Economic uncertainty shouldn’t affect EU or U.K. interest in robotics, says Torben Juul Andersen.

“Right after the Brexit vote, there were significant political expressions of negative nature from both the European Commission president [Jean-Claude Juncker] and from certain government representatives including [those of] France,” Andersen noted.

“But it is my assessment that time works for a more sensible negotiated solution, where more emotional aspects will have less influence on the final outcome,” he added.

“The positive is that the new British government mentions all the time the desirability of close economic cooperation, which in reality is in the interest of everyone,” Andersen said. “There is an export surplus from the EU to the U.K.”

Germany in particular is a net exporter. “[Chancellor] Angela Merkel is fully aware of these facts, which combined with her general understanding and open nature, can be an advantage in the forthcoming negotiations, where realpolitik — as always — will determine the final agenda,” he said.

The U.S. and China are also watching U.K. industrial automation for opportunities for both competitive investments and changing markets.

Global financial activity to stay in London?

The financial sector and the service industry are very important for British economy, and many pundits have argued that a large part of London’s financial activities — such as trading in European securities — will move to other financial centers on the Continent.

“There are other, possibly more important, arguments for an efficient market than a direct foothold in the EU directives,” Andersen said in reference to European legislation.

“Many continental European politicians have expressed a strong wish to impose the Tobin Tax on trade turnover and to introduce other generalizing standards, which can limit the design of financial instruments,” he said. “This will not be happening in a London market outside EU — and this may in fact have a positive impact on the position of global activities in favor of a more open and less-restrictive London market.”

More on Global and U.K. Industrial Automation:

The U.K. looks outside Europe for growth

Another important argument for continued close relations between the U.K. and EU is the presence of the necessary expertise, technical infrastructure, and institutional knowledge. This especially applies to industries such as aerospace, pharmaceuticals, and logistical services, all of which are making increasing use of automation.

The U.K. still has world-class universities and companies exporting innovations to the whole world, not just Europe, said Andersen, who has written 10 books on management strategy and economic policy.

“The reality is probably that the most significant international growth potential will be outside the European Union,” he explained. “In other words, there may be major reasons for international business companies to maintain a presence in the U.K., which is not dependent on a political union with the EU.”

Norway, which left the EU in 1994, can provide a preview of what international businesses can expect in terms of future U.K. industrial automation and commerce. Today, the Scandinavian nation has access to the common market through its membership in the European Economic Area (EEA).

“The reality will probably be — as is the case for Norwegian companies — that business adapts to the standards determined by the EU to ensure easier access to the market,” Andersen said. “There will just be less [U.K.] direct political influence on how these standards are designed.”