Tech in 2023 has so far taken a beating. Between market corrections and contract-shy customers, funds take time to come by. If we zoom out, the picture becomes less chaotic. We start to see where we can find opportunities in uncertain times.
Over the last two decades, the UK has created an environment for world-class tech development. As a result, the economy benefits from tech success stories (Sage, TextMagic, ARM, etc.) and ventures built in (or entering) the UK have enjoyed long-term, tech-enabling policies, practical support measures, and geographical positioning.
The UK is currently the second-largest European economy and 6th in the world (IMF), with the tech sector contributing 7.7% to its GDP.
Interestingly, the five world economies larger than the UK are also the only five with a greater portion of GDP attributable to tech. The UK government has put effort into digital infrastructure, R&D and skill development. It has also implemented policies to help the industry grow, such as giving money to new businesses and lowering taxes on investments in the sector (SEIS and EIS).
Below, I've focused on the causes of growth, opportunities, and risks. Let's dive in!
UK legal framework
The legal and political landscape for new business development is often intuitively understood but seldom discussed. The UK stands apart from other large markets (in particular, the US) through low regulatory capture. Regulatory capture is a phenomenon where regulators become too closely aligned with the interests of the industries they are meant to regulate, often at the expense of small businesses and the public interest.
In the UK, measures have been taken to reduce the risk of regulatory capture, making it easier for small, high-potential businesses to break into the market. The legal system is a 'loser pays' model, meaning the losing party (in a legal case) may be ordered to pay the winning party's legal costs. This system discourages frivolous lawsuits and makes it harder for large incumbents to bury smaller companies in legal fees to drive them out of business.
Yes, the UK government is trying to help tech grow, but the main reasons companies choose the UK as HQ are far more impactful in the long term. Your ability to simultaneously see the opportunities and risks in the near AND long term will be a deciding factor in your business' success.
The key areas of long-term focus for expansion should be threefold: 1. access to talent, 2. access to revenue, and 3. access to capital.
The UK is extremely well placed to serve these three needs. Here's why...
Being based in the UK gives you access to UK and European clients, access to capital, and exceptional talent, not only from the UK but from Europe and around the world. The talent leaving small advanced economies such as New Zealand (often termed the "brain drain") lands in the UK, creating a workforce with new perspectives and connections to otherwise underutilised networks.
Access to European clients and talent is both a blessing and a challenge. Every European country has its nuances, meaning there is white-space and lower competitive thresholds in each geography as well as untapped talent pools (provided you have the right connections).
The time zones from the UK are favourable for serving clients (revenue) from 129 countries (and about 30% of the world's population) between UTC +3 and UTC -3.
This time zone spread includes economies such as France, Germany, and Spain, as well as some further flung opportunities (culturally) like Brazil and Nigeria (both with over 200 million inhabitants). Although the viability of many of these markets is unproven, in the coming decades, they will be more accessible. We think in decades, not days.
UK expansion challenges
This all sounds great, but international expansion has many challenges, some specific to the UK. The main difficulties UK-based scale-ups face are decreased ease of entry into Europe following Brexit and talent retention due to a competitive talent market.
Expanding into European countries becomes much more manageable with the right partnerships. Each market has nuances that can be demystified.
Another adjustment to make if you are a B2B scale-up from a smaller economy is to adapt to the complex procurement process in large UK enterprises. Hiring the right talent will help, along with understanding procurement stakeholders, realistic timelines, and resources needed.
The UK government is eager to support high-potential tech businesses to enter the market and grow, creating jobs and increasing UK exports in the process.
A few key factors, including reliable access to capital, world-class talent, and a diverse and expansive client base, support the success of the UK tech industry. The government has also played a crucial role in this growth by implementing policies to support the sector. The UK's legal framework differentiates it from other large markets. However, entering the UK isn't without its challenges; there is competition for both clients and talent.