By Peter Thorne
Due to the recent vote by Britain to exit the European Union—or “Brexit”, organizations selling engineering software—including product lifecycle management, computer aided design/computer aided manufacturing/computer aided engineering, geographic information system, and building information modeling—into the U.K. need to shift the focus to protecting existing accounts in the next year or so. Optimistic vendors seek growth by offering new capabilities to support new types of users within those accounts.
The biggest and most immediate engineering software impact of Brexit is in the U.K., where growth of business investment has been declining from a recent peak of about eight percent at the start of 2015 to an estimated 1.5 percent in the months leading up to the referendum.
Part of this decline was attributed to Brexit uncertainty, and a “remain” result would have released many projects that had been put on hold, and triggered a return to higher growth rates. For example, for the remain scenario, Oxford Economics was forecasting return to eight percent p.a. growth in U.K. investment by early 2017.
Following the “leave” result, the uncertainty has not been resolved, because there are only broad principles and no detailed road maps of what the business environment will become.
Factors to Consider
Will U.K. trade in Europe be tariff-free in three years’ time? No one knows, and it could be some time before the answer emerges. So let’s limit our predictions to the next couple of years, during which time decisions will be made with a backdrop of uncertainty.
Some companies seeking to satisfy EU demand may move investment to other geographies, others may decide the U.K. will become better placed.
Estimating for these and other factors, Oxford Economics’ previous eight percent U.K. investment growth forecast for 2017 drops a full 11 percent from plus eight to negative three percent. But by 2018, the drop due to Brexit narrows from 11 percent to about five percent.
Investment is an important guide to factory floor software revenues, where software projects often happen in conjunction with plant and equipment investments. So, in this area, we would suggest engineering software sales forecasts be revised downward in the U.K. for 2017 and 2018.
The Big Picture
If we sample the big picture by looking at GDP forecasts, the Brexit vote will reduce U.K. GDP growth from about two to about one percent until 2019.
This reduction means engineering software suppliers should revise their U.K. sales strategies. There will be less whitespace to sell into, so protection of existing accounts will become more important relative to finding new projects.
But there is always room for innovation, and optimists will shift the balance of their growth plans. They will put more effort into seeking new revenue streams by serving new users with new capabilities. SW
Peter Thorne is a director for Cambashi. Find out more information at cambashi.com.
Jul2016, Software Magazine