Defying gravity - are Britain's digital tech export set to boom?

Tech Nation predicts a 35% increase in British tech exports in the next 5 years. So what underpins this prediction?

Conceptual illustration of the convergence of disparate technology threads in a binary environment.
Panuwat Sikham / Getty Images

London Tech Week is traditionally a time for enthusiastic flag-waving as the UK's digital industry celebrates its achievements. An appropriate juncture, then, to publish new research projecting a 35 per cent increase in technology services exports between now and 2025. In five years' time, according to a Tech Nation report, Britain's digital companies will be ringing up annual overseas sales of £31.45 billion compared with £23.3bn in 2019.      

Overly optimistic? We are, after all, still battling with a pandemic that could have major ramifications for years to come. Unemployment is rising and no one can predict the economic damage that could be inflicted by further Covid-19 outbreaks. Meanwhile, the prospect of a messy Brexit hangs over Europe. 

All this raises the question of whether Britain's digital tech exporters can in some way defy economic gravity and continue to grow while other sectors struggle to get back on their feet.

Certainly, exports of digital services - defined as software and consultancy - have been increasing in recent years. The Tech Nation report - Unlocking Global Tech - says overseas sales grew by 25 per cent between 2015 and 2019. That's by no means unimpressive but there is a caveat. Towards the end of that period - 2019 to be precise - exports began to fall back. And since then, the economic headwinds have been building.

Export drivers

So, what's going to drive accelerating export growth? According to Tech Nation CEO, Gerard Grech, there are a number of factors, including the increasing number of digital economy companies making the transition from startup to scaleup.  

"We work very closely with scaleups and we are seeing that international expansion is going up the ranking. It has become a priority for scaleup companies," he says.

By this analysis, exports are set to rise because expanding companies see it as imperative that they move into global markets. And according to Sean Hoban, CEO of professional services automation (PSA) company Kimble Applications, overseas sales are essential. "The market outside the UK dwarfs the domestic market. So you have to dominate in markets outside the UK." As things stand, Kimble's biggest market is the US, with Germany second. "Our US market is eight times bigger than Britain," he adds. 

The international ambitions of UK technology companies may also have been increased by contacts between British founders and their US counterparts. "US companies see the whole world as their market, and that has rubbed off," Grech says.  

Coping with Covid

You could argue that all of the above represents something of an ideal world scenario - one that fails to take account of current circumstances and in particular the pandemic.  

But it may be that the technology sector will benefit from an acceleration of digital adoption. Certainly, that's been the experience of TransferGo, a payments company that has expanded into Germany, Scandinavia and Poland. "We have seen our business grow by 30 per cent between May and Ju

Conceptual illustration of the convergence of disparate technology threads in a binary environment. Panuwat Sikham / Getty Images

ne," says CEO, Daumantas Dvilinskas. The reason? TransferGo specialises in remittance payments. Prior to the pandemic, many migrant workers may have taken cash to shops offering money transfer services, but "[n]ow they are looking for a digital solution," says Daumantas. At the moment, many businesses and consumers are turning to digital solutions.

The pandemic is also changing business practices, perhaps making it easier for British firms to sell abroad. Mark Robinson - Chief Marketing Officer of Kimple Applications - cites the example of UK firms selling into the US. Often local competitors have large numbers of people on the ground doing face-to-face pitches and software demos. The Covid-19 induced tendency to move everything onto video calls has changed things.

"So in some ways the pandemic has levelled the playing field. People don't necessarily expect to meet you in person now," he says.  

If the pandemic is currently - and perhaps temporarily - boosting the prospects for digital companies, the impact of what could well be a no-deal Brexit could be much more damaging. Luke Mead is founder of IT and telecoms support company LMS Group. Founded in 2010 it serves both domestic and overseas clients. As things stand, Mead sees growing demand for services addressing cybersecurity, remote working (the pandemic effect again) and cloud migration. Again, the pandemic has resulted in increased business.

He sees some major Brexit related problems ahead. "The biggest challenge is going to be around data," he says. "No one knows what will happen with GDPR." In addition, he says shipping to the EU will become more complicated. 

New markets

Tech Nation has identified a number of countries that UK companies could and perhaps should be targeting. As things stand, the US, Canada, Israel, Germany and the Netherlands are the biggest tech services markets. Meanwhile, Singapore and Brazil are named as up and coming. As Grech sees it, emerging markets often have tech-friendly regulatory regimes. Daumantas agrees. Beyond Europe, TransferGo is looking at Asia, India, Turkey and Ukraine. "We see these new markets being open to innovation," he says.

Daumantas cautions that it is necessary to target new markets carefully. For instance, in the case of TransferGo, a key factor is the profile of migrant communities.

Grech acknowledges that for relatively young companies, market knowledge is one of the biggest challenges, along with the ability to assess the opportunity. "It's not just about the size of the market. Companies should also take into consideration factors such as regulation, the assets they have available and access to networks."

In that respect, entering an overseas market can be daunting. On the one hand, software and services tend to travel well. On the other, local regulation, culture and buying practices can present real barriers. Grech says government support can play a major role in helping UK businesses to establish overseas beachheads: "In markets like Singapore, Malaysia and China, an association with the UK government can convey a certain amount of credibility." With that in mind, Tech Nation is working with the Department of Trade to facilitate contacts and introductions.

As things stand, the UK is the fifth largest exporter of digital services and it has a long way to go before the US, China and India. Demand for IT services is rising across the world. The challenge for British businesses is to take advantage of that demand.