Navigating a brave new world in international trade – How geopolitics will impact UK tech businesses and the art of how to cope

The world of international trade has changed significantly in the past few years. Major events such as the UK’s exit from the EU, the Russia-Ukraine war and continued turmoil in the Middle East and Asia Pacific have all contributed to an increasingly volatile trading environment for tech and digital companies in the UK.

Fundamental changes to the regulation-controlled international trading environment are increasingly taking place, driven by geopolitics in every corner of the globe, and casting a shadow over previously frictionless trade exchanges. These will set the framework for technology and digital businesses globally for the next decade.

Five areas for UK technology SMEs to keep an eye on include:

1. International standards – the previous forty years saw increasing convergence in international and global technology standards. This was seen as a way for large firms to grow the overall market, as well as drive down market entry costs and facilitate market access. The next ten years will likely be characterised by increasingly divergent global standards. Underlying geopolitical and national security concerns and the continuing divergence of the US-China-EU relationships - especially in the technology sector - are at the centre of this. These large, global markets will seek to develop their own standards in areas like the internet, media and communications technologies. Given the potential spillover into other geographic markets, this does not bode well for interoperability. It raises the prospect of increasing costs of doing business internationally, making the overall market less attractive. For UK tech companies, this could potentially mean a need to consider product development and market selection more carefully, to assess modes of market entry and increase the resources required to do so.
2. Data localisation – cross-border data flows play a significant role in stimulating trade, yet data governance and cross-border data transfers are increasingly politicised and enmeshed with national security and privacy concerns. An increasing number of large global markets are requiring data to be stored locally to protect critical national infrastructure, as well as citizens’ privacy. Whilst this will lead to a growth in data centres and local cloud infrastructure, it means the costs of being an export-driven, data-led business – especially for SMEs will increase. Whilst free trade agreements and their digital and data chapters are a welcome addition to future trade negotiations, these tend to be between countries with similar global perspectives and thus relatively narrow in application. Transferring data across boundaries will become an increasingly complex area for companies as national, regional and state governments introduce new data laws.
3. Regulations and compliance - are becoming more complex – especially with legislation driving significant changes across and through supply chains around artificial intelligence, data, net zero, sustainability, critical minerals, as well as cyber security. The US Inflation Reduction Act (IRA), the US Chips and Science Act, the EU AI Act, the EU Digital Markets Act and the EU’s CBAM and Critical Raw Minerals Act, as well as China’s Personal Information Protection Law and the UK’s National Security and Investment Act are just a few cases in point. Understanding how these regulatory changes impact SMEs is often slow to feed through and having them on the radar early on will pay dividends down the line.
4. Investment subsidies – the size and scale of technology based inward investments driven by this new regulation and attractive incentives are increasing globally. The competition to attract innovative technology and ‘green’ investment, secure local supplies and diversify risk feeds into wider national security and resilience concerns. The semiconductor and electric vehicle industries are cases in point. Although these large investments are likely to pull in associated supply chain companies, they potentially run the risk of not being profitable over time as they are not always market led. Whilst they are opportunistic in election years and a great short-term boost for national economies, the question is to what extent will these investments prove sustainable and stand the test of time? SMEs that follow their clients to market on the back of these investment trends will need to make sure their client portfolio in-market can be future proofed i.e. diversified.
5. Export controls - around hardware, software and IP, especially in areas considered dual-use technologies, are becoming increasingly tight in the UK, often driven by what is happening in the US relationship with certain international countries.[3] This can pose an issue for UK businesses in large markets or indeed those that may be conduits for the on-transfer of restricted products and technologies to countries of concern. The  imbalanced application of export control standards by different country authorities can distort competition. UK tech companies will need to keep up to speed on the changing export control landscape. This can be resource intensive, and they will need to decide whether to compete for this type of business in the future, or whether to focus on other less sensitive but more certain market opportunities.

How to future-proof in the new era of geopolitics

The issues above point to a more protectionist global trading environment in the next ten years with increasing risks related to regulation and compliance in a whole manner of areas. Santander’s recent Spring Trade Barometer highlighted some of the challenges. 75% of UK businesses are confident that they’ll see growth across the next three years, but more than one third (35%) of companies surveyed called for greater support from government and third parties to navigate bureaucracy and regulatory requirements overseas - an increase of almost 10% compared to the Autumn survey in 2022 (26%). 

Ambitious UK tech companies will need to focus on getting access to more dynamic, specialised, yet practical advice on global markets in order to navigate this new era of uncertainty alongside unlocking new export clients and maximise their return on investment from trading internationally.

Santander Navigator (https://www.santandernavigator.co.uk/s/) provides UK tech and digital companies with sector and industry focused content, insights and solutions to many of these problems through its global ecosystem of trusted partners and providers. By supporting companies across all elements of their export journey - market selection, market research, matchmaking, regulations, compliance and logistics - Santander Navigator can help companies hedge against geopolitical uncertainties, reduce the increasing costs of doing business internationally and drive new export revenues in this brave new world.

Authors

Mark Beresford

TMT Sector Specialist, Santander UK plc.

Mark Beresford is a global business and technology specialist with over twenty-five years of international commercial experience in markets ranging from EU, Asia Pacific, India and the US. He currently works as Technology, Media & Telecoms (TMT) Sector Specialist for Santander UK plc. His focus is on the continuous development of the global value proposition and content/solution provider ecosystem for TMT for Santander Navigator. This is a SaaS based digital trade facilitation platform designed to support UK tech companies with their global go-to-market and international trade growth plans.

Mark has an MBA from Lancaster University Management School and is also an entrepreneur, having co-founded his own company in 2005, which provides international trade, inward investment and innovation support to UK and international economic development clients.

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