Our case study on Brexit and the UK fintech industry examines to what extent business managers' relocation intentions are driven by factors similar to those that drive actual relocation behaviour and compares business managers' relocation intentions with their companies' relocation outcomes. The results of this mixed-methods approach highlight a significant variation in business managers' intentions and the importance of geographical and institutional proximity for relocation intentions and outcomes. We show that business managers' relocation intentions are driven by their perception of the economic consequences of different Brexit scenarios, their territorial embeddedness, and their nationality. Our findings also indicate that although factorial surveys are only moderately accurate when predicting the exact extent and destination of actual relocation, they are highly accurate when predicting whether a company relocates.

© 2024 The Authors. Hosting by Atomic Academia Ltd. Licensed under CC BY 4.0.

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1. Introduction and Objectives

In an increasingly turbulent world, businesses must constantly adapt to unforeseen political events. This article investigates the impact of Brexit on the strategic relocation decisions of UK fintech firms, a sector that has flourished in the UK's favourable regulatory environment and vibrant talent pool. By examining the interplay between various Brexit scenarios, business managers' intentions to relocate, and actual relocation outcomes, we gained valuable insights into the complex relationship between political events and corporate strategy.

Nomenclature
Fintech: computer programs and other technology used to support or enable banking

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2. Methodology

We employed a mixed-methods approach that used not only a factorial survey conducted in 2018, which allowed us to quantitatively analyse the impact of different Brexit scenarios and selected company characteristics on business managers' likelihood to intend to relocate their UK business unit (or some functions thereof) to the EU and/or the US, but also qualitative secondary data on the actual relocation outcomes of the surveyed companies in February 2022 collected by investigating such online platforms as LinkedIn, Companies House, and Crunchbase, as well as company web pages. This article was written as a short-form version of the original research by the Atomic Academic AI, reviewed by the original author and peer-reviewed openly.

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3. Results

Our study revealed that Brexit had a significant impact on the relocation intentions of UK FinTech firms. We observed that 29% of company representatives considered fully relocating to the EU in the event of a no-deal Brexit, with this likelihood increasing to 37% for partial relocation. In contrast, significantly fewer representatives anticipated relocation under a deal Brexit scenario. These findings underscore the impact of political uncertainty on corporate decision-making. (1, 2, 3).

Intentions vs. Outcomes

Relocation intentions:
● Driven by similar factors as actual relocation, but don't always translate into action.
● National background of founders matters: European founders are more likely to relocate to the EU.
● Size matters: smaller establishments are more likely to close fully.

Actual relocation:
● 13% fully dissolved UK establishments (mostly small, foreign companies).
● 39% opened new offices overseas (EU financial & tech hubs, US mainly NYC).

Intention-behaviour gap:
● Moderate to high correlation between intentions and outcomes (66% to 84%).
● Discrepancies often due to unexpected growth or inaccurate predictions.

Overall, Brexit impacted relocation decisions, especially for EU-linked businesses, and factorial surveys can provide valuable insights, although actual outcomes can be more nuanced than anticipated.

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4. Discussion

The research adopted a mixed-methods approach, integrating quantitative and qualitative data. This methodology allowed us to examine decision-making processes through the lenses of rational choice, behavioural, and relational perspectives, recognising the diverse factors influencing real-world corporate decisions. (4, 5, 6)

• Rational Choice vs. Behavioural and Relational Approaches: The study challenges traditional economic decision-making models, emphasising the need for more nuanced approaches that consider behavioural and relational contexts in response to economic uncertainties. (7, 8)
• Territorial Embeddedness: The degree of a firm's integration into its local economic and social environment significantly influenced relocation decisions. Firms deeply rooted in the UK were less inclined to relocate compared to those with stronger external ties, particularly in the EU.
• Brexit Scenarios and Managerial Perceptions: Different Brexit outcomes were perceived differently by business managers, impacting their strategic relocation choices. The study highlights the significant role of managerial perceptions in strategic planning under political uncertainty. (9)
• Company Characteristics and Relocation Intentions: Factors like company age, workforce composition, and financial dependencies played a crucial role in shaping relocation intentions. Start-ups showed less tendency to relocate to the US, presumably due to limited resources. (10)

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5. Limitations

• Sample Size and Scope: The study's primary focus on the UK fintech industry limits its generalisability to other sectors or geographic regions. Additionally, the sample size of company representatives, while offering crucial insights, may not fully capture the diversity of strategic responses across the entire industry.
• Dynamic and Evolving Nature of Brexit: The Brexit scenarios considered in the study were based on the information available at the time of research. Given the dynamic and continually evolving nature of Brexit negotiations and outcomes, some of the scenarios might not entirely reflect the final terms and implications of the UK's exit from the EU.
• Complexity of Factors Influencing Relocation Decisions: While the study examines key factors influencing relocation decisions, it may not encompass all possible variables. Such factors as individual managerial characteristics, political opinions, and unforeseen economic shifts could also play a significant role in these decisions.
• Reliance on Self-Reported Data: The study's conclusions are partly based on self-reported intentions and perceptions of business managers. These may not always accurately predict actual behaviour due to biases, strategic misrepresentation, or changes in intentions over time.
• Methodological Constraints: The use of factorial surveys, though innovative, has its limitations. While they provide insights into potential behaviours under hypothetical scenarios, they may not fully capture the complexities and nuances of real-world decision-making processes.
• Temporal Limitations: The study captures a snapshot of intentions and perceptions at a specific time. However, strategic decisions and relocation plans can evolve significantly over time, especially in response to rapidly changing economic and political landscapes.

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6. Conclusion

Our findings highlight the critical role of political uncertainty in shaping corporate strategies. The Brexit referendum, with its varying potential outcomes, created a context of uncertainty that significantly influenced the strategic decisions of UK FinTech firms. This underscores the need for businesses to adopt flexible, scenario-based planning approaches that account for political uncertainties and their diverse impacts on different aspects of the business environment.

Key Takeaways

• For Policymakers: Understanding the subtleties of corporate decision-making during political uncertainty is critical for approximating the potential effects of different policy options.
  
  
• For Business Leaders: An integrated approach that considers different potential scenarios is essential for strategic planning. This holistic perspective fosters resilience and adaptability in the face of political and economic shifts, guiding businesses through turbulent times.

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6. Original work

Sohns F, Wójcik D. Do they do as they say?: Analysing the impact of Brexit on relocation intentions in the UK's FinTech industry. ZFW–Adv Econ Geogr. 2023;67(2–3):105–26. doi:10.1515/zfw-2021-0049.

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7. References

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