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Resilient UK tech companies ‘making hay’ from distressed sectors

The UK’s challenging economy, with its strikes, covid hangovers, cost of living crisis and shortages, is clearly troubling tech companies the least.

And more than just shrugging off the challenges, firms specialising in IT and software might even be benefitting from the difficulties which other key sectors are suffering.

SFP Group, a company rescue and MVL specialist, insolvency house Opus Business Advisory Group, and Integro Accounting issued this two-fold analysis to ContractorUK.

‘Highly confident’

Issued on Friday, the analysis is based on a study by Integro, a contractor accountancy firm, showing 89% of tech firms as “highly confident” they can ride out the next quarter.

The finding represents the strongest show of tech company confidence for three years, given 79% and 76% said the same in 2021 and 2020 respectively.

And the high confidence was in contrast to companies in the other polled sectors.

Similarly on sales, more than half (53%) of IT consultancies said they felt their performance would improve during the rest of 2023. Only two per cent forecasted a dip.

‘Covid benefitted tech sector, to the detriment of others’

By contrast, not even a third of housebuilders anticipated an uptick, which was echoed by pubs (not even 20% foresee an increase) and retailers (more than 40% foresee a decrease).

“Covid…accelerated market shifts that have outlasted the pandemic, which has been to the benefit of much of the UK’s tech sector but to the detriment of other sectors”, said Integro’s Christian Hickmott.

Even subsequent to covid, industrial action in the transport sector which is “damaging” retail, leisure and hospitality outfits has “been a boon” for many tech firms.

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‘IT contractors insulated’

Integro’s boss, Mr Hickmott explained his assessment: “There had been a drift back to pre-pandemic working practices, but with transport disruption ongoing, more organisations are entrenching remote working and the associated technology. And this looks set to continue for the foreseeable future.”

Yet it is not only large or established providers that are the tech sector’s unfazed, as individual IT contractors are also often “insulated” from the disruptions, says Opus.

“With low start-up costs and overheads, [and] an ability to work remotely, in most cases, IT consultants stand to be some of the biggest winners from the current difficulties,” says the advisory’s Gareth Wilcox.

In a statement to ContractorUK, Wilcox spoke of “continued demand” for such small, tech-led enterprises from an “economy increasingly forced to diversify, streamline and digitise.”

‘Bruised and battered’

As to those sectors feeling force and pressure, SFP Group said that on top of hospitality, the “bruised and battered” were in the haulage, manufacturing and construction sectors.

“The IT sector appears to remain robust [however],” SFP Group’s senior consultant Patrick Hogan told ContractorUK.

“That may be because, in simple terms, almost anything that businesses do today have a strong IT bias and if you do not keep up with the rapidly evolving technologic advances, you could find yourself being left behind”.

At Integro, Hickmott confirmed “businesses are continuing to invest in digital transformation projects to drive productivity gains”.

The accountancy boss calculates that the gains are being sought as a way to ‘lessen the impact of inflation,’ and the investment will “boost” IT skills-demand further.

‘Inflationary pressures’

But it’s not all plain sailing for technology-focussed companies.

The Integro poll found that more than four in ten IT-led firms have had to absorb the costs of price increases, rather than pass them onto clients.

With only 17% succeeding at passing inflated costs on to customers, “inflationary pressures are clearly having an impact on the overheads of IT businesses,” the firm said.

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‘Costs and shortages possibly yet to peak’

Another barrier to growth – skills shortages – continues to impede technology businesses too, but according to the study, potentially to a lesser extent.

In fact, the chunk of tech business not suffering from a shortage of workers they need has expanded by five per cent, from 62% at the end of 2021 to 67% currently.

“Covid has retreated for now, [but] many other challenges around rising costs [and] labour shortages…persist and are possibly yet to peak,” cautioned SFP Group’s Mr Hogan.

“This does unfortunately mean more challenges ahead for many businesses.”

‘Making hay while the sun shines’

But Integro points out that strong demand for software and IT services puts tech firms in a “relatively stronger position” if they can get clients to the negotiation table on prices.

At Opus, Wilcox recommends acting sooner rather than later:

“Given the difficulties being felt elsewhere in the economy, it could be a case [for tech companies] of making hay while the sun shines.

“[After all,] the strength of companies [including those which were polled] is often defined by their current contract,” he said. “And inevitably, contracts will be up for renewal at some point”.

A tad more optimistic is SFP’s Mr Hogan, who reflected: “It is [clearly from these findings] not all doom and gloom. Indeed, as insolvency practitioners, it is true that we rarely find ourselves dealing with distressed tech operators. That surely must tell a compelling story about the strength of the IT sector.”

By Simon Moore

Source: Contractor UK