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International Business Canadian entrepreneurs fear Brexit vote’s potential headaches

A taxi driver holds a sticker for the “Vote Leave” pro-Brexit campaign in London on June 22, ahead of the June 23 British referendum on whether to leave or stay in the European Union.

JUSTIN TALLIS/AFP/Getty Images

If Britain votes to leave the European Union, all companies doing business there may need to rethink a multitude of operational issues, from hiring to patent regulations

As Britain votes whether to stay in or leave the European Union, the founder and chief executive officer of Toronto-based technology company Flybits Inc. is holding his breath.

"If they leave, I'm sure any entrepreneur who follows our model will have additional challenges," Hossein Rahnama says.

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Though entire nations are waiting for the results of the Brexit vote – with late polling very close but suggesting the remain side is slightly ahead – companies doing business with the European Union, in particular, are waiting to see whether their operations will be affected.

Brexit explained: The latest updates and what you need to know

Dr. Rahnama's startup provides cloud-based technology for smartphone app developers to build, boost and manage their software. His customers are developers and large organizations around the world, such as banks, seeking to streamline their apps and make sure they work as advertised.

Dr. Rahnama set his sights on exporting Flybits' products and services even before launching the company in 2013, emerging from Ryerson University's DMZ tech business incubator.

Flybits quickly struck a deal with British communications giant Vodafone to help expand into European markets, using Britain as a springboard to the 28-member European Union.

"It has been great to have a presence in London, working with Vodafone as a channel partner and to be able to go to other countries without hiring people there," he says.

Though Flybits has dozens of staff in its main offices in Toronto and Palo Alto, Calif., it has done well in Europe with a full-time staff of two sales people in Britain.

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If a Brexit is triggered by tomorrow's vote, "the way we are looking at it is if we are to maintain our momentum we're going to look at another jurisdiction in the EU to handle European business," Dr. Rahnama says.

Patent and intellectual property laws already vary across Europe, but right now the EU provides an overriding framework for all its members, including Britain. That could unravel if Britain votes to leave. Even if the vote is close and Britain remains, there may still be pressure on both sides of the Channel to rethink the Britain-EU relationship.

Supporters of the Leave side here say Britain could quickly negotiate new bilateral agreements with Canada and other countries but the message from outside Europe is that this won't be easy.

"It took Canada seven or eight years to negotiate their own trade agreement with Europe [the EU-Canada Comprehensive Economic and Trade Agreement, or CETA, which is expected by officials to take effect next year]," diplomats here say.

"It's not impossible that Britain could negotiate its own [new] trade agreement with Canada, but these things take time." There is also a looming concern that CETA, considered by Canada and most of Europe as a "done deal," might need to be reopened to accommodate a Europe without Britain.

Canada, the United States and many other non-European trading partners have done little to hide their preference for a British vote to remain.

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In May, Prime Minister Justin Trudeau said flat out that Britain's trade clout with Canada and others is "amplified" by staying in the union.

During his visit here June 14, Finance Minister Morneau said that any decision by Canadian businesses "to invest in the United Kingdom in order to have the opportunity for the European market is now at risk."

British workers employed by Canadian companies in Britain are already "more vulnerable as a result of this discussion [on whether to leave the EU]," Mr. Morneau warned.

More than 700 Canadian businesses operate in Britain, employing tens of thousands, according to the Canadian High Commission in Britain.

Britain is Canada's second-largest export destination and its sixth-largest source of imports. In 2010, bilateral trade reached more than $27.1-billion (Canadian) and during the past five years Britain has been Canada's second largest export market for goods.

Britain is also a key source, as well as a destination, for direct foreign investment. In 2010, two-way investment stood at $115-billion. In Northern Ireland, Canada's Bombardier is the biggest private-sector employer.

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For small and medium enterprises and startups such as Flybits, the idea that Canadian companies will need extra sales and service teams in continental Europe as well as in Britain is only the first potential headache from a Brexit, Dr. Rahnama says.

"Either they're going to have to split their budgets in two to serve Britain and Europe or they'll have to double them," he says.

It could be even worse if a Leave vote triggers additional restiveness in Europe itself and leads to more barriers.

"Instead of having a European office based in London, they'll need to have a U.K. office, a German office, a French one, and the cost of expansion will be much higher," Dr. Rahnama says.

A Brexit could also exacerbate competition between Britain and Europe, he adds. European cities such as Frankfurt already compete with London to become predominant financial centres, while other cities such as Berlin are growing aggressively as high-tech centres.

While this competition offers SMEs such as Flybits more location options, it could also drive up costs, because separate sales and marketing teams would be required.

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Even before the results are in, another issue arising from the vote is the increasing political pressure to restrict freedom of movement for workers within Europe, Dr. Rahnama says.

"Up to now I could hire someone in France or Germany and that person could come and help me in the U.K." Tighter control by national governments over workers going from country to country has been one of the most prominent issues in the Brexit vote.

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