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Although when thinking about the business world, we usually tend to tie the global economy to massive enterprises and multi-national corporations, the fact remains that with the lion’s share averaging as much as 90% Small, and Medium Enterprises (SMEs) make the backbone of almost all national economies.
Stuck between the micro family-owned companies and corporate juggernauts that are often too big to fail, small and medium companies also endure the most significant hardships when the economy goes through turbulent periods.
Now that we are entering the third year of the COVID-19 pandemic, we can all agree that this period is more than tumultuous. Let us then look at some of the key challenges awaiting SMEs in 2022 and see what they can do to overcome them.
High inflation
Over the last couple of years, the world experienced a drastic shortage of labor, energy, skills, goods, and raw materials. These circumstances ramped up the price of virtually all products on the market and caused very strong inflation on a global level. According to the article published by the Economist, these developments will end by the end of 2022 but not without SME a serious sweat. Juggling between the depleting currencies and increasing costs of labor and raw materials, SMBs will need to tweak internal pricing models and implement serious strategies aimed at increasing profit margins as possible.
Labor shortage
This problem is probably most evident in the United States, which scored well over 20 million people quitting their jobs in the second half of 2020. The reasons behind this development are different and they range from burnout to various COVID-19 restrictions but the problem remains the same – the US labor market is seriously undersupplied. What’s even worse, the constant lockdowns, restrictions, and layoffs are preventing new employees from getting proper training and experience. That is why SMEs will need to take a proactive stance and more seriously engage in recruitment, grooming, and training.
The changing role of IT
Digital tech always gave a strong boost to the business world and gave smaller companies a fighting chance in the pool stacked with bigger sharks. These days, however, when cloud tech, AI data analytics, and similar trends are becoming the driving force of the global economy, SMBs have a very hard time competing with the industry heavy hitters. But, on the other hand, we also see the rise of consulting companies like HTEC Group whose main field of work is implementing data science in the SME sector and setting them up for digital evolution, making them far more competitive in the future.
Broken supply chains
The modern economy is a global game, and one company’s success is not exclusively tied to the fortunes of the national economy. The perilous situation in which the entire world hangs right now can make maintaining uninterrupted supply chains incredibly hard. In a complicated situation, the companies will need to double their efforts to take advantage of the supply chain areas they can control. Also, the SMEs will need to rethink the goals or objectives of their networks and run countless new models until they can find the solution able to sustain bottlenecks and shortages.
Growing interest rates
This issue is closely related to the problem of high inflation we have mentioned in the previous sections. Namely, as the currencies lose their value, the banks and other financial institutions are trying to make up for the loss by skyrocketing interest rates. This disproportionately affects the small companies that are more reliant on loans especially in the early stages of their development. That is why the small and medium companies are advised to inspect their capital structure and if possible consider refinancing existing debts with fixed-term, fixed-rate loans even if, at first, they don’t feature a great bottom line.
Transition to a green economy
The global economy is moving in an increasingly green direction. For instance, the European Union is conducting active policy aimed at producing a completely climate-neutral EU by the end of 2050. Even if such dates may seem too far in the future, the new policies are constantly being brought up on the table, and small and medium enterprises need to invest considerable amounts of money into green initiatives. The only way out of this situation is to build sustainability right into the core of the newfound companies and use all possible governmental rebates and incentives to finance green up-front investments.
We hope these few examples gave you a general idea about the problems and challenges awaiting the SME sector throughout the rest of the year. Of course, the complete list would be much longer, but even this short excerpt gives an excellent starting point for creating a lot of useful contingencies. Of course, being the backbone of the global economy, small and medium enterprises always sustained the hardest economic pressure in case of a global crisis. Still, knowing about the danger is the first step in avoiding it.
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