The business world was justifiably shocked when no less than Jaime Dimon, JPMorgan Chase & Company’s chief executive officer, head of America’s biggest bank, said in an interview that he is bracing for an economic “hurricane.”
That’s a big word coming from somebody who’s usually very measured. The comment took on more meaning because barely a month ago, Dimon described the U.S. challenges as merely “storm clouds,” even adding the possibility that these might “dissipate.” He has since recalibrated with a much stronger lexicon for what is to come.
So what are the possible headwinds for the West and the global economy as a whole?
Let’s do a quick run down of the challenges impacting countries all over the world. Now, this might sound like a parade of doom, but don’t worry, we’ll close by looking at one very effective way businesses can flourish and finesse the challenge of our times.
Inflation. For months, it’s been in the mouths of economists and Central Bank executives around the world. For good reason.
In the United States, inflation rose 8.6% in May, the fastest it’s been in decades. You’d have to go back to the 1980s to see those kinds of a ramp-up in prices.
In the United Kingdom, April posted 40-year high inflation at 9%. The Bank of England has hiked interest rates four consecutive times, with interests now at a 13-year high.
Australia, for its part, reached a 20-year high in April, breaching 5%.
Canada soared to a 31-year high of 6.8% last May.
The more optimist central bankers have been saying that inflationary pressures are temporary and should level off soon. But the numbers have defied such a rosy outlook and prices have continually risen, forcing central banks to raise interest rates.
This in turn means that it will cost businesses more to borrow money. In the end, it points to a negative impact on the general profitability of business operations.
So I’m sorry about the title. No, inflation is not coming. It’s already here, and it’s driving its knife ever deeper into the heart of not only consumers but also of business owners, big and small.
You may have to purchase supplies to run daily operations as a business owner. And in the past months, you may have noticed that the prices for those supplies have gone up. Businesses can and have absorbed these increases…but only up to a certain point.
At some point, they will have to increase prices, adding to the chorus of price increases in the market. But in turn, businesses can only increase prices up to a certain point before consumers head for the exit sans their products or their items getting substituted for more affordable ones.
So inflation affects everyone…the business owner, twice—as a consumer himself, and as a producer. Inflation is not only inescapable, it affects businesses in a way that reinforces or exacerbates the problem for everyone.
Global Supply Chain Challenges
This is one of the economic fallouts of the pandemic. One reason for the increases in prices is that the supply of the goods desired by the public is just not there. They’re not on the shelves. They might be stuck in a port in L.A., or worse, on a container ship waiting for its turn to dock.
Companies have always been proud of their “just-in-time” philosophy of managing inventory, which means products are built and shipped as they are needed by the market. There are no expensive excesses in supply and businesses save a ton in warehousing costs.
That’s well and good in ordinary times. But when the pandemic hit, a complex chain of events led to multiple bottlenecks leading to shortages in a wide range of products from baby formula to lumber. Worse, if we have a problem with the supply of basic materials like aluminium, we consequently have problems for downstream industries that might be using aluminium as a packaging—like baby food, beverages, medicines and pills, powdered products, snacks and ready meals.
And solving it is not just a matter of saying “Yes” to suggestions like:
“Why don’t we start operating 24 hours?” (We’re already operating 24 hours.)
“Why don’t we charter ships to get the goods here faster.” (We’ll go through the same port.)
“Why don’t we add more drivers to pick up the containers and drive them to our warehouses. (Our drivers have quit. Nobody wants to drive.)
It’s not just about changing one element in the structure. The challenge is systemic, complex and unpredictable. The supply chain problem has revealed just how fragile the whole system we’ve built is. It assumes everything will go smoothly and has very little room for delays. It lacks robustness and has a built-in sluggishness to respond to the smallest of hiccups.
For a small business in America waiting for a long-ordered product or raw material, what’s there to do?
War In Ukraine
We may be thousands of miles away from where the shooting is, but we will feel every bit of the economic impact of the war in Ukraine. Primarily because of the nations at war, Ukraine and Russia happen to be two of the world’s largest exporters of wheat and other major grains.
Ukraine is considered the world’s breadbasket. Together with Russia, it supplies one-third of the world’s wheat supply. (The UN’s World Food Programme, that humanitarian arm that feeds 125 million of the world’s poorest inhabitants get 50% of its supply from Ukraine.)
Ninety per cent (90%) of the country’s exports exit through ports in the Black Sea. Unfortunately, Russia has enforced a blockade on these ports, preventing 20 million tons of grain from reaching their usual destinations. (Countries like Lebanon, Qatar, Tunisia, Libya, Pakistan, Moldova, Indonesia, and Malaysia depend on Ukraine for their supply.)
There is now a race to free up these stranded supplies to prevent starvation and shortages around the world. But things are not looking good in the medium term because Ukrainian farmers have effectively not planted their crops this year. So shortages have to be factored in in the next harvest.
Russia for its part is one of Europe’s biggest energy suppliers—supplying about 1/3 of the continent’s total gas needs. While countries are slowly decoupling from Russia, this will only have a “crowding effect” on the prices of energy around the world. European countries, looking for alternate sources of oil and gas, will be competing for the world’s supply. In effect, countries that are not even remotely included in the war will be directly impacted by higher prices at the pump.
This will impact business owners, as they will see a rise in the prices of inputs, raw materials and equipment. Every industrial process uses up energy and the higher cost of energy will ultimately be reflected in the prices of products.
Demand for Higher Pay
We’ve talked about this in the previous blog, but another of the economic fallouts of the pandemic is “The Great Resignation,” the phenomenon where millions of workers quit their jobs. Employees have reevaluated their priorities and decided to restructure their lives. This included leaving their old jobs to look for more fulfilling ones.
Businesses now are hard put to refill these vacant positions, and the new employees are demanding higher pay. So in addition to supply shortages and the rising cost of raw materials, business owners are dealing with more expensive labour.
Owners understand the plight of employees because, in the face of rising prices, their guys do need to have a living wage. But they cannot infinitely pass on these increases to customers for fear that it would make their products unattractive to buyers.
With all the things that are happening around the world, it truly seems like business owners are stuck between a rock and a hard place. I promised to close the piece on a more positive note, well, it has something to do with our group’s services.
We at Kinetic Innovative Staffing understand the plight of business owners. And we come bearing a solution to the ever-increasing cost of labour. We may not be able to do anything with the war in Ukraine, or the hurtling train of global inflation, but we can do something about expensive labour. We are specialists in the field and that’s where our competency lies.
Kinetic helps businesses around the world find competent remote workers at a fraction of the cost. We help you fill a wide variety of roles from virtual assistants, web developers, writers, social media managers, and digital marketers—to virtual accountants, engineers, legal aid, architects etc.
And we provide these high-level skillsets at a cost 70% lower than your usual. In this climate of increasing everything, businesses need to tame their spending on labour. We have a win-win solution.
If you’re interested to know more, do not hesitate to contact us.
Kinetic Innovative Staffing has been providing hundreds of companies in the Asia Pacific, North America, the Middle East, and Europe with professionals working remotely from the Philippines since 2013. Get in touch to know more.