Global Crises and the Future of International Business #56

Global Crises and the Future of International Business #56

In this podcast, I’m going to talk about how I see the future of international business in 2021, what those with small and medium businesses should be doing and planning in the months ahead, why nobody should panic, and why it makes sense to go on listening to Grow through International Expansion podcasts and engaging with our articles and other content.

We’re faced with two major global crises – coronavirus and climate change. Whilst they are not related to each other, both give rise to considerations about international business. Even Brexit gets tied in here. Don’t panic. I’m staying positive here. The one thing to like about crises is that they focus the mind in a way that nothing else does.

As I’ve said before here, the most common reaction to any unknown business threat is to sit tight and do nothing – what I call the “deer in the headlights mentality”. It’s wrong. In this podcast, let’s first examine where we are now, what the experts currently think might happen, and what – at least in my opinion – businesses should be thinking about and doing now.

There’s a body of opinion that COVID-19 is the death knell to globalisation. Politically, the world has been heading that way, with a surge in nationalism seen in so many countries – USA, India, Hungary, Turkey, UK, the list goes on. The message from climate change activists that air travel and shipping need to be reduced or eliminated to cut emissions has been gaining acceptance.

Now we have an international disaster, coming on us like an alien invasion in a sci-fi movie. Some will find it easy to believe that once the forces of good defeat the forces of evil, we’ll revert to quieter, happier times, when everything is home-produced, everyone has a job, there’s no immigration and the national anthem is sung every day.

Realistically, of course, that’s not going to happen.

International business needs to go on – if for no other reason than the fact that confining one’s business to one’s own country means a finite market.

No country is – nor can become – self-sufficient in everything. At the most basic level, food and fuel need to continue to travel from one country to another.

We’ve also got new dependencies. Nobody would want to be without their mobile phone now – those of us who are “isolated” by the virus will become even more dependent. And all or part of every phone sold comes from China. There’s no short term substitute, even if one was wanted – that’s easily illustrated by the recent kerfuffle about Huawei’s involvement in 5G networks. Alternatives – and they’re still not local solutions – mean much higher costs and years of delay.

There are no short term alternatives to our global trade. Perhaps some manufactured goods could be produced closer to home. For example, clothing. The clothes I’m wearing now all have western brand names but were made in Vietnam, Bangladesh and India. I’m guessing they could have been made here. But think of the consequences. They’d be more expensive, of course. Labour costs are higher here. It’s not good thinking that we’re exploiting labour in those distant countries. However, bringing the work home and taking those jobs away would impoverish many and have an unwelcome impact on the economies – and probably the politics – of those countries. And who’d do the work here? The fact that the price of clothing would rise would, logically, reduce the volume of sales – people would buy fewer new clothes. From the environmental perspective, that might be good. However, it would have a very damaging effect on retail, a sector that’s already suffering. So there’d be new jobs in the rag trade but job losses in retail. Could one substitute for the other? Would people be willing to switch?

You can see how complicated it is. And that’s just clothing.

Let’s get back to the crisis that we face. I’m not going to try to make any predictions myself – there are enough out there already, and the situation changes daily. But it’s clear that Coronavirus is the worst thing the world has faced in years. Rational, scientific predictions that 80% of the population will be infected and 1% of those will die – so maybe half a million dead in the UK alone – are enough to stop anyone worrying about anything else. Even if the prediction is wrong by a factor of 5, that’s still 100,000 dying. That might include me. On the other hand, containment measures may work and cures may be found – but there won’t be any miracles.

But it will come to an end. Let’s look at what the international business picture might be once it does, let’s say a year from now. I’ll start with the big picture, before going on to what I think it all means for SMEs.

Some markets may change very quickly, if only for a short time. If the dire projections of millions of deaths worldwide – and hundreds of thousands in any one western country – are proved correct, so many things will change. Every business will be affected differently, but all will be affected in some way or another. For a moment, let’s suppose that the deaths are confined to older people, retired and outside the workforce – though that’s obviously not a given. As a result, the demand for care and medical services will decline for a time. Houses and flats will come on to the market. Services that disproportionately depend on revenue from older people will suffer.

Even if the worst fears are not realised, and the death toll is relatively low, we know that travel and shipping will be affected – they already are. Some airlines and shipping companies will fold.  Cruises aren’t getting a good press – whereas previously the worst that might happen was for most passengers to contract food poisoning, now potential customers can see that they can be a trap for viral infections too. Even if that wasn’t enough to dissuade them, many cruise tourists are elderly, and they’re the most affected by COVID19.

But we’re thinking about business, not vacations. One definite result will be that international supply chains – where components are manufactured in different countries and shipped between them – will be re-examined. Some pundits are saying that will lead to manufacturing closer to the market. Of course, that might happen, but it’s not a quick fix. More likely, to my mind, is that most manufacturing will stay where it is today, but that “just in time” strategies will be reconsidered.

To bring manufacturing “home”, we’ll need robots. This is also very desirable from a productivity viewpoint. Huge advances have been made in robotics and smaller scale, lower cost solutions are now available. Nevertheless, the investment costs are still relatively high, especially for small and medium size businesses. Also, while robots can replace employees doing repetitive tasks – so, typically, lower cost labour – implementation of robotics is bound to require companies to hire more expensive – and scarce – technical specialists.

Even the new cheaper and simpler robots are comparatively expensive. Who will invest in them, and when? Smaller companies have been reluctant or unable to invest in anything – even business critical things – in recent years. Many business owners will suffer financial losses over this crisis period; perhaps their sales will suffer, perhaps they will have staff off sick, not only losing production capacity but incurring the costs of sick pay or overtime. External investors will have stock market exposure; they’ll probably be nursing their losses and reluctant to invest quickly. When does uncertainty change to certainty?

Why robotise here when the job can be done more cheaply with overseas labour? Those lower labour costs in other countries will continue to drive international business for at least the next decade.

Some countries will be more affected than others – China, South Korea and Italy are currently the worst, but the rate of infection in other countries may have overtaken those by the time you hear this podcast. What we don’t know now is how resilient each country’s economy is to the growing crisis. That, and the rate of business recovery once the epidemic declines, is the critical consideration. Personally I’m guessing that countries like China, South Korea and Japan will get back to work quicker than ones like Italy and Spain, but that’s just based on stereotyped attitudes to work and productivity.

Some countries – perhaps those in South America or Africa, where infection rates are currently really low or even zero – will suffer little, or not at all, from the coronavirus epidemic, and have the opportunity to economically leapfrog some other countries that currently appear stronger. Such countries are worth looking out for – they could be stronger new markets, and equally they could have good labour resources to help businesses overcome the issues they may face at home.

Let’s get away from COVID 19 – but not away from crises.

As the effects of coronavirus reduce, expect environmental campaigners to take every opportunity  to emphasise that we may have resolved one crisis, but the climate change crisis hasn’t gone away.  It’s a very strong and essential message, and one that needs to be listened to and acted on. And I suspect they’ll be right that the end of the coronavirus epidemic – or is it a pandemic? – will represent a great opportunity for them.

The most obvious impact on international business will be the call to cut international business air travel. To an extent, that’ll succeed – as by then we’ll all have got even more used to using video and phone conferencing, I imagine that we’ll be less likely to grab the opportunity to jump on a plane. Nevertheless, for successful international business there is no substitute for actually being there – but that’s a subject I will come back to in another podcast.

The other pressure will be to move towards more sustainable diets and, as I talked about earlier, tighter supply chains. Neither will be quick or easy. However, companies that are positioned to benefit from either should be ready to pounce on the business opportunity that will arise.

And that’s the point of this podcast. Coronavirus is a crisis – but it’s not the end of the world. The crisis will end, almost certainly by the end of this year. By that time, unless there is a very quick solution, which seems unlikely, many things will have changed.  The airlines that survive will rethink their routes and timetables. Businesses will be more open to solutions that will reduce or eliminate the impact of any future pandemic. Governments around the world will have spent massively on things they didn’t expect to. Meanwhile, their tax revenues will have reduced significantly. Debt will have piled up in companies too. One inevitable result will be that currency exchange rates will change too. That may make it cheaper to import, or make exports more competitive. In theory, here in Britain, we’ll be facing a post-Brexit world of new tariffs and trade deals – though, personally, I’m guessing that the current crisis will delay everything and that, using that as an excuse, the transition period will be extended into or beyond 2021.

But nobody knows.

What we can be confident of is that at least 98% of the world’s population will survive into 2021. The global market will still be there, the global talent pool will still be there. The events of 2020 may change the landscape, and, certainly, some companies will fail. But, taking an optimistic international business perspective, I think that the events will need to be seen as creating stronger opportunities for some companies and completely new ones for others.

The key is to be informed and prepared. Determined entrepreneurs will be taking their enforced “working from home” time to plan for the future. Rather than panicking about how to manage the present, that means starting with a 2021 Plan now, becoming voracious readers of true media and expert predictions, staying on top of events on a daily basis and continually revising the Plan as events unfold.

Whatever happens, self-isolating and waiting to see what happens in the end won’t make your business successful. Planning, adapting and thinking globally will. Good luck, and thank you for listening.

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