A volatile or unstable nation’s economy ultimately affects every person in that particular location. As the UK finds itself in hot water amidst supply chain issues, energy price increases and post-pandemic uncertainties, there is growing worry from businesses, families and individuals as to what will happen next.
The noted author and father of modern business corporation, Peter Drucker, once said, “The ultimate resource in economic development is people. It is people, not capital or raw materials that develop an economy”. By evaluating your behaviour and outlook during unpredictability, it will provide you with the best preparation to tackle the challenge ahead.
We spoke to Nordens’ Head of Strategic Advisory, Joe Sword, about the current state of UK trade and the economy, just why supply chain issues and energy price increases have materialised, and how to remain upbeat and adapted to overcome difficulties.
Why has the UK experienced such a rapid rise in supply chain issues, as well as a huge spike in energy prices?
I think there are multiple reasons that together creates a perfect storm so to speak. This is of course largely due to the backlash of the pandemic, with trade wind down to such a low level nationally, let alone globally. It was bound to leave a scar as a kickstart to the global recovery process as well as the attempt to build back better, quicker and make up for lost time proves to be logistically impossible. Supply chain issues haven’t just impacted the UK however, you only need to look across the world to see the crushing implications it has had.
In a way though I firmly believe it has been a positive thing that all nations are in a similar position. The unity shown to make a difference globally, evidenced through the vaccine program, will likely to result in the supply chain issue rectifying itself through alternative resources but it will take some time.
The good thing to come out of all this chaos, is it gives everyone a chance to become creative and question if there are better ways to deliver and monitor logistics going forward. A systematic reset or change in direction is most probably going to happen, but it’s just how long and how fast that will come about.
In terms of energy prices soaring and demand multiplying, this has been brought on by a number of things including lower winds than usual in the UK, which naturally reduces the ability to generate alternate power. The energy industry’s stocks have been depleted after a cold winter in 2020 and an increased global demand of activity after the post pandemic surge. Currently only 50% of the energy in the UK is generated from UK sources, meaning the higher we can push this up, the less risk we will have in the long-term.
I think the crisis should and will refocus the need for the UK to become self-reliant in terms of the location of energy sources (i.e. UK vs overseas in Norway/Russia) as well as the source of energy itself. The large focus on renewables and their importance both in the short and the long term (wind, solar, hydrogen, tidal, wave), could provide us with the perfect tools to build a sustainable and progressive model across the world.
When certain economic factors are hard to avoid due to the environment your business is in, what is the best advice to stay positive and still be successful?
I think staying positive with an overall resilient mindset can overcome adversity, challenges, and hurdles. Staying positive completely blinded however, can sometimes cause more harm than good, so it’s vital to make clear decisions and communicate in detail with your stakeholders, suppliers and team.
Throughout one of the most testing times, both economically and socially, businesses have experienced the hardest hit yet have managed to pivot in different ways to achieve success.
Economic challenges often work in cycles, and veteran business owners will have been through many, so it is important to build your business in a way where you are as least reliant as possible on any one thing. Whether that be revenue stream, a supplier, a key team member, or a piece of technology, this is where many businesses come unstuck when the economic climate changes, finding it extremely difficult to adapt quickly.
Businesses are of course likely to be heavily impacted by energy price hikes. Do you expect the cost to be transferred to the customer as service/product price increases?
Somewhat yes, but I also think with the home working scenario and people being more conscious of the environmental impact certain things are having on the planet, it could result in savings that can be passed on to customers too.
I think it is important businesses are regularly reviewing their prices, but also analyse exactly what they are delivering to their customers. Often, it’s found that some things within a product or service line that are costly to make, build or deliver, are not actually valued by the customer. A reduction or removal of this process could result in short term and long-term growth. With technology advancing at such a rapid rate, the best businesses find a way to counteract their own price pressures, by reducing their costs in other ways such as automation and digitalisation. This again minimises the impact on the end customer.
With a predicted threatening halt to the supply chain around Christmas time, how can businesses best prepare for complexities in supplies without stockpiling and deepening the issue?
I think it is crucial you have a deep understanding of your cycles, what you need, and what your customers want. Granted something like the pandemic was near on impossible to predict but employing a strategy of mindless panic-buying is rarely a recipe for success. Instead, having a deep understanding of where you are financially and operationally as well as having that crucial open dialogue with your customers and suppliers, will give you the best chance of mitigating risk.
We have also heard of competing businesses working together to bulk order, in order to keep overall costs down. This act of working together I feel has become more prevalent since the pandemic and when done right it can result in a huge win-win situation.
Above all else though, I think it is paramount to keep communicating with your customers. Many will be making plans over the festive period based on your businesses’ ability to deliver. They would much prefer and appreciate honesty now, when there could be an alternative, rather than the disappointment being sprung on them at the last minute.
How do you see the future of UK trade? Do you believe current circumstances are just teething problems from Brexit as well as post-pandemic uncertainty, or is this just the beginning for businesses and individuals?
Personally, I am optimistic for the future. We are a long way from a safe haven so to speak, but I am seeing a lot of the right noises being made, with businesses focusing on people, purpose and our planet alongside profit. This combination of all 4 make for a better-rounded business in my opinion, and one in which many more customers will resonate with. I therefore feel, with the right attitude and approach, many of our businesses will build themselves into ‘partners’ that people will want to work with and work for.
In terms of individuals, I feel it will be a testing couple of years due to the ongoing uncertainty, inevitable price increases and various other pressures. It is important the government are conscious of this. I feel throughout the pandemic many good support measures have been put in place, and the right support measures need to continue, as we are certainly not out of the woods yet.
We must act quickly to cement and maintain strong working relationships with other countries post-Brexit to avoid becoming a ‘stranded’ nation. I am confident there are many countries and companies that see the potential of working closely with the UK and its people. I also think businesses and the UK in general need to up their game in terms of training, to ensure the UK stays at the forefront of development and remains a powerhouse in terms of skilled and active workers. This will redue the reliance overseas, whilst I also believe more business orientated studies and subjects should be present in schools as so many people set up their own businesses after leaving school. Often these young and prosperous adults are just left to learn as they go. With a bit more mentoring and guidance these burgeoning talents can build, grow and achieve success quicker, which will inevitably lead them to pay it forward.
That being said, I do appreciate the impact of the pandemic and Brexit clashing to deliver a challenge of mammoth proportions for all businesses involved. Presently, you have to ask yourself, if you are capable of weathering this almighty of storms, what can really stop you from achieving what you want? The answer could be simpler than you may think.
We hope this has outlined to you the complexities that the UK is facing currently, and ways that you and your business can put yourself in the best possible position to tackle them head on. If you require any further information on our advisory services, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.