The Local Economy
The UK is reportedly in a “W” recovery as it is in its third lock down, whilst many other countries are on a “V” recovery whilst China is reporting just over 2% growth.
We are to consider where the UK sits in the three “spheres of influence”; that of our interaction between USA, Europe and China. Over recent months, China has been part of forming a Regional Comprehensive Economic Partnership“RCEP” with 14 other counties which will result in 30% of the worlds trading block so we cannot ignore this emerging “market”. Who will your business align with? This is a critical question when strategizing where to do global trade.
Some readers may be familiar with the term of a “K” recovery, meaning that some areas will do really well in recovery but others will not (such as hospitality, travel and the Arts).
The north – south divide is obvious as repeated lock downs occur. How will the recovery be considered as investment decisions are made to address the “levelling up” of the United Kingdom; will our great, great, great grandchildren across the country be paying evenly for the effects of COVID-19; will they be recovering equally as the massive debt will need to be passed over a generations? Low interest rates may mean we can continue to manage and service this national debt for the moment but we need scale up businesses (growing at 15%+ year on year) to avoid being hit in the future.
Commentary talks about it now in the rhetoric of 4.0. The critical underpinning of it all is investment and address of Cyber security in supply chain systems. COVID has accelerated digitalisation of all businesses but particularly, logistics. Consumers want to buy in a changing retail environment where shopping is Fun, Easy and from a place where they are in control but most of all, Safe. There is a whole new e-shopper that previously was only emerging in 2019; that of the “silver” generation purchasing online. This group are forcing a change for creating new markets and escalating some sectors such as board games, beauty products and DIY. Buying online has demanded the highest level of R&D attention; around cyber security, getting goods to customers and managing inventory. IT businesses have thrived in 2020 (eg Ed Tech, Health-Tech, Fin-Tech and digital payment systems).
Logistics & Operations for 2021 is all about IT; for example, Simulation, “Internet of Things”, autonomous systems, data system integration, stock and reporting platforms, the list goes on.
Investment is critical in the recovery, especially around rail, road infrastructure and re balancing the UK demographic area. Investment in Skills innovation is key to a scale up economy and key markets are decimated and people need new jobs in totally new areas. Important as well is Automation; more production neds to happen in the UK as China increases its pace on automation, replacing those hand workers on which the UK has relied on for so long. The thought is, if they can manage the shift, why can’t we? This will assist in “near shoring” and even additive manufacturing (3D printing by in demand). Businesses are balancing multi shoring (near and medium/ far) to balance out the risks of the supply chain. Thus, small footprint manufacturing is even more important (with sustainable benefits) but possibly less competitive whilst we continue to invest in local automation and up-skilling.
The new normal – what is it?
Pre-existing processes, people and infrastructure and how to adapt from pre to post normal remains a topical issue.
How do we adapt?
Charles Darwin writing in his “Origin of the Species” (1859) writes “it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself”.
Entrepreneurial businesses adopting the SOAP approach (S= Strategic, O=Opportunistic, A = Adaptability, P=Purpose) are continuing to thrive as they navigate from lock down to post normal. Repeated lock downs are forcing big changes in the supply chain. Supply chains are being challenged at each lockdown on their robustness, supply chain resilience, changes to transportation flows, warehouses requiring reconfiguration and investment is fast occurring in being digitised and automated. Demands for innovations to processes have been critical along with collaborations with key partners. Businesses with a clear purpose, who spot opportunities and adapt are surviving best.
Globally, Brexit could be argued to be a disruption for global businesses who are also dealing with navigating trade with other countries such as South America and the Middle East. But Brexit is of course, causing teething problems locally, especially around form filling. Businesses who were not pro-active in its preparation, are now faring worse than organised ones. Some businesses have fared really badly and the verdict is out on these markets (such as food and financial services). It is noted that the UK exports a split of 60/40 goods vs services and how will this change over the coming months and years.
It could be argued that the UK has been relatively lazy over the past 27 years in terms of investment in our processes and making significant changes to our systems. Brexit and COVID has been a major trigger for addressing, investing and activating critical change in supply chain management. Never is the adage so true in
that “Investment is the engine of growth” (Prof. Stephanie Hussels, Cranfield School of Management).
Sustainability remains key… the UK is on track for net zero 2050. COVID has been a major contributor to reducing climate change and the general consensus is how to capture and sustain this reduction. How to manage holidays, travelling for work and even home deliveries of supermarket shopping which is broadly thought to be creating less carbon impact than making a individual trips in a petrol car. But, supermarkets and e-tailers are reporting that there is a high cost for this home service and perhaps the consumer is underpaying for this “luxury” in order for delivery business models to deliver historic levels of profit.
At 3.1% inflation is rampant in stock market, property and bonds. These are strong markets as money is pumped into stock market via quantitative easing. The price of key assets such as homes and warehousing have escalated. It is debatable whether this will soon be completely out of reach for ownership of all but a few. This is in contrast to high street shops and offices where there the verdict is out; they may either be sold or re-purposed. Accordingly, it will be interesting to see the Spring Budget for breaks on tax incentives for entrepreneurs who want to scale up and rewarded with Entrepreneurs Relief and possibly the introduction of new taxes such as digital taxes, corporate tax, and how to manage the gaps in VAT and rates earnings from the past 12 months.
Inflation on retail goods and services has remained low over the past decade. 60% of our imported foods come from Spain and these EU imports are likely to fall as Brexit sets in and the UK adapts. Over time, it is thought that inflation will undoubtedly creep in. Food prices have been arguably low in the UK for a long time in comparison to other countries so this market may see inflationary prices.
Time will tell on all of the above, but for now, the general take out is, keep Entrepreneurial, Invest in research & development, skilling and digitising systems and manage sustained debt and cash conservatively.
Extracts taken from “Post-Covid and post-Brexit Challenges (18.1.21)” from Cranfield School of Management (thanks to Professor Joe Nellis, Deputy Dean and Professor of Global Economy, Cranfield School of Management, Richard Wilding OBE and Prof. Stephanie Hussels, Director Entrepreneurship at Cranfield School of Management)
Author: Annika Bosanquet (Head of Finance and Logistics; Wrapology International Ltd)