Labour Shortage, Chip Shortage, War, Inflation: How Do They Affect Large And Small Enterprises?

The past few years have been defined by uncertain economic conditions impacting small and big businesses. This article delves into the four radical events viz. labour shortage, chip shortage, inflation, and war that have critically affected businesses.

Labour Shortage

SMEs are facing backlash due to the increasing scarcity of skilled labour which has hindered the supply chain, productivity levels and led to:

• Delayed delivery time: The lack of labour has resulted in a surge in investment in cut-edge technologies impacting operating costs and putting companies behind schedule.
• Bottlenecks at every level: The interdependency of supply chain levels sometimes leads to unfavourable consequences.
• Companies are forced to increase prices to make a profit or break even for adapting to the dynamics of the market and adjusting to the highs and lows of demand and supply.

Mitigating this impact will take education, training, and changing the negative perception of trades. The government may launch marketing campaigns to attract more individuals to skilled labour and encourage employers to hire apprentices. Simultaneously, enterprises may:

• Offer deserving salary and perks.
• Embrace hybrid work culture and diversity.
• Change methods of performance evaluation.
• Create impactful organizational culture.

Here is how some big companies are coping with a labour shortage and high levels of attrition:

• Indiana Packers Corp. approached recent retirees and former employees to fill open entry-level positions with flexible work options.
• M1 Finance performed extensive outreach to candidates via LinkedIn through increased referral bonuses, intensive management training and six-month career checks instead of annual reviews.  

Chip Shortage

A shortage of microchips has created a major problem for companies requiring computerised software. Also, the global car industry is the worst hit as all the latest cars need a semiconductor found only in microchip technology. If not combated, companies will likely lose billions.

To lessen the impact companies may:

• Design more resilient products by reusing components, standard designs, and flexible product architecture.
• Enhance product efficiency through better predictions, running scenarios, and performing dynamic optimization.
• Create innovative supply chains by revamping the operating models and improving collaboration between sales, marketing, and engineering.

The intake of the global market:

• Companies like Intel are looking to redesign semiconductors so that they are less dependent on critical resources. 
• Emphasis to build new plants in the US for localized production and demand for government funding for setting up chip manufacturing companies.
• The PL1 scheme in India has opened doors for semiconductor companies to set up fabs in India.

Inflation

The severe impact of inflation can be detected in terms of a decline in purchasing power of a company, profitability, and the following:

• Supply chain disruptions can delay production and lead to a revenue decline. For instance, a hike in gas prices resulted in companies striving to procure raw materials at low costs.
• Paying high prices for goods is directly proportional to the Consumer Price Index. Hence, higher costs and lower purchasing power.
• As businesses try to source materials at the lowest prices, there will eventually be a raw material shortage leading to a decline in revenue and production delays.
• The inflationary trend caused increased federal interest rates resulting in the said impact.
• Lower purchasing power will lead to a downturn in revenue for consumer-driven businesses.
• Increased inventory costs and overheads may eat into businesses' profits.

Steps to mitigate the impact of inflation

• Obtaining good spending visibility.
• Distinguish between strategic and non-strategic spending.
• Prioritising ROI investments. 
• Developing a robust understanding of the actual drivers of cost during an inflation period. 
• Leverage appropriate tools to generate actionable insights from spending data.

The Indian Government adopted several measures this year to thwart inflation:

• RBI hiked the repo rates constantly in May and June by 0.9%.
• An excise tax cut on diesel and petrol and a reduction in import duty on crucial raw materials used in production in the plastic and steel industry.
• Capped off the export of sugar and wheat to maintain adequate stock.

War

With interdependent economies of the world, the impact of war is far-reaching and can result in numerous consequences for businesses such as:

• Financial Sanctions: Sanctions can be imposed against the invading country, including importing and exporting goods and services. These sanctions can also extend to trading partners putting businesses at risk. 
• Technology Sharing Conflict: It is challenging to separate database information, high-level equipment, and machinery, requiring high-level expertise among global joint ventures. 
• Labour Sharing: This undesirable consequence of war can lead to job losses and businesses shutting down.
• As multiple countries are involved in wars, there is a complex interaction of geo-political factors that can impact the global economy and indirectly businesses.
• Business supply chains always bear the brunt of war. A shaky global economy can impact the smooth flow of products, impacting most businesses, specifically in the energy sector.

The following steps can be taken to reduce the aftermath and thrive during a war:

• Making employees aware of the rapidly changing business landscape and plan of action.
• Conserve resources and be creative with the stock maintenance.
• Make minor cuts in budgets to avoid bigger cuts later on.
• Look for non-traditional avenues to procure funding.
• Do not lose momentum in hiring during a downturn.

Antonio Guterres, UN Secretary General, called following measures to lessen the impact of the Russia-Ukraine war:

• Removal of unwanted restrictions on export to enable a smooth flow of energy and food.
• Addressing the need to direct the reserves and surpluses to those in need.
• Urging countries to phase out dependency on coal and fossil fuels and move towards renewable energy sources. 
• Suggesting funds must be made available to economies in need so that governments can avoid defaults and offer safety nets.

Conclusion:

No industry is safe from natural or man-made disasters. But to combat these impactful changes, businesses must have robust risk management procedures. Employees must be briefed about potential risks, and full-proof plans must be in place, assuming that operations may not return to normal soon.

The authors are Rohan Joshi and Mr. Sudhir Prabhu, Founders of Wolken Software.