After the grand reopening of the economy, growth momentum softened over the summer amid the spread of the more contagious Delta variant. But with greater vaccination coverage allowing for lighter restrictions, we still expect global growth to remain strong in 2021 and 2022, even if the recovery will be uneven. As companies prime their supply chains and prepare to seize new trading opportunities, it’s important to note that the pandemic has transformed many of the conventional ways of doing business, forever. Here we highlight five ways in which companies are adjusting their business models in order to thrive post-pandemic.
For more than a decade, companies have evolved long and increasingly lean supply chains in a bid to drive value. The pandemic, combined with a US-China trade war and preceded by a string of localised crises (including the 2004 Indian Ocean tsunami, the 2011 Japan tsunami and the recent blocking of the Suez Canal) have combined to reveal weaknesses in extended value chains, forcing companies to think again.
In the short term, these supply chain weaknesses have pushed up prices and created bottlenecks, preventing companies from restocking their inventories and meeting increasing customer demand. This challenging trading environment has the potential to trigger supplier late delivery or default, and further threaten cash flow.
The pressing need to diversify and reshore is backed up by our research, which suggests supply chain disruption is likely to hold back the global recovery.
Action point: Companies with the agility to shorten, diversify and add extra capacity to their supply chains in the short term will have a unique advantage over their less agile competitors. You can start by evaluating your suppliers and conducting a thorough credit risk analysis. This advantage can be increased further by partnering with a market-leading trade credit insurance provider that can help companies achieve greater flexibility in setting credit and payment terms.
Increased ecommerce adoption is one of the business megatrends emerging from the pandemic. Faced with shuttered premises, suppliers of goods and services across every sector have been forced to grow their digital sales channels, and this trend is set to continue long after Covid-19 infection rates dwindle.
The ability to buy goods and services online has also brought real benefits for companies, allowing them to diversify their supply chains at speed as well as digitising many of the administrative processes involved in procurement.
Our research reveals a +31% increase in online consumer spending in 2020 and we expect growth to continue in coming years. This increase in business-to-consumer ecommerce is mirrored by a similar increase in online business-to-business sales (B2B) and has spawned a new wave of online direct-to-consumer (D2C) sales channels, which cut out retailers entirely.
New research by McKinsey & Company suggests that more than three-quarters of B2B buyers and sellers now prefer digital self-service and remote human engagement rather than face-to-face interactions. Only 20% of buyers say they hope to return to in-person sales, even in areas where field-sales models have traditionally dominated, such as pharma and medical products.
Meanwhile, direct-to-consumer (D2C) sales channels are particularly attractive to big brands because they can retain ownership of the full customer life cycle, accumulating precious consumer data every step of the way. This data flow enables brands as diverse as Nike, Unilever and Gymshark to create highly personalised online customer experiences.
The pivot to ecommerce, however, requires significant business model changes, which range from a wider online inventory assortment and competitive fulfilment methods, to a profitable returns strategy and a big investment in technology.
The Harvard Business Review says that US retailers (not including B2B firms) made approximately $10bn in ecommerce investments, acquisitions and partnerships from May to July 2020. These investments spanned logistics capabilities to enable last-mile delivery, asset-light approaches like ‘ghost’ kitchens and ecommerce distribution hubs, as well as product portfolio investments geared towards digital capabilities in AI and blockchain.
Action point: To compete in this environment, suppliers of goods and services must have sufficient business liquidity and cash flow to invest in ecommerce tools and they must also be able to withstand stiff pricing competition as it is easier for consumers to compare prices online. To achieve this, companies are advised to secure collection of receivables and mitigate against the risk of default using trade credit insurance. Without these steps businesses, especially SME suppliers of goods and services, are likely to face serious challenges.
The pandemic has dramatically rewritten the way governments react to global crises. Thanks to additional liquidity from states, relaxed insolvency rules and goodwill between companies, corporate insolvency rates have been below pre-pandemic levels. This intervention has helped avoid a cliff-edge scenario, but it has led to an ongoing challenge of how best to remove state support without causing adverse withdrawal symptoms.
The US Federal Reserve was just one of the central banks to shore up the global economy, releasing $2.3trn to support US households, employers, and financial markets. The global markets have been artificially stimulated in this way for 18 months, but it cannot continue indefinitely. Businesses must therefore prepare themselves for a normalisation in corporate insolvency rates as state support starts to be withdrawn.
Action point: Trade credit insurance has much more to offer than indemnifying businesses against bad debt. Market-leading insurers, such as Euler Hermes, are also experts in debt recovery and debt collection and can further improve your cash flow by assessing the creditworthiness of your prospects and customers, and providing access to comprehensive insight about the constantly changing risk environment.
The pandemic has hastened a global rise in remote working for knowledge-based organisations. The switch from office to ‘work from anywhere’ brings significant benefits, including the ability to reduce or eliminate real estate costs, tapping into a richer global talent pool, streamlining immigration issues, and improved productivity gains, while workers can benefit from less time spent commuting and geographic flexibility.
On the downside, concerns include how to communicate across time zones, share knowledge that isn’t yet codified, protect data, remain compliant, collaborate virtually and prevent professional isolation.
Many organisations were already experimenting with remote working prior to the pandemic, but the crisis has accelerated their plans to adopt new working arrangements for all or part of their workforces.
Among those companies leading the way before Covid-19 were Tata Consultancy Services (TCS), the world’s biggest IT services company, which employs more than 500,000 people globally. It recently announced plans for 75% of its headcount to work from home by 2025.
A major US survey of 22,000 employees suggests that the increased adoption of home working will continue long term. The Stanford University-backed study, ‘Why Working From Home Will Stick’, predicts that 22% of all working days in the US will be conducted remotely post-pandemic, compared to just 5% in 2019.
Action point: It’s time to double-down on your network security. Ensure you have full real-time visibility of who is using your corporate IT systems, ensure employees can only access data and systems that are critical to their work and any unusual activity is highlighted immediately.
Real-time supply chain data not only allows organisations to spot supply issues before they can escalate, but it also enables businesses to identify payment and trading relationship risks, so they can secure cash flow and delivery of goods.
A recent Oxford Economics survey of 1,000 supply chain leaders reveals that 49% of organisations can now capture real-time data insights and act on them immediately. The study also found that real-time visibility increases business resilience, boosts operational efficiency and makes seamless collaboration with other functions, partners and suppliers possible.
The pandemic has clearly shown that in uncertain times, where demand is volatile, and supply is uncertain and capacity is short, real-time visibility across your supply chains is vital.
Action point: Euler Hermes assessments are based on data from our intelligence network, which analyses daily changes in corporate solvency covering 92% of global GDP. For more information about leveraging trading network data and protecting your company against trading relationship risks, contact us.
To find out more, download our ebook: Taking the Leap: how to mitigate risk and grow sustainably post-pandemic.
