Owners of small firms planning for the future need to be aware of how big stories in the global economy could affect them. Here, Natwest expert Marcelino Castrillo discusses the opportunities and obstacles to watch for in 2016, and how your business can stay ahead.
Planning for the future is a challenge for any business and, while future proofing? might be an enticing prospect, in practice it is easier said than done.
When developing business plans, owners should develop a view of what’s likely to happen in the global economy in the months and years ahead, as prospects need to be targeted and potential obstacles highlighted so they can be overcome.
What to expect in 2016?
The UK economy is expected to grow by 2.4 per cent during 2016, with inflation at around 1.5 per cent. The main drivers of this growth will be consumer spending and business investment, but both are being affected by low oil prices. Growth could also be impacted by events outside the country. According to PwC’s latest economic outlook report: “Risks to growth are weighted somewhat to the downside in the short term, due to international risks, particularly in relation to emerging markets.
How China’s economic uncertainty could affect your small business
China’s economy has recently slowed down, which will have an impact on British businesses. Programme director at Hult International Business School Barbara Wang is an advisor to both UK and Chinese businesses. She said much of the perceived slowdown in China is a result of changes to state-owned industries the results of which could help create opportunities for UK companies.
“In terms of business development, I think there will be strong growth from the private sector, said Wang, But firms in the UK need to develop partnerships in China, which is very difficult and can take a lot of time.
The fact that growing Chinese middle classes have acquired a taste for western food and consumer products offers great potential to UK firms, added Wang. “There are a lot of imported foods in Chinese supermarkets as consumers don’t trust Chinese brands. British companies have an advantage there, ” she said.
What is going on in the energy sector?
A decrease in the amount of oil China is consuming due to its slowing economic growth has led to an over-supply in the system and a sharp fall in price. The low price has been maintained by the decision of major oil producers such as SaudI Arabia to continue pumping oil unabated. But the big question all businesses are asking is: how long will it last?
According to a study by oil and gas advisors DNV GL, many in the industry expect prices to remain low for some time. The firm’s Outlook for the oil and gas industry in 2016? report found that the fall in price had led to “dramatic spending cuts in 2015”, leading to project cancellations and significant job losses in the sector.
The study also found that 73 per cent of industry executives were preparing their companies for a sustained period of low oil prices. Furthermore, 42 per cent believed that oil prices would not increase in 2016.
A rise in interest rates
Despite the current uncertainty, oil and gas are fluctuating commodities and small businesses would be well advised to invest in energy saving and renewables before there is a rise. Interest rates are still low, so borrowing for investment is relatively cheap.
However, owners of small firms should still fully assess the potential of the equipment they are buying be it solar panels, wind turbines or insulation and calculate when it will generate a return on investment.
Tackling late payments
To help smaller businesses cope in the fluctuating economy, the government has introduced an Enterprise Bill to parliament that will be debated in 2016. Its measures include the creation of a small business conciliation service to help settle disputes between small and large businesses over late payments.
The government says small businesses are owed over 32bn in late payments, but many arent launching legal claims in order to challenge the companies they supply to. It is hoped that these new measures willreduce late paymentsand bolster cash flow.
There is great concern aboutthe lack of digital skills amongst the UK workforceand how this might impact future economic performance, as virtually all analysts believe the growth of digital will continue.
The House of Lords digital skills committee published a report last year that discovered shortages of medium and high-level digital skills in the UK. Entitled Make or Break: The UK’s Digital Future, the report found that the skills gap needed “immediate attention” if the UK was to remain competitive globally.
Digital demand affects all businesses, not just those in the digital sector, and small firms should prepare now by thinking hard about ways to train, recruit and retain staff with digital skills.
There are many approaches to solving this problem but, overall, small businesses need to get closer to talent and the education establishments nurturing it. Owners should seek to build relationships with universities and consider entering knowledge transfer protocols with them. KTPs enable businesses to hire graduates to work on innovative projects with oversight provided by lecturers.
There is optimism in the UK, albeit with a hint of caution. Low oil prices and interest rates can be of some advantage to companies, but they will not stay low forever. Now is a good time to invest, to research opportunities and to make contingencies for issues that arise in the future.
Are you considering exporting beyond the UK’s borders in 2016? Read our expert’s advice.