With another year of rapid market changes coming to an end, it is time for businesses to reflect and ask what went right in 2022 and what went wrong? And, more importantly, what looms ahead in 2023?
Businesses have faced huge challenges and have undergone an incredible amount of change over the past few years and this will not slow down in 2023.
This period is normally associated with the festive season, yet, for many businesses this is also regarded as the budgeting season: formulating projections and shaping expectations, laying the groundwork for the year ahead.
While it is never a good idea to predict too far into the future, getting ready for the new year is not a bad idea, even when armed with the known unknowns, some of which bring along with them questions businesses still do not have answers to.
Are businesses to expect brighter days ahead or are they running the risk of underperfoming expectations?
Is it time to rethink and reset expectations?
Despite Malta’s strong economic growth during 2022, which, according to the European Commission, is expected to reach 5.7 per cent, 2023 is projected to deliver moderate growth of 2.8 per cent.
Businesses need to take a hard-nosed approach at the outlook to ensure they are well placed to effectively address the challenges and ride on top of the opportunities.
These include multiple adverse shocks, ranging from recurring supply and demand issues, spilling over into ongoing inflationary pressures combined with cost of living concerns, and related subdued consumer spending, to the continuation of an uncertain energy crisis and ongoing international geopolitical tensions.
Additionally, the steadily rising bank interest rates, with some businesses possibly caught out with relatively high gearing, and growing environmental sensitivities along with related compliance costs.
Topping this all up is the increasing level of job mobility resulting in a talent retention challenge for many employers, placing added pressure to ensure they provide attractive careers and, in return, secure the needed capabilities and expertise for their businesses.
By staying solely focused on their bottom line, businesses risk losing track and eventually direction too- Norman Aquilina
Paradoxically, one needs to place this within a balancing equation of a structurally tight labour market, with resulting wage growth, which is giving rise to the erosion in competitiveness in some sectors.
All this is to varying degrees contributing, conditioning and clouding the economic outlook, which, in return, could very well result in potentially declining corporate sentiment, forcing businesses to scale back their 2023 forecasts.
Nonetheless, barring any major unforseen geopolitical or socioeconomic developments, the future might surprisingly bring slightly less uncertainty than the recent past. However, the realisation of a downward trend in uncertainty does not in any way ease the necessity for an upward drive in knowledge and preparedness.
With the market remaining difficult to predict, businesses have to adopt a strategy with complementing short and long-term considerations. Being prepared to adopt a swift and responsive approach alongside a long-term outlook is essential. Both are needed and intrinsically linked, in spite of the distinct timelines, given they need to reflect consistency and directional convergence.
Putting this in context, while businesses always need to remain wary of their bottom line, this should never come at the cost of losing sight of the horizon. By staying solely focused on their bottom line, businesses risk losing track and eventually direction too.
Conversely, those that just set their sight on the horizon, while ignoring their bottom line, may very well find themselves running out of steam and, ultimately, unable to attain the set strategic goals.
If there has been a silver lining around all the cloudy landscape that businesses have had to endure during the recent past, it is the necessity to dig deep into their internal structures and ways of doing business, questioning and challenging both the levels of productivity and, ultimately, their competitiveness.
One would hope that, after having been seriously tried and tested during the recent unprecedented challenges, businesses have done away with any feather-bedded practices and elements of complacency, having adequately reacted and adjusted if not outright reinvented themselves.
Businesses need to improve their resilience in any way they can, such as by mapping out their entire supply chains with the aim of reducing exposure to volatile market fluctuations as well as building protective measures to deal with shortages and rising logistical costs.
Rising costs will continue to pose a huge threat, which, in return, are fuelling a more competitive environment driven not only on price and quality considerations but also on one’s abilities and timeliness in responding.
Today more than ever, many businesses are opting for flexibly structured outfits and revolving towards more variable cost-based business models. Models which are more responsive and adaptable to a rapidly changing environment.
Perhaps not out of creativity but more out of necessity, in 2023, we will see a stronger innovation drive, with increases in online presence and accelerated digital transformation.
If businesses want to seriously continue playing the game and competitively stay within the top league, there is no other alternative than ensuring one’s business is strategically focused and aligned with market changes while also being fully equipped with the necessary resources and prepared to tackle the ongoing changes with the proper set-up and, equally important, right mindset.
All this is essential in shaping business expectations for the year ahead.
Norman Aquilina is Group Chief Executive of Simonds Farsons Cisk Ltd.