COMPANIES operating in today's evolving business landscape are no strangers to change and disruption. Experience has made them too aware about what can make or break their businesses.
One threat is high inflation, which experts say will continue to pose risks in the coming years. Firms remain wary about inflation's effects on sales and profit. With high inflation likely to persist into 2023, mid-market companies are facing unprecedented challenges.
This notwithstanding, 54 percent of respondents in Grant Thornton's International Business Report (IBR) — a bi-annual survey of senior executives of around 10,000 firms in 29 economies — strongly agreed that profits were expected to rise this year despite inflation.
The same sentiment was expressed by mid-market firms surveyed in the Philippines. The IBR poll had 61 percent optimistic that they would see an increase in profit over the next 12 months.
The positive outlook came despite an increase in wage and staff compensation (up 15 percent), energy/utilities (up 17 percent) and transport costs (up 18 percent) on the back of high inflation. Raw materials and equipment costs also rose, by 16 percent and 17 percent, respectively.
Revisit pricing strategies
One of the ways organizations can protect against the effects of inflation is to revisit and adjust current pricing strategies. More than half or 51 percent of the Philippine mid-market firms polled said they raised prices exactly in line with costs. Meanwhile, 41 percent admitted that they had increased prices of their products and services more than costs.
During a challenging time like this, flexibility is crucial. It is inevitable that prices of raw materials and equipment will change, inflation or no inflation. What is vital is that organizations maintain a resilient and flexible mindset, be able to adjust prices of their goods and services, and focus on their primary business objectives.
Taking a hard look at how to cut down on expenses is also part of this strategy. While seemingly daunting, this can be achieved by keeping a sharp focus on expenses geared toward improving core business products or services.
How investing in tech can help
The IBR also found that respondent-companies in the Philippines were either considering investing more on digital/IT (59 percent from 54 percent in H2 (second half) 2021) or investing in staff skills development (57 percent). In addition, a big number (58 percent) expressed their intent to invest more on research and development.
The survey further revealed that two-thirds of respondents agreed that the risk of inflation was accelerating investments in digital within their businesses, with 60 percent worldwide saying that they intended to increase tech and digital transformation investments in the next 12 months — the highest level recorded.
What specific technology or digital transformation programs should businesses aim to invest in? For most, automation, robotics and machine learning are key. These technologies improve productivity by lowering output costs and allowing companies to deploy manpower more effectively. In the survey, 30 percent of global mid-market firms were investing in operational automation to fuel growth.
Investing in data technology should also be at the top of the priority list. Nearly half or 49 percent of the global respondents said they were keen on making investments in IT security management as well as company-wide IT infrastructure (40 percent).
Sustaining the trajectory
Sustained investment in digital transformation even after high inflation is a good business decision. It will allow companies to boost consumer or client engagement and ramp up productivity. The key lies in not being too complacent. There are many action plans that management can, such as boosting IT programs and cybersecurity initiatives. In the end, continuous tech process and equipment upgrades are huge steps toward remaining profitable regardless of the threat or risk to be addressed.
Mhycke Gallego is the practice leader for Advisory Services and head of Knowledge Management at P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 24 partners and more than 1,000 staff members. We'd like to hear from you! Tweet us at @GrantThorntonPH, like us on Facebook at P&A Grant Thornton, and email your comments to [email protected] For more information, visit our website at www.grantthornton.com.ph.
