Consider: Stagflation
An overwhelming majority of Wall Street investors anticipate that stagflation will pose a risk to the global economy in 2023.
This may very well be true. Speaking to business leaders throughout 2022, they’ve already been experiencing limited growth coupled with increased inflationary pressures. The question is simply, how bad will it get? While inflationary pressure is showing signs of slowing down, costs are not retreating fully and with limited opportunities to expand business, options may remain limited throughout 2023.
Natural defenses to stagflation do exist but are reserved solely for those selling essential products for which demand is generally consistent in any market condition such as eggs, (oat)milk, butter, bread, soup, energy etc. OR if an organization can count a strong brand as one of its assets. Customers may feel they cannot do without your brand in their life in any market and trust your offering above all others. Given these two factors, an organization may not be too concerned with stagflation. But for the rest…maybe consider the below as a basket of various strategies to consider in fighting off the forces of stagflation.
Controlling costs: We’re already seeing some of this in the tech industry, but businesses can reduce costs by reducing overheads, streamlining operations, finding more cost-effective suppliers and using technology to automate processes.
Bundling: Offering products or services in a bundle or developing new packaging in a way that increases price per unit sold and reduces costs. This may work to offset cost increases and remain profitable without turning off customers.
Innovate: Businesses can differentiate themselves from the competition by developing diverse and innovative products and services that are in high demand and in attractive, lucrative markets.
Diversify: Developing varied revenue streams can help reduce the impact of stagflation on a business. This can be achieved by expanding into new markets or developing new products or services.
Get flexible: Businesses need to be nimble and able to adapt quickly to changes in the market. This requires having a flexible, talented and diverse workforce and one that is able to quickly pivot their business strategy(ies) as needed.
Cash is still king: Good cash flow management is essential during times of economic uncertainty. Businesses can focus on reducing debt, staying lean on inventory levels and maintaining a healthy cash reserve.
Push the boundaries: If your operation is large enough companies can look for growth opportunities in emerging markets and diversify their revenue streams by expanding globally.
Collaborate: Larger companies can work closely with suppliers to negotiate better prices and improve supply chain efficiency.
Acquire/Partner: Strategic acquisitions can help companies increase market share and reduce competition in tough fought or limited growth markets.
Stagflation is a tough environment in which to operate a business. Costs rise, wages increase, meanwhile, sales stagnate or decline due to sluggish or declining economic growth. Management can use stagflation as an opportunity to take a hard look at their underlying business and make changes to grow stronger. Regardless of the strategy chosen, active and creative businesses that take steps to survive stagflation may find themselves positioned well for growth when the economy recovers.