What is the new ‘business as usual’ in the global/international trade ecosystem and landscape?
The global COVID-19 pandemic is likely to have a lasting impact that will change the face of global and international trade scale for all times. In this blog, we will talk about the trends that are of particular importance when creating expectations on how the global business landscape might evolve post-pandemic.
Impact on International Business
In 2019, the global GDP grew by 2.8% in 2019, shrunk by 3.3% in 2020 and is expected to increase by 6% by the end of 2021. These figures may indicate that international businesses will bounce back to pre-pandemic levels by 2022. However, they will do so after the international business landscape will have changed dramatically, particularly when we consider the COVID-related effects on trade as compared to the impact it has on the actual investments companies make for their operations abroad.
As far as trade is concerned, the WTO has calculated that the world’s merchandise trade volume will grow by 8% by the end of 2021. On the other hand, when looking at global FDI, UNCTAD estimates that foreign direct investment will take significantly longer to recover.
The Changing Factors Due to Evolving Pandemic
Over a year has passed since the UK government announced the first lockdown in March 2020. The lockdown affected and greatly changed many people’s lives. For several months, people did not go to school or work or socialised.
The pandemic and its consequent social and economic measures have had differential impacts on social groups. For example, parents and women saw a significant reduction in their wellbeing. The BAME immigrants in the country experienced more hardships after the first lockdown and also had a higher death rate than white people.
The shutting down of businesses and remote work guidance affected people’s working pattern a great deal, including a reduction in earnings and paid work time. The fear of contracting the virus stopped people from outsourcing domestic work and hence many people spent considerably more time on unpaid domestic work than they had during pre-pandemic times.
Daily news reporting of increased cases of infection and deaths caused a wave of concern for health and safety. In addition, loss of employment and social isolation also took a toll on people’s mental health. As such, soon after the pandemic started, worsened subjective wellbeing was seen in UK, US, and Australia. However, once the COVID-19 cases started declining and businesses started to open, people’s wellbeing started to recover and returned to pre-pandemic levels.
It was also observed that people at lower education and income levels suffered substantially more during the pandemic and were impacted hard when they lost their jobs or saw reduced earnings. Many of the lower-educated population are trapped in low-skill occupations and already faced financial constraints even before the pandemic; hence this population reported a heightened level of distress during the lockdown.
The Future of International Conference: Digital Intervention
In the age of the pandemic, physical conferences and exhibitions are the worst kind of transmission events. However, conferences continue to be held thanks to digital intervention — trading the auditorium for Zoom video-chat screens.
Although e-conferences were a thing even before the pandemic, not many people or companies fully embraced that idea. The pandemic has made companies realise that a lot of these conferences can be conducted in a virtual world as well. Attendance at online conferences has been high with many sessions getting the same number of attendees they would normally. In addition, there was also the advantage of people not having to travel halfway across the globe to attend an event.
Physical conferences, when they finally return, will be much more different than what they were pre-pandemic. Event organisers will need to implement measures on the technical side like using boom microphones that can hang over the heads of the attendees, rather than using stick microphones that can be a potential cause of virus transmission. They might also use systems that would allow attendees to submit questions through an online chat system and replace paper handouts with digital ones, as well as monitor the number of people in a conference. Organisers may need to provide extra space so that people will network with each other while keeping a safe distance. Masks, in case of indoor gatherings, will be mandatory.
Role of the British Government In All of This?
The pandemic outbreak caused an instant and severe impact on international trade, economy, and investment and manufacturing and services sectors in the UK were both badly impacted.
The pharmaceutical industry experienced both supply and demand constraints that were exacerbated by trade policy interventions by other countries. The British government needs to ensure that the inventory of medicine continues to be restocked in case of another wave of pandemic and needs to take measures to make therapeutic drugs and vaccines related to COVID-19 more accessible and affordable to everyone.
The medical supply sector was also impacted the same way, but thankfully, the UK supply chains for these products have remained resilient. The British government has taken measures to procure PPE on behalf of the entire UK.
The UK’s agri-food supply chain saw some initial shortages due to widespread panic caused by the pandemic. However, since then, the supply chains have recovered and have remained resilient. However, they are more reliant on how quickly they can engage logistics and respond to changing customer behavior.
The manufacturing industries in the country have suffered from international trade disruption, which affected the flow of raw materials, saw parts and sub-assemblies impeded, and slowed the ability to sell finished products. The impact of the pandemic also varied from sector to sector.
The UK service trade was also negatively impacted and saw varying degrees of harm depending on how dependent they were on customers or delivery services, their ability to travel as well as their ability to offer services digitally.
In addition, businesses also experienced supply chain and trade finances headwinds as goods were delayed in transit, cash flow was tied up, customers started asking for extended payment terms, and the cost of borrowing loans increased. To counter this, the UK Export Finance has taken measures to support businesses trading overseas and announcing recovery schemes for specific sectors, including SMEs.
How Are Small Medium Enterprises (SMEs) Coping?
Emerging and established SMEs have been severely affected by the pandemic as they majorly represent the hardest-hit sectors, like the hospitality, F&B services, entertainment services, retail, and construction sector. Simply Business estimates that the impact of COVID-19 could end up costing UK business a loss of £69 billion. According to The Fintech Times, about 1.5 million SMEs in the UK have suspended their regular international trade. Considering that the SME’s international trade contributes £200billion to the British economy, this can have a profound effect on the UK’s economy.
Some SMEs are responding to this crisis by looking for innovative solutions.
Opportunities for SMEs to Succeed in Global Trade
The rise of global value chains, as well as the digital transformation, offers innovative opportunities for SMEs to participate in the global economy.
Global Value Chains
SMEs can benefit from global value chains (GVCs) by specialising in different niches of production rather than trying to master the entire process of producing goods. These companies also are more flexible than their larger counterparts and have the capacity to customise products, leading them to respond rapidly to changing market conditions and customer behaviours.
SMEs can also directly export intermediate products to people and companies overseas, as well as participate in indirect export by supplying domestic companies and multinationals with products that can then be exported.
They can also reap the rewards of getting technology and information from the bigger firms they supply or get better access to cost-competitive export products.
The digital transformation has provided SMEs with new opportunities to integrate with the global economy but lowered the barriers of entry into the international market and internationalised SMEs at a fraction of the cost. With the help of innovative digital technology, small businesses can reach customers abroad, make international transactions, and accept international payments.
Increasing the digital infrastructure quality and reducing the cost of access will promote digital connectivity, which can empower SMEs to join in the digital trade revolution.
Networking and Government Schemes
The UK’s Department for International Trade has a number of resources that can enable SMEs to export successfully. Through this channel, SMEs can call on the expertise of international trade consultants as well as look for existing export opportunities and trade fairs. In addition, SMEs can also benefit from their grants and networking events that connect businesses.
If a business needs financial assistance, it is worth their while to explore government schemes like the UK Export Finance and Export Marketing Research Scheme that offer trade advice and financial assistance.
In every country, SMEs play a huge role in creating jobs. In most countries, SMEs are responsible for 60% to 70% of employment, which means they are a very important source of economic activity and can help a country recover from crises, such as the current pandemic we are facing. In addition, SMEs are also more inclusive and promote greater participation of women and people of color, which may be the answer to recover from the pandemic for these groups.
Although SMEs face the same barriers in times of crisis as larger firms, they are worse impacted by them. So when policymakers enact measures to enhance trade facilitation, reduce barriers to trade, and lower cost, it will benefit both small and large industries.
The Institute of Directors (IoD) is a great resource, an influencer and enabler for local and international connectivity, expansion across sectors, businesses of all sizes.
Connect with your local IoD and IoD International Trade partners for more information.