The World Bank is Forecasting a Recession – Good News for Some
A global recession seems inevitable in 2023 based on a deluge of recent economic forecasts, most notably that of the World Bank, which downgraded their outlook for 2023 last week. Russia’s ruinous war against Ukraine, international inflation and continuing global trade conflicts over technology will also slow economic growth across many sectors. Some pundits are even wondering whether developments such as ChatGPT might negatively impact the labor market. Nevertheless, in every economic situation there are winners as well as losers, so who will potentially benefit from the global economic downtown?
Firms and technology that provide efficiencies
Businesses looking for efficiencies will be turning to global service centers as an ‘easy button’ on budget and manpower reduction. With global services centers offering experts in finance, IT and legal at a fraction of the cost of North America or Europe-based staff, they represent an extremely impactful solution to many companies challenged by shrinking margins and unexpected inflation. In many cases leveraging global service centers in places such as India can provide a 60% or higher savings on existing staffing costs. Improvements in technology also offer another important layer of savings and efficiencies. Technology companies that offer these services will benefit from the recession as customers are driven into their arms out of need. While ‘old’ tech companies such as Google and Microsoft are dramatically cutting staff in the face of the economic turndown, AI-focused tech companies are in growth mode as companies seek tools to improve how efficiently and quickly they do business.
FDI flows will change to the benefit of global allies
Last summer the term ‘friend-sourcing’ enter our FDI lexicons thanks to U.S. Treasury Secretary Yellen’s comments about the importance of nearshoring/offshoring in the ‘right’ geopolitical locations to keep supply chains safe. With the U.S. and most European nations sanctioning Russia and continuing their decoupling from China, other countries are sure to see a tangible FDI benefit. India, Vietnam, Indonesia, Malaysia, and lower cost NATO/EU nations such as Poland, Croatia and the Baltic nations should see an increase in investment from companies in G7 countries that are looking to save money, avoid export control scrutiny and diversify their supply chains away from locations that risk getting sanctioned due to their association with Russian activities or China.
Walmart and Costco have the welcome mat out
Low-cost retailers should also thrive in a recessionary economy. Companies such as Walmart, Costco, Aldi and their global equivalents were created to support customers who are looking to stretch their dollars/euros/yens to cover necessities and they will benefit from the increased foot traffic that the recession is certain to bring. While they may see a dip in their sales of higher-end products, staples and food products will see an uptick. There will be increasing pressure on suppliers to these retailers to lower their margins and pricing, which brings us back again to the ‘friend-shoring’ issue. With the dollar continuing to ride high, it’s cheaper to import many products so companies that can spread their manufacturing and production facilities outside of the U.S. will be more competitive.
How to win in a recession
Companies that can pivot to find efficiencies through technology and by taking advantage of the services and products available in the global market will thrive despite the global turndown, but only if their get it right the first time. If the blockage of the Suez Canal in 2021 taught us anything, it is that supply chains are at the mercy of numerous factors that can crush a company that is relying on thin margins in a tight economy. Political risk and supply chain research needs to be thorough and companies need to budget extra to ensure a diversity of sources. The concept of ‘Just In Time’ (JIT) sourcing needs to be balanced by the reality of ‘Just In Case’ (JIC) variation in sourcing. Businesses that are comfortable taking advantage of the global smorgasbord of shared service centers, new efficiency technology and growth and investment into safe ‘friend-shoring‘ opportunities will do well despite the recession.
Kirk Samson is a Director at the International Trade Association of Greater Chicago, an executive at the global consulting company Nexdigm, and a former U.S. diplomat and international law advisor.
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