By Professor Lyndon Simkin, Centre for Business in Society
The biggest concerns for businesses in the UK and their most important challenges:
- Staff pay
There has been a rise in the minimum wage, and many think that this is likely to rise again under Labour. Shortages of workers in certain regions and professions are driving up labour costs. The cost-of-living crisis continues to create wage demands. The upshot is that organisations worry there will be significant wage inflation over the coming 18 months to factor into budgets.
- Access to staff
Initially driven by Brexit and more recently by Home Office pressures on visas, certain skills are in very short supply and this will continue. It is expected there will be more wage inflation as employers compete for scarce resources. Companies must track pay and Ts&Cs in order to secure workers.
- Health and wellbeing
During the pandemic there was a heightened focus on mental health and wellbeing of personnel; a trend which is continuing. Companies which fail to respond and provide support will become less attractive as employers.
Putin’s war against the Ukraine accelerated a trend towards spiralling energy costs. Operations require increasing amounts of energy. Companies must seek to reduce energy consumption by switching equipment/processes, as well as plan in budgets and supplier negotiations for more volatility in energy pricing.
Consumer pressure and awareness are rising. Best practice by certain companies is more visible. More legislation/regulation is anticipated. There needs to be much more focus in design of systems, operations and distribution on enabling recycling.
Linked to the point above, but also to energy consumption and access to scarce resources, it is suggested there will be big changes over the next two years to shipping and point-of-sale packaging, with implications for logistics, in-store stocking/display and marketing. Reducing single-use plastics in particular will be more of a focus.
- EV switching
Despite 2023’s stagnation in terms of market share of EV sales, the Government’s targets and enforced pressure on manufacturers to decrease sales of petrol/diesel vehicles will impact on operations, logistics and consumers. The implications need assessing by businesses because associated changes in their operations will take time to bring about and budget for.
- Vulnerability and risk perception
Some businesses are at-risk of ceasing trading, causing suppliers to credit check and risk assess to a greater extent than previously, with implications for many companies.
- Red Sea routes/sea transportation
Recent piracy and acts of war have delayed shipping on key trade routes to/from the UK, adding time delays, increasing shipping costs and causing product shortages. This problem is expected to worsen, with implications for planning logistics, selecting suppliers and managing inventory lead-times/levels.
Theft by employees and customers has always been a problem, but the cost-of-living crisis has heightened this, with some companies facing large uplifts in losses, causing re-thinking of operations, staffing, use of security systems and stock management.
Speed limits are reducing (eg: in Wales), more locations are bringing in congestion charging, Local Authorities increasingly impose delivery restrictions in terms of times/vehicle types and sizes, and there is the aforementioned move to EVs and hydrogen to address. Such a rapidly changing landscape warrants much greater attention by companies.
- Changing competitors
Rising costs, difficult export markets, supply outages, and other pressures are challenging the viability of some businesses. Potentially this creates opportunities (customers to take on, suppliers needing to replace lost volumes, staff available to recruit), it causes uncertainty in terms of securing financing and credit lines, means supplier risk registers are tighter and global suppliers are less inclined to prioritise the UK in terms of supply chains.
- Online sales
The expectation is that the high street will fight back. By repurposing land use/giving retail space to other uses, by including more services and by engaging specific segments differently. While some traditional retailers will lose out, many will emulate mainstays such as Boots, John Lewis and M&S in reducing store numbers, and other companies will benefit from new thinking and opportunities.
- Tax rates under a new Government
Government spending plans must be funded, so tax rates might rise under a new Government.
- Access to finance
Because of macro factors (Ukraine and Middle East wars, pandemic, cost-of-living crisis, supplier vulnerability, rising operating costs, etc) many organisations are reporting increased pressure and delays in negotiating credit, investment and finance. Lenders are expected to undertake greater due diligence and impose more covenants.
- Interest rates and oil costs
The recent events in Yemen go beyond engaging with poorly armed pirates; the Houthis are a well-equipped military force and their land borders a major international shipping lane to the Suez Canal. There is a fear that international oil prices will rise and that recent falling interest rates will halt and possibly reverse. The next few weeks will bring more clarity to this evolving situation.
- Operating costs
Supply chain glitches, green investments around ESG needs, altering transport fleets to reflect legislation, energy mitigations, competition for personnel, more wellbeing provisions, pay rates rising, etc, etc. This is a very big concern for many organisations and is being modelled/built into their forecasts much more explicitly than before.
- Building costs and shortages of materials
Many companies are reporting enforced and unwelcome delays in their capital projects and new builds, caused by supply chain issues, spiralling costs of materials and labour, and the enforced switch to new technologies/systems.
- Ageing population
The ageing population has implications in terms of product mixes, ways of servicing consumers, delivery expectations and staffing.
- Consumers’ priorities
The cost-of-living crisis, focus on sustainability, altered working habits post-pandemic, energy concerns, etc, are all changing consumers’ priorities. But not consistently across the board; the picture is complex and is requiring analysis.
- Polarisation of consumers
Segments exist in all markets and all product groups. However, the view being expressed is that there is a polarisation of ‘haves’ and ‘have-nots’ like never before. As a result, many businesses are reappraising their segmentation, recalculating numbers in segments, re-estimating spending patterns and risk assessing their target market groups.
- Altered ethnic mix
The composition of the UK population is continuing to change, with large numbers of consumers from Poland, India, Pakistan and China, with growth in Rumanians, Nigerians, Italians and South Africans. Certain businesses are more focused than others on these groups and there are localised pressures to compete more effectively for share of wallet from certain groups.
There is a continued focus on health and wellbeing particularly in certain segments, ethnic groups and product areas.
- Vegan and plant-based foods
The cost-of-living crisis recently has reduced interest in vegan and plant-based product alternatives, but the view is that this is a short-term disruption to the trend, with interest in alternative food types/options expected to grow. Lab grown meat is, however, more of an unknown at this point in time… one to watch.
- New technologies
While not a new trend, the rise in environmental developments, changing transport and logistics, energy pressures, recycling/packaging requirements, 24/7 on-the-move eCommerce, and of course greater use of AI, will increase the rate of change and adoption of new technologies.
- Cyber threat/ransom
A big fear remains cyber resilience and attack from hackers seeking ransoms in order to permit trading/operating. State-led attacks are on the increase, too. Several recent attacks are said to be linked to states hostile to the UK. Companies must re-think their protocols and partner with providers of risk assessment/mitigation.
Much discussed in the media and by politicians, there are many examples of new practices harnessing software algorithms, automated prediction, robotised systems and technology replacing roles previously undertaken by personnel. Many companies are excited and are explicitly exploring opportunities, while others feel overwhelmed and uncertain, preferring to ‘wait to see’ what others adopt. Consumers have very mixed views and experiences.
- Regulations on vaping and gambling
Health concerns related to vaping and the upturn in youth/young adult smoking encouraged by vaping likely will lead to Government intervention. The new Government is also expected to take a tougher line on gaming and gambling, particularly regarding marketing communications.
The current Government has pulled back on UN SDG pledges and targets for net-zero. However, many parts of society do not concur. A new Government might well seek to promote a stronger net-zero agenda, supported by legislation and greater regulation and direct action.
- Food waste and food insecurity
Food waste within distribution channels and supply chains will be more in focus. Food insecurity in society will receive greater attention and policy.
The new Government will need to develop a ‘war chest’. This is likely to come from taxation (direct/indirect) changes impacting the very high earners in the UK and changes to corporate taxation.
The Top Concerns of UK Businesses
The external trading environment always presents significant challenges and sometimes opportunities, but the current set of challenges is particularly demanding. Many organisations are facing most of these pressures and the disruption they cause.
The Centre for Business in Society’s research teams are focused on supporting the UN SDGs and promoting sustainability and circular economy practices in organisations; they are experts in managing and securing supply chains; food insecurity is a core interest; the digital team is exploring many aspects of the data and technology landscape, including AI, technology adoption, data use, cyber security and digital vulnerability; changing consumer behaviours, how to improve wellbeing and mitigating the cost-of-living crisis are also part of CBiS’s remit; as is understanding future transport challenges. Influencing policy-makers, Government and Local Authorities in these fields is central to the Centre’s work. Many of our researchers are also working directly with a raft of large companies, SMEs, third sector organisations, NGOs and Government bodies in work aligned to all of the above areas, striving to ensure their strategies, plans, resource allocation and activities underpin solutions and better practices.
CBiS’s research genuinely matters, it is bringing about changes, and the Centre is helping organisations to understand and mitigate the challenges they are facing.
Through understanding the impact of organisations’ activities, behaviours and policies, the Centre for Business in Society at Coventry University seeks to promote responsibility, to change behaviours, and to achieve better outcomes for economies, societies and the individual.