International Business Report

A new crisis or the new normal?

Mati Nõmmiste Mati Nõmmiste

World economic growth is slowing and it’s clear that this year will not be as good a year in the global economy as was last year. The results of a recent study show that companies' optimism regarding business success is slipping.

Last year, the international tax and business advisory company Grant Thornton conducted a survey* among 5,000 executives from 35 countries. The results of the study, which has been conducted regularly since 1992, gave reason for concern. The optimism index, which is indicative of business leaders’ expectations of how their country and business will fare in the next 12 months, suffered the largest decline in the last two years. Fortunately, the picture isn’t all gloom – 60% of businesses said they have a positive outlook on how they will fare in the next 12 months. More than three-quarters of companies say they hope to grow export and turnover as well.

Is an economic downturn on the way or not?

The entrepreneurs surveyed said they felt the greatest risk to their business activity was economic insecurity, which had as many reasons as a hand has fingers – the US-China trade war, the tense domestic and foreign politics in the US, Brexit, the continuing rise of populism in many European countries, the shortage of qualified workforce, and so on.

Even though the IMF is calling for 3.5% growth for world economy in 2019 and 3.6% for 2020, there is no consensus on when the downturn might start, if there is one at all. I am probably among the ones who do not think a recession will come soon. I think we will instead see a return to normal, characterised by a slower but more sustainable and broader-based economic growth, including in Estonia.

Two important recommendations for Estonian entrepreneurs

For several years now, we have enjoyed rapid economic growth and, together with that, growth in turnover and hopefully profit as well. Hence the first recommendation: a smart business person uses money earned when times are good to secure their future. It is high time to invest in machinery, equipment and computing systems to make work more effective. Investment is also promoted by the fact that interest rates are still at an extremely low level.

The second recommendation has to do with employees. The way that business leaders resolve the issue of recruitment and development of their most important resource – people – is the key factor for ensuring sustainable growth.

Last year, Estonia had an employment rate of 68.2% among people aged 15-74. It was the highest figure in the last 20 years. It is likely not planned to import more foreign workers in the near future and thus the focus has to be on the people we already have. According to Statistics Estonia, close to 90,000 people of retirement age are out of the workforce, and the number of young people who are home with children is more than 20,000. It is not possible to bring them all to the employment market, but flexible work time, retraining and in-service training would help thousands to return to the job market. A company in the throes of workforce shortages also would do well to review their recruitment methods – if these aren’t working, something different has to be done.

It is also of the utmost importance to retain and develop existing employees. In this connection, it must be remembered that merely offering pay raises is a short-sighted tactic – it will not increase loyalty and the motivation will grow only for the short term. A longer-term effect comes from training people, supporting their development, and shaping a good organisational culture. The latter starts from a good management culture – executives have a wide arsenal of tools to create a work environment that values people and the feeling that working for specifically our organisation is about more than just making money.

* Each quarter, the Grant Thornton International Business Report (IBR) gives an overview of what executives in 35 countries, including the G20, expect will happen in terms their country’s economy and their business. The data from the study cited in the article were gathered from 5,000 executives in November 2018.