The war in Ukraine, speeding inflation and a growing risk of stagflation in the EU are posing new challenges to business. How are your services changing in response to your clients’ needs?
The war in Ukraine was the trigger for many negative developments in the world economy, which is going through a very unstable period. Prices are rising rapidly, interest rates are being increased to slow down the inflation, energy prices and supply issues are only the tip of the iceberg of problems in the world economy. The EU is under even greater pressure, having in mind its dependence on Russian gas and oil and the need to switch to other sources. The economy is showing the first signs of a recession which could hit us more strongly than anyone expects. And the crisis is not only economic. The healthcare crisis with Covid is still underway, and on top of all that the war in Ukraine is fully changing the geopolitical situation in Europe and all over the world. Add to this the recent US – China tensions around Taiwan. These economic and geopolitical issues are hitting the business and we expect that many companies will struggle to keep their positive results and liquidity in the forthcoming period. Higher interest rates will lead to less investments and development project and will force managers to reduce costs of operations.
We as consultants are now advising our clients to go into smart cost-cutting activities, rethink major investments and pay special attention to developing cheaper channels, especially in digital. Focusing more on local and regional markets, especially due to large supply chain costs and a constant increase in transportation prices, are one of the main pain points we address with our clients.
Egzakta offers a range of management consulting and financial advisory services. For which of your services is demand highest and are new business niches opening up?
Our main projects in the past period were in IT, digital, strategy development and operational transformation. We can see that the need for digital and projects is here to stay but we expect that cost cutting and efficiency improvement projects are going to be high on our clients’ agendas. On top of that, as always in a time of crisis, M&A activity will rise, especially for food, IT and AI and IoT companies. Government investments in small and medium size enterprises, especially in the area of localisation and “back home“ projects, are growing as well. Interesting developments are also seen in the gaming and e-sports industries. In the area of financial advisory, the typical suspect would be restructuring and supply chain financing, such as factoring.
ESG has become the buzzword for companies in the past years. How do you incorporate it into your services?
ESG is here to stay. Going green and paying more attention to social issues has been and will remain on the agenda of businesses around the world. However, even though we have had a few such projects, we believe that activity in this area will slow down.
We at Egzakta are always incorporating ESG initiatives in our work, especially in the segment of social and people safety and well-being. As a company operating in the services industry, we do not have too many activities with a heavy impact on the environment, but CO2 reduction, going paperless, meeting online and reducing travel are part of our policies. In the area of labour and work conditions, we are fully comparable with the top tier consultancies in the world. I would also like to emphasize that we are also very careful with respect to our client portfolio and we work mostly with companies that are on a high level of development in terms of ESG.
In an interview for this publication last year you said governments in Southeast Europe should flip the logic of their policies and back the local business rather than foreign investors. Do you still see the localisation of the economy as the right approach?
Even more so than last year. Everything that has happened over the past year proves our hypothesis on the importance of going local and regional versus being a fully global business. The supply chain problems and cost of operations continue to increase. Many markets are being almost fully closed for European companies. The war in Ukraine, which is expected to be long-lasting and severe, has deepened the crisis caused by Covid. Many companies used to operate on the Russian and Belarus markets, China is more and more concentrating on its own consumption, and many European companies are now experiencing significant reduction in revenues. The inflation and higher interest rates are going to further decrease demand, so we can expect that many countries worldwide will start protecting the local markets and companies in the forthcoming period. Going local will be the name of the game not only as a business strategy but also as a logical measure to reduce the impact of the crisis and unemployment. We expect that many governments will start major programmes to boost SMEs, as well as increase subventions in energy production, especially in green energy and food production. This is one of the major chances for local initiatives and SMEs that are one of the key sectors to be saved in the upcoming crisis.
With this in mind, in what areas should governments focus their efforts to harness their economies’ growth potential?
The typical ones are always in the area of infrastructure, energy, agriculture. We expect that further major investments will be seen in digital, IT, AI and IoT. Gaming, e-sports and entertainment will continue to grow, as well as blockchain, especially after the market rebounces from the current glitch. We expect that the construction industry, as a generator for development, is one of the major areas where the government will intervene. As for less popular ones, you might expect that in the light of political and geopolitical uncertainties, investments in military industries are going to increase. Major budgets, especially in Eastern Europe, can be expected to go into this area. As for growth, and don’t kill the messenger here, I believe that countries should be happy if they do not experience a major recession of the economy. You don’t go out sailing during a storm, therefore finding safe havens and local initiatives should be in the focus of the governments to save their ship from sinking to the bottom of the ocean.