Navigating the Global Economic Headwinds
as a Business
by Richard Harrison, VP Sales, Freemarket
“In times of economic constraints, companies that weather the storm show many similarities to a strong family. Outside pressures often bring businesses closer together, just like it does to a family. You bend and trust the people around you, and do what is right for the benefit of the group. That way, you will always win.” — Rich Harrison
Around the world, economic uncertainty continues to rear its ugly head.
From ongoing public health crises and socio-political conflicts to increasing volatility in global economies and markets, many factors contribute to this persisting instability seen across all nations.
As a result of the worldwide economic uncertainty all industries currently face, businesses must consider how to fortify themselves against these headwinds. More than ever, it is of crucial importance to consider how to maintain unity within a business structure, while also enhancing payment infrastructures to achieve greater international business stability in the face of adversity.
In this article, we discuss the state of the global economic downturn and what it means for businesses, as well as how businesses can enhance both business unity and strengthen their payments infrastructure.
Keep reading to learn how Freemarket’s innovative payments technology can help support your business.
Assessing the Global Economic Headwinds of 2022 & Beyond
The state of the global economy continues to sail in uncertain waters.
We saw a promising movement toward economic recovery in 2021 since the impacts following the onset of the Covid-19 pandemic in 2020. Yet, 2022 has seen a return of heightened uncertainty due to the continued fluctuation of existing and new health crises, as well as increasing economic pressures stemming from multiple geopolitical conflicts.
According to a June 2022 report from The World Bank, global growth is expected to fall to 2.9% in 2022 compared to 5.7% in 2021. This is particularly worrying, as forecasts for global growth in 2022 were projected to float around 4.1%. Additionally, the ongoing disruption from the war in Europe is expected to result in the continued stagflation of growth at around 2.9% for 2023 and 2024.
Moreover, The World Bank reports that damages from both the pandemic and the war are projected to result in a 5% decrease in per capita income in developing economies compared to pre-pandemic levels.
Global growth is not the only economic factor impacted either. In McKinsey & Company’s Global Economics Intelligence Executive Summary for June 2022, it is stated that heightened central bank policy rates have significantly driven up the cost of capital for governments around the world.
For instance, in Europe, the Italy-Germany ten-year bond reached its highest level since 2020 at 2.5%. Furthermore, the costs and rates of borrowing are rising as well, with the average 30-year mortgage rates in the United States reaching a concerning 6%.
As for FX rates and volatility, the story is largely the same — The Global Treasurer reports that North American and European corporations suffered a “combined negative impact of $16.5bn in the first quarter [of 2022].” The Global Treasurer further states that:
“With high inflation set to persist throughout the rest of the year, the Fed is expected to continue hiking rates, setting the tone for other major central banks.”
Viewing Business Teams as Family: Maintaining Stability through Unity
Before even considering how to approach external affairs during economic uncertainty, businesses must first ensure their internal relationships with team members are solid.
Treating a business team as disposable or as a second thought is a recipe for failure. Instead, businesses must derive greater unity by viewing their staff members and employees as a family unit.
Whether we realize it or not, many families are run like small businesses — with incomes, budgets, saving targets, and more in place to ensure the family has a liveable cushion of “profit” to lean on. Unlike a business, however, a family considers how these financial factors impact each family member on the individual level. Families do not exist solely to make money, money simply facilitates their survival.
On the other hand, businesses exist primarily to make a profit — but what happens when economic growth becomes stunted and financial pressures increase?
Businesses that find themselves with lower profit margins in times of economic uncertainty must consider how to save more, meaning justification for spending decisions must be even stronger. This can result in reduced budgets that impact employees, partners, suppliers, and service providers.
The easy way out can often be to cut back on jobs and salary spending, reducing a team to save money. As a result, however, the business “family” so to speak is diminished as well, leading to fractured internal trust and poor employee retention.
It is important to always come back to the metaphor of family when developing a business survival strategy. Rather than considering how internal business structures can be reduced, businesses should instead consider how budgetary resources can be reallocated and repurposed to better serve the team.
Just as a family would not throw out their loved ones due to instability, so should a business prioritize its team first when deciding how to deal with heightened economic pressure. What’s good for the team, is good for the company.
With this in mind, let’s now discuss why businesses should primarily focus on their payments infrastructure and FX strategy in times of economic uncertainty.
Focusing on Cross-Border Payments to Strengthen FX Strategy
To make it through global economic headwinds with an intact business team and a reliable international business model, it is essential to focus on strengthening cross-border payment infrastructures through the implementation of key technologies.
Core factors to consider regarding cross-border payments include:
- Business Continuity: To maintain more stable income and capital through an FX strategy, it is incredibly important to know how well your international partners prioritize business continuity. For example, when you are selecting an international payments provider, it is crucial to ask about how their payment processing system is affected by volatile market conditions. Ideally, you should select partners that can provide services that are unaffected by changes to the markets.
- Employee & Pensioner Payments: As mentioned above, solidifying your internal team and affairs is the first step to success. For any company conducting business abroad, it is critical to ensure your international employees and pensioners continue to receive their salaries and payments regardless of market volatility. This will often require working with a payments partner that has specialized knowledge in localization and how to effectively deal with fluctuating currency exchange rates.
- Increased Currency Volatility: Substantial backing is one of the most important factors to look for in payment providers during times of high currency volatility. Having the ability to mitigate the risk of currency volatility through services like forward contracts can make a significant difference when it comes to cross-border payments, as well as maintaining a stable and consistent cash flow.
- Supplier Volume Variables: International conflicts and health crises cause major disruption to business-supplier relationships, making it crucial for businesses to consider what variables may arise that may deter their production, output, orders, and more. Not only must businesses have the ability to maintain flexibility in their relationships with suppliers but they must also have the ability to work with alternative suppliers in instances when access to normal suppliers is limited.
- Payment Timeliness & Accuracy: For a business to maintain good relationships with not just suppliers and employees but also with partners and stakeholders, there must be a strong payment system in place that can ensure payments are always made on time and accurately. This requires working with a provider that has the resources to maintain a pre-determined set of standards regardless of ongoing market changes or disruptions causing heightened volatility.
Final Thoughts: Hold Steady with Freemarket
At Freemarket, a core principle of our business model is to provide consistent pricing and rates, no matter what extenuating circumstances the global economy has to offer.
Our cross-border payments and currency exchange platform provides your business with access to a global bank network, all from one central location. We work diligently to keep our cross-border payment process simple, fast and transparent. With over 40 currencies and payment connections to more than 100 countries, Freemarket makes it easy to receive and distribute domestic and international payments.
By working with Freemarket, your business can achieve greater stability and effectively weather the storm of strong economic headwinds.
To get started, contact our sales team today.