The ongoing cross-border war has ignited historical, political, and religious tensions, culminating in an extensive issue that carries the potential of crumbling down the global economy. As this inter-regional war serves as the epicenter of this turmoil, its repercussions have surged across nations and several other regions, including the Middle East, the United States, and European countries. The coming days may witness a sharp escalation in the prices of precious commodities such as crude oil and gold, weakening the dollar value and leading to inflation, thus worsening the economic woes.
Amidst the prevailing geopolitical turbulence, small and medium-sized enterprises (SMEs) find themselves adversely impacted. The persistent conflict between the two nations, coupled with intermittent eruptions of violence, compels investors to scrutinize the potential risks meticulously before engaging in business endeavors. When it comes to SMEs, their confidence becomes skeptical, particularly those operating within the disrupted region. They confront the challenges arising from market volatility and restricted operations, resulting in lost opportunities with potential clients.
Major Impacts Faced by SMEs During Unsettling Times
Growing Debt and Financial Losses
Small and medium-sized enterprises (SMEs) find themselves grappling with a plethora of fiscal hurdles amidst the cross-border conflict. Prominently, there’s a disruptive impact on their operations, decreased consumer expenditure, rising inflation and price hikes, physical damage, and infrastructure destruction, as well as constrained access to credit from financial institutions, thereby affecting the vital capital required for business expansion and operations.
Simultaneously, there are other pressing concerns such as the loss of customers and market share to state one issue. Consecutively, currency devaluation affects profitability and competitiveness. Moreover, escalating government taxes and levies are earmarked for war funding, further pressing on the financial crunch. Also, the erosion of intellectual property compromises competitive advantage, further affecting the business.
Additionally, insurance premiums are surging, leading to higher coverage costs. As the conflict’s duration and intensity continue to escalate, the magnitude of these financial losses will inevitably spring up, contingent on the myriad factors sketched above.
Reduced Growth and Expansion:
Amid the ongoing conflict, economic instability looms large as the foremost concern for small and medium-sized enterprises (SMEs). Trade limitations and dwindling business investments are already gnawing at the profit margins of these enterprises, intensifying their financial woes. Furthermore, the foreign direct investment (FDI) landscape is wrecked by a worrisome decline owing to the perceived risks associated with these uncertain times.
In this war-ridden environment, resources and attention are automatically diverted away from crucial domains such as research and development, innovation, and long-term strategic planning. This unfortunate shift hinders the ability of businesses to broaden their horizons and maintain competitiveness in the business market. According to the United Nations Development Program (UNDP), SMEs operating in conflict-ridden zones face a disheartening statistic, where only 14% of the companies can operate at their full capacity, let alone plan business expansion initiatives in comparison to large enterprises1. Hence, as the global economy struggles with its lowest phase, SMEs may find themselves compelled to shelve their expansion aspirations until the situation regains stability.
Loss of Human Capital
In conflict-afflicted areas, employee well-being has deteriorated, leading to lower productivity and increased absenteeism. The lack of educational opportunities is depriving youth of necessary training, causing a significant skills drain. Employee disruption is at an all-time high, making it difficult to retain experienced staff or attract new talent.
Regulatory and Compliance Changes
Recent government actions in response to the cross-border conflict, aimed at addressing a range of social and economic issues, such as heightened security protocols and adjustments in labor and workforce regulations, pose as bottlenecks for businesses operating in the affected areas. Furthermore, governments are enforcing sector-specific mandates encompassing taxation modifications, data privacy regulations, and alterations in insurance policies.
Data from the International Labor Organization (ILO) reveals that approximately 35% of SMEs with a physical presence in areas affected by conflict endure significant infrastructural and operational damage, often resulting in business closures and compelling the proprietors to permanently cease their operations2.
According to the World Bank, governments in regions affected by conflict are poised to introduce additional regulations, thereby subjecting many of the SMEs to compliance challenges and hindrances in cross-border activities.
Long-Term Uncertainty
To state an example, the Israel-Palestine war, which commenced on October 7, 2023, has now persisted for nearly a month, causing growing anxiety within the business community, particularly among SMEs. The extended duration of the conflict is giving rise to an escalating array of crises, prominently involving financial, legal, and labor challenges.
According to the World Economic Forum (WEF), these hostilities are fostering prolonged economic uncertainty, making it taxing for SMEs to formulate comprehensive, forward-looking investment strategies. These businesses are currently wrestling with the constant and unwavering challenges of procuring essential resources, predicting market dynamics, securing loans, and navigating the precarious terrain of currency fluctuations. Profits have plummeted to historic lows, with further declines anticipated if the war is extended. The Small Business Credit Survey, conducted by the Federal Reserve, underscores that 60% of SMEs affected by conflicts are compelled to incur additional debt to sustain their operations, leading to acute financial strain. In this turbulent climate, business owners are eagerly seeking innovative strategies to reposition their enterprises within the framework of this wartime environment.
The Cope-up Mechanism for SMEs
While SMEs are struggling to keep up with this adversity, they find themselves at a crossroads in finding the right solution to it. Although any cross-border conflict is a much sensitive issue and is intertwined with intricate ethical, legal, and political implications, business owners can still seize a ray of hope amid the gloom. According to McKinsey & Company’s report, the market dynamics in conflict zones can undergo dramatic shifts, impacting the competitiveness and market share of SMEs4. To say the least, SMEs that adapt to the challenges can witness operational enhancements. For instance, a BCG survey reveals that 75% of SMEs that adeptly respond to changing circumstances become more resilient and innovative.
Notably, the affected territories comprise of vibrant tech ecosystems. SMEs in the conflict zones are renowned for their pioneering work in domains such as cybersecurity, artificial intelligence, medical technology, manufacturing, and food technology, among others.
These industries heavily incorporate technology into their operations, aiming to establish influential enterprises and capture a significant market share. Amidst the ongoing regional tensions, prospects for collaboration, joint ventures, or the expansion of business conglomerates into international markets may emerge.
Significance of Employer of Record During a Conflict
In this tumultuous situation, the need for relocation of your business to a potential market surely increases. Nevertheless, relocating your entire operation to a new market without a firm grasp of local customs and regulations can backfire on your business.
To avoid any potential complexities, smoothly establish a remote team, and facilitate swift international operations, integrating the concept of Employer of Record (EOR) into your business expansion strategy emerges as a strategic essential. Let’s delve into a comprehensive exploration of how EOR services can play a pivotal role in overcoming these uncertain times:
- Cost Management and Efficiency: With their expertise in budget planning for various organizations, an Employer of Record (EOR) not only reduces your expenses but also creates a sustainable financial strategy for your business, hence freeing you up from all sorts of financial debt. From managing recruitment and onboarding expenses to handling intricate insurance coverage and tax declarations, an Employer of Record is your comprehensive solution.
- Employee engagement and support: EOR services have access to a vast talent pool and are committed to sourcing exceptionally skilled candidates from the local workforce, ensuring a seamless recruitment process. Additionally, they adeptly manage various employee-related concerns, such as payroll, employee benefits, onboarding, training, and implementing flexible work hours for an improved work-life balance. This exhaustive approach not only contributes to talent retention but also enhances overall employee productivity.
- Compliance and risk management: Harness the EOR’s extensive expertise in local and international labor laws and regulations, encompassing workers’ compensation, professional liability, and various insurance facets, for efficiently mitigating compliance risks entwined with workforce management.
Collaborate closely with the EOR to guarantee that employment contracts, policies, and procedures adhere rigorously to pertinent laws, thereby minimizing potential legal liabilities. Non-compliance to labor regulations is a critical issue, and mishandling it can lead your organization into dangerous legal waters. - Market Research and Competitive Analysis: When venturing into a new international market, leverage the EOR’s pre-existing infrastructure, assets, network, and resources to smoothly operate through local employment regulations and cultural nuances, all the while maintaining the agility to tailor your workforce strategy to the foreign terrain promptly.
Collaborate closely with the Employer Of Record to acquire invaluable intelligence on labor market trends, competitive salary benchmarks, and talent availability, thereby securing your business’s competitive edge. An EOR is your trusted partner in adapting swiftly and effectively responding to shifts in customer demand and emerging market trends.
Remunance as Your Local Guide
Given India’s status as one of the world’s largest and most rapidly expanding consumer markets, the prospect of shifting your business there holds significant value. This strategic move not only grants you access to an expansive customer base marked by diverse needs and preferences but also aligns with India’s resilient and consistently growing economy. With its robust and diversified economic landscape, India ensures stability, a valuable asset, particularly in these times of global geopolitical tension.
Remarkably, a report by Hindustan Times reveals that more than 500 global organizations, with over 100,000 employees, currently established in the conflicted area are contemplating a shift to India due to the escalating cross-border conflict. The prime motive for this relocation is the synchronization of time zones with the affected region, a factor that streamlines business operations, coupled with India’s unmatched talent capabilities.
In a business environment where the government is actively fostering foreign investment with incentives and initiatives, coupled with cost-effective labor, it’s the opportune moment to secure local expertise for a seamless transition of your business into India. This is precisely where Remunance will save your day.
As the premier “Employer of Choice” in India, with a track record of serving over 85 clients across 16 countries, Remunance stands out by successfully overseeing a workforce of 800+ Indian employees. Their dedicated, personalized support team efficiently handles all your HR needs, from top-tier talent acquisition to meticulous document management and streamlining legal compliance. All this is accomplished while ensuring transparency and cost-efficiency, making Remunance your ultimate solution.
References:
3.https://blogs.worldbank.org/developmenttalk/how-war-ukraine-reshaping-world-trade-and-investment
4: https://www.mckinsey.com/il/overview/israels-productivity-opportunity
