Opportunities and Challenges for Businesses in 2022
Americans returned to the road, skies and stadiums this quarter as the U.S. economy exceeded its pre-pandemic size. But lately, the great reopening has lost some momentum.
Widespread business reopening, rising vaccination rates and a big infusion of government pandemic aid last spring helped propel rapid gains in small business recovery - the economy’s main driver. But that burst of economic growth is starting to slow, particularly for services-based industries and tourist destinations, amid continued supply constraints, a shortage of available workers and the spread of the Omicron variant. Initial unemployment claims had dipped below the 2019 average level during the Fall, only to reverse course in early January.
Driving these numbers are the almost 8.8 million adults in the U.S. in early January who said they couldn’t work because they were sick with or taking care of someone sick with Covid-19, according to a Census Bureau survey. That is by far the highest such figure in the “household pulse” survey, exceeding 6.6 million recorded last January.1
The 2022 economic outlook for small businesses likely looks a lot like the end of 2021. Employee recruitment and retention, inflation and supply chain disruption continue to rank as the top concerns. For central governments, 2022 is likely going to be a challenge. Economies in Europe and the U.S. have excess demand and inflation. If governments raise rates too fast, they could cause an early recession. If they raise them too slowly, inflation could get worse.
In this post, we’ve listed the top 5 challenges and top 5 opportunities for businesses in 2022.
Top 5 Business Challenges in 2022
The following list provides the top 5 challenges for businesses in 2022:
- Labor Shortages
One of the biggest headwinds to the economic recovery has been the record amount of labor shortages. The U.S. as a whole lost more than 22 million jobs from the pandemic and at the end of 2021 still had 3.6 million fewer positions than in February 2020, with labor shortages expected to continue well into 2022.2 The recent surge in Covid-19 cases due to the Omicron variant has slowed job growth in recent months, but the labor market is still tight with employers struggling to hire for the 11 million job openings currently available amid a shortage of workers.3
Another leading small business challenge of 2022 will be recruiters filling job vacancies created by the "great resignation" from 2020-2021. Many Americans quit during the pandemic to rethink their family life and career choices. But even before the pandemic struck, specific industries such as healthcare and trucking were experiencing labor shortages. The labor crisis goes deeper than people getting sick of their jobs due to pressures created by the pandemic.4
Manufacturing, mining and accommodation & food services have seen among the fastest growth in job openings since January 2020. These are typically labor-intensive jobs, and these fields were much slower to add new openings before the pandemic. Demand for workers is cooling in professional and business services, which were some of the hottest hiring fields before the pandemic.
Geographically, Texas and Arizona have joined Utah and Idaho as the only U.S. states that have recovered all the jobs they lost at the start of the pandemic, driven by population growth, relaxed Covid-19 restrictions, and outsize payroll growth in retail, warehousing, technology and transportation industries, while California and states in the Northeast lag behind.5
- Wage Inflation
Several additional factors continue to impact the health of small businesses in the U.S. As a consequence of the labor shortage, wages have been rising. Small business data suggests wage costs are rising more broadly than any time in more than 25 years. Other data suggests the main beneficiaries are lower-income workers, with wages in the labor-intensive, in-person industries like leisure and hospitality sectors up more than 12% in the past 12 months, as evidenced by the following graph:
Although wages are up, so too is inflation. Inflation rose to its fastest pace in nearly four decades as pandemic-related supply and demand imbalances, along with government stimulus, pushed prices up at a 7% annual rate, outpacing the 4.9% rise in wages.
Fifty percent of firms have had to raise the prices they charge their clients in the last six months. Nearly two in five saw revenue increases in the fourth quarter. So there is good news here in terms of sales, although not-so-good news for customers in terms of prices.6
- Slowing Growth
Growth this year should be fairly moderate but stronger than pre-pandemic rates, according to economists. The bottom line is that although the economy continues to grow, the rate of growth is slowing. New forecasts for economic growth are weaker than in August. The economy has seen some deceleration, and it is due mainly to supply shortages. That is going to go directly to some of the challenges that small firms are facing. By 2023, professional forecasters believe growth will hit about 2.3%, which is about where we were during 10 years of expansion that preceded the pandemic.7
- Supply Chain Disruptions
The worldwide interdependence of the supply chain was illustrated during the pandemic and has become a top challenge for businesses. Supply chain disruptions have negatively impacted growth due to strong demand coupled with COVID-related supply disruptions. When people were stuck at home, they slowed spending on discretionary items, such as restaurants, entertainment, and other services, and more money was spent on food and consumer goods.
On the supply side, China, the manufacturing capital of the world, temporarily shut down regions and ports. Twenty-six percent of firms said supply chain disruptions are a challenge, compared with 21% the previous quarter.8 After over a year of constant disruptions, problems have accumulated into a perfect storm. Unpredictable demand and availability, as well as unpredictable labor shortages, both due to COVID-19 and various side-effects and accidents, have pushed container availability and port unloading infrastructure into a frenzied downward spiral. While container prices have gone up (over $20,000 for a standard container coming to the US from east Asia), ports have been unable to handle the incoming ships’ unloading needs.9
Some ports have already moved to 24/7 operations, yet the issues will take much longer to fix – and prices are not likely to come down in a hurry. However, reliable forecasting in such turbulent times is nearly impossible. Mixed in with this chain reaction include labor shortages, high storage fees, and pandemic fears that have created a surge in consumer demand. All of these factors contribute to the supply chain crisis.
These policies are accelerating the trend for Western companies to re-shore and diversify their supply base. Diversification won’t occur overnight, however companies are increasingly moving away from the cheaper and more agile just-in-time model in favor of increasing safety stocks and developing a wider global footprint. On top, developing excellent relations with suppliers and managing customer expectations are critical. Product availability is the new name of the game.
- Online Competition is Fierce
The pandemic spurred a flurry of new business ventures as more and more entrepreneurs seek to establish brands in the U.S. For example, the number of sellers on Etsy, a popular online global marketplace, nearly doubled the past year.10
Entrepreneurs must continue to innovate wherever they can. This includes: redesigning your website to reflect your skills, expertise, and company ethos, installing an AI chatbot that will engage visitors on arrival and keep them on page for longer, creating content for your website that is SEO-driven, employing a social media officer to manage your social channels, and looking for emerging trends and talking points that you can engage with.11
Top 5 Business Opportunities in 2022
The following list provides the top 5 opportunities for businesses in 2022:
- Employee Retention & Training
As mentioned earlier, labor shortages are impacting company growth, making finding and retaining talent a top challenge in 2022. This presents an opportunity for businesses to retain top talent. Businesses should create clear channels where employees can raise concerns and health issues, stay up to date with emerging issues, allow flexible working hours to allow employees to attend to personal issues, and encourage employees to keep strict working hours to avoid the common burnout issue.
Businesses are also increasingly focusing on employee mental health support by offering health perks in their work packages.12 Mental health is increasingly an important part of the equation for managing employees. That means employers need to be more mindful of mental well-being in the workplace. Elevation of stress levels through increased multitasking contributes to workplace deficiencies in terms of more paranoia, reduced focus, diminished loyalty, and decreased productivity. Small businesses must be particularly concerned about attracting and nurturing loyal talent due to limited resources.
During the pandemic, training for skilled trades came to a halt due to the hands-on nature of learning. These vocational schools are back in session, and the need for these types of workers will be high in 2022. As businesses are still seeing fewer candidates with the skills they seek, on-the-job training will be a stronger focus moving forward. Some companies are no longer requiring college degrees for applicants and are instead hiring for soft skills, supplemented by enhanced onboarding training programs to get employees where they need them to be.
- Shift to Mobile and Online Purchases (Digitization)
Retailers will continue to face headwinds that began before the pandemic as shoppers shift from in-store to online purchases. Many small businesses adapted to it well and grew their businesses through the pandemic via increases in contract work and self-employment.
A 2019 study by Deloitte confirmed that businesses on their path to digital transformation tend to perform better financially.13 In the meantime, COVID-19 has accelerated this trend. With the Zoom boom and remote working, digital communications have become the norm. In 2022, a mature company should also be a digitally mature company. Going digital means that organizations use data and technology to continuously evolve all aspects of its business models—what it offers, how it sells (interacts with its customers) and delivers, and how it operates.
In some sectors, digitalization is self-implied. ICT, media, finance, and professional services are more digitally advanced than others. Logistics, retail, and other industries that rely on distributed databases will also make progress. However, even in agriculture and animal production, where most outsiders still picture tractors and barns, the fourth revolution is in full progress.14 The power of data, the possibilities brought by the cloud, the ease of synchronous communication will impact even the most conservative industries. Whoever is not prepared for digitalization will inevitably fall behind.
- Remote Work (Management of Remote Work)
For most employees, working onsite is still the norm. We have seen some stabilization in remote work trends. Four of five companies with remote employees feel they are managing remote employees well and believe they are doing a good job of keeping them engaged.15
If companies have trouble filling positions, they might consider offering more flexibility. Another study by Gartner shows that, at least theoretically, employers and employees are aligned in seeing flexibility as critical to the organization.16 This includes as a top consideration the ability to work both from home and from the office, as well as somewhat flexible work times.
Attracting the right talent can be achieved partly by offering remote work, which allows you to tap into a global pool of experienced professionals. The topic of remote work, in general, is one of the most critical small business challenges (and opportunities) for the new year. Remote work isn't going away because it helps companies cut costs with less need to spend money on multiple workstations.
- High Savings Rates
Stimulus checks were intended to restart the economy. The impact of each stimulus check coincides almost perfectly with gains in retail spending. And the data shows that spending has persisted at these new higher levels:17
That, in hindsight, represented a dramatic increase in demand for goods, which in the U.S. is running at all-time high levels. While that helped power the manufacturing sector to a “V-shaped” recovery, it also contributed to higher demand in ports than ever seen before. That, in turn, contributed to supply chain bottlenecks and shortages for many products locally.
Not surprisingly, delays and supply shortages led to input prices and costs rising.
- Waning Coronavirus Impact
COVID case rates continued a steep decline over the last two weeks with the seven-day rolling average dropping to roughly 59,000 cases a day.18 The impact of the vaccines has clearly impacted mobility data, which shows that as vaccines were distributed, much of the services sector saw a boost in customers, many back to pre-Covid levels by summer. That meant even more jobs returned, which helped unemployment fall back to just 4.2%.19
This article addressed five challenges for businesses, each of them compounded by the prolonged uncertainty of COVID-19 and by looming political tensions in various hotspots around the world. Businesses large and small are already critically affected by all. No business will be spared from at least one of the 5 factors; many will be impacted by several or all.20 In 2022, companies must be ready to pivot, change strategies, and adjust course mid-route.
About Exporta Technologies
Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States.
Exporta’s marketplace offers buyers a full service experience in the origination, sourcing and managing of products. The platform was founded on the idea that curation and service are the most important elements in the buyer’s journey. Exporta’s marketplace is building technology that addresses the pains of sourcing products internationally at attractive prices.