The Intergenerational Report 2023 (the Report) focuses on the five major forces shaping the Australian economy over the next 40 years to 2063. This article will provide our perspective on how these forces will impact small and medium enterprises (SMEs) and what business owners should consider as part of their long-term planning.
SMEs represent the ‘engine room’ of the Australian economy. These businesses are typically privately held and often family-owned. According to the ABS and ABSFEO, there are approx. 40,000-60,000 businesses in the mid-market, each generating over $5m in turnover. These businesses contribute circa $287bn in GDP to the economy.
For this segment of the economy, business conditions are generally neutral for growth driven by tighter funding costs and demand easing across consumer-sensitive sectors. More than ever, long-term strategic thinking and planning for the future will be key to remaining competitive for any businesses. Therefore, the five major forces discussed below should be key considerations for all SMEs as part of their planning.
Australia is experiencing a significant shift in its demographic landscape, characterised by an ageing population trend. With longer life expectancies and declining birth rates, the proportion of elderly individuals aged 65 and above is steadily increasing; the number of people aged 65 and over will more than double and the number aged 85 and over will triple in 40 years.
As the workforce ages, SMEs may face a shortage of skilled workers, particularly in specialised fields. Finding qualified individuals to fill key roles can become more difficult, potentially affecting productivity and growth. Competition for skilled workers can be fierce, and larger corporations might offer more attractive compensation packages and benefits. SMEs need to find creative ways to retain experienced employees.
SMEs should consider implementing strategies such as targeted training and upskilling programs, flexible work arrangements, mentorship initiatives, wellness programs, and technology adoption plans. Given the lack of resources, we observe that these areas are often overlooked in SMEs.
Technological and digital transformation
The landscape of work is rapidly evolving due to emerging technologies. These innovations facilitate the automation of monotonous manual tasks, effectively boosting employee productivity and enhancing workplace safety. Meanwhile, the ongoing digital transformation process is significantly altering the skill sets in demand and reshaping the very essence of work itself.
The transformation will bring risks that must be carefully managed through the change. SMEs often have limited financial and human resources for technological and digital initiatives. Implementing new technologies can be costly, and finding the right talent to manage these changes can be challenging. Some SMEs might struggle to find technology solutions that meet their specific needs. Customising off-the-shelf solutions or developing proprietary software can be expensive and time-intensive.
However, the opportunities that technologies and digital transformation bring often provide a much bigger payback than the original investment. Opportunities include improved efficiency and productivity, access to global markets, data-driven insights and enhanced customer engagement.
The advice to SMEs is not to feel that these opportunities are out of reach and only available to large corporations. The point is that technology can be adapted and applied to any business scale, and moving slowly, as with all things, means your competition will inevitably get ahead of the curve.
Climate change and the net zero transformation
The effects of climate change and commitment to carbon net-zero goals are poised to exert substantial influence on the economy’s framework and the decisions Australian consumers and businesses make in the years ahead. This impact is particularly important for SMEs navigating the evolving landscape of environmental regulations, consumer preferences for sustainable products, and the imperative to adopt eco-friendly practices. Key areas to consider from an SME’s perspective include the following:
- Product and Service Innovation: This is an opportunity for all businesses to develop sustainable products and services that cater to the changing preferences of environmentally conscious consumers. This could include implementing circular economy principles by designing products for longevity, repairability, and recyclability. Explore ways to reuse and repurpose materials to minimise waste.
- Sustainability in Operations: Identify opportunities for reducing energy consumption, waste generation, and carbon emissions. Not only does this help with the bottom line, but it will inevitably be the status quo your customers expect.
- Supply Chain Management: Collaborate with suppliers and partners who share your commitment to sustainability. Consider sourcing materials and products from environmentally conscious suppliers to reduce the carbon footprint of your supply chain.
Rising demand for care and support services
The healthcare industry accounts for approximately 10% of Australia’s GDP. With the demand for quality care and support services rising, the direct impact will be felt in relation to shortages in the workforce. This continues to be a key challenge faced by healthcare businesses, particularly SMEs. Connected to the other major forces of change relating to technologies and digital transformation, healthcare SMEs must find better ways of improving quality while maintaining profitability through efficiencies and productivity.
However, the future of healthcare presents many opportunities for business owners. Governments have taken steps to broaden the availability of formal care services, encompassing children, the elderly, and individuals with disabilities. Simultaneously, there has been a positive shift towards consumer-focused service models, stricter regulations, and enhanced employee compensation and working conditions. These changes underscore the evolving landscape of care and support services, creating opportunities for businesses to align their offerings with these trends and contribute to improved standards of care.
Geopolitical risk and fragmentation
Australia’s economic success has been driven by participation in a trusted global trading system, resulting in increased exchange of goods, services, capital, labour, and technology that fueled significant growth. The Report states, “Two-way trade exceeded $1 trillion in 2021–22, supporting one-in-four jobs”. It is expected that this will continue to be a key driver of growth in the next 40 years, and business owners need to capitalise on this growth.
Some areas for consideration could include:
- Global market exploration – expanding into international markets can diversify revenue streams and reduce dependence on a single market. Research and identify target countries with growth potential and align your products or services to meet their needs.
- Partnerships and alliances – forge strong alliances with regional partners to navigate geopolitical shifts effectively. Collaborative efforts can provide collective resilience against disruptions.
- Market research – continuously monitor and analyse the evolving geopolitical landscape, as well as market trends and consumer behaviours. This knowledge can guide strategic decision-making.