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State of mergers & acquisitions in the “New Selective Consumption Economy” due to the pandemic

  • The COVID-19 pandemic has disrupted the entire world and effected everyone in some shape or form. Countries, Governments, Corporations, SME’s (small & medium enterprises), Individuals, families and all segments of our society have been impacted. This is proof of how everyone and everything in this world is inter-connected – from human health to trade, travel and global business. The mergers and acquisitions aspect for businesses has had no immunity and has also evolved to align to the new economic principles.
  • Based on the nature of the activities and relevance of services offered by businesses during the global pandemic, whilst some businesses like the hospitality, tourism, aviation and retail have had a deep impact and have been more affected than others, whilst other businesses like healthcare, pharmaceuticals, disruptive technologies, food retail through e commerce, digital businesses etc. have flourished leveraging their business model, ease of distribution and rise in consumer demand spiraled by the pandemic.
  • The IMF predicts that the global economy will contract by 4.9% this year, down from growth of 2.9% in 2019, while the World Bank has forecast a fall of 5.2%, the worst contraction since the Second World War.
  • As we prepare to enter 2021, we are also witnessing the emergence of a “New Selective Consumption Economy” wherein several macro as well as micro economic aspects have been altered.
  • A macroeconomic factor being a pattern, characteristic, or condition that emanates from, or relates to, a larger aspect of an economy. Covid-19 and the impact this pandemic has had on the world has altered global macroeconomic factors across the globe with no immunity seen anywhere. We have witnessed significant economic, environmental and geopolitical events during the last 12 months which have widely influenced national, regional and the global economy by impacting economic outputs, unemployment rates, inflation rates etc. We have also seen changing monetary and other regulations which has some potentially dynamic global consequences.
  • Inflation is rising, global gross domestic product (GDP) has declined dramatically, global national income has been sliding down, unemployment levels have been all time high, Government spending is rising, stimulus packages provided using public money have ballooned to break even points are just some examples of dynamically changing macroeconomic factors which have played their role to create the “New Selective Consumption Economy”. Such economic performance metrics are closely tracked by Governments, Corporations, Companies, and consumers alike and have a direct correlation between the state of the economy and the future state of the business.
  • “New Selective Consumption Economy” has been created due to the following macro-economic factors: Inflation, which is a progressive increase in the average cost of goods and services in the economy over time, when increased causes the cost of living to go up. The economic growth rate which is the percent change in the cost of the output of goods and services in a country across a specific period of time, relative to a previous period, which when reduced slows down the global economy. A price level which is the variation of existing prices for economically produced goods and services, when rises provides challenges to the entire economy. The Gross Domestic Product (GDP) which is a quantitative measure of the market value of all finished goods and services produced over a given time period, when reduced has a huge impact on the global economy. National Income which is the aggregate amount of money generated within a nation, when becomes altered or lower, has a major impact on consumer and Government spending. Unemployment level is the rate of unemployment which is the unemployed share of the labor force in a given country, calculated and stated as a percentage, which when increased poses a severe challenge to get the workforce back into circulation.
  • On the other hand, Microeconomic factors have also contributed to the development of the “New Selective Consumption Economy”. Micro economic factors study the decisions of individuals and firms to allocate resources of production, exchange, and consumption. It deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics. Various types of models based on logic and observed human behavior are evolved by economists to handle the challenges brought about by the global pandemic.
  • It is crucial to understand the core microeconomic factors affecting your business which will enable in planning and preparation, as well as long-term business strategy development. The six microeconomic business factors that affect almost any business are customers, employees, competitors, media, shareholders and suppliers.
  • “New Selective Consumption Economy” has also reshaped and influenced micro-economic factors which need to be considered by organizations to assess the impact and future readiness. How these factors have been impacted by the pandemic and how organizations need to respond to these in the future is crucial:
  • The Impact of Customers, which have the most direct microeconomic impact on a business. The simple fact is that you can't successfully operate a for-profit company without attracting targeted customers. Knowing your ideal customer types and developing and presenting effective marketing campaigns are integral to building a customer base and generating revenue streams. The pandemic has created a massive impact on customers by changing their level if disposable incomes, propensity to save, increased used of e-commerce, ushering in higher levels of unemployment etc. New customer segments with changed income and geo-demographic levels will emerge in the future, which organizations need to be ready to understand and tap. New working from home needs will need to be catered to and new products and services need to be designed to keep meeting dynamically changing needs.
  • Availability of Employees, is a crucial factor as employees are the most valuable asset for any corporation as it is your workers who produce, sell or service the goods and service that drive your business. The availability of qualified, motivated employees for your business type is vital to economic success. If you operate a highly technical business, for instance, you might have to pay more in salary to attract a limited number of available, specialized workers. The pandemic has seen the most severe impact on employees after World war II with Millions of employees out of work, thousands currently living on social grants for meeting their daily needs, hundreds of thousands of employees having lost their homes as they cannot afford to pay rents or mortgages, staff furloughs, staff layovers, leave without pays, extended holidays and early retirement for employees. The list seems endless and the pain unimaginable. Once the business restart, it would be difficult to go back to the pre Covid levels and it would take several years for employees to get a kick-start back into their dream jobs and enable earning levels like before.
  • Distribution Channels and Suppliers are a key aspect for any business. Sourcing goods used in production or resale and distributing your inventory to customers are important as well. Manufacturers rely on materials suppliers and resale companies rely on manufacturers or wholesalers to transport goods. To operate profitably, you need to get good value on products and supplies and, in turn, offer good value to your customers with accessible solutions. The pandemic has shifted a huge focus on digital businesses and new distribution models with dis-intermediation and a direct to consumer approach, which is here to stay. Several companies have gone bust of files for bankruptcy who could not manage their distribution or suppliers during the pandemic and this is testament to the importance of these two elements for future businesses to survive.
  • Level of Competition impacts every business and the economic livelihood. In theory, more competitors means your share of dollars customers spend diminishes. However, a large number of competitors in an industry usually signifies lots of demand for the products or services provided. If an industry lacks competition, you might not find enough demand to succeed in the long run. The level of competition has increased during the pandemic as every business is focusing more on the share of the customer’s digital wallet, businesses from other industries have pivoted their businesses to align to the current and more immediate needs. We have seen several examples from Air BnB which pivoted from selling rooms and homes for travel to selling on line experiences to General Electric which moved from producing air craft engines in tier assembly lines to producing ventilator machines and medical equipment’s in the same factory.
  • Media and the General Public plays a vital role. Your local community and media affect your ongoing business image. Communities often support companies that provide jobs, pay taxes and operate with social and environmental responsibility. If you don't do these things, you may run into negative public backlash. Local media often help your story proliferate, for better or worse. We have seen this factor to be emerging as a major change post the pandemic with the rise of fake news, manipulated media and politics, who and what to believe will be questionable. The very role of WHO (World Health Organisation) is in review by some based on how their media and public opinion was handled during the pandemic.
  • Availability of Investors is the most significant aspect which impacts access to growth capital and equity. Shareholders and investors may help fund your company at start-up or as you look to grow. Without funds to build and expand, you likely can't operate a business. You could look to creditors, but you have to repay loans with interest. By taking on investors, you share the risks of operating and often gain support and expertise. You do give up some control, though. The role of investors has also evolved during the pandemic, which has given rise to reshaping the mergers and acquitsions businesses the world over.
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MD. Salim Rana

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03 Comments

  • Karon Balina
    19th May 2018 Reply

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  • Julias Roy
    19th May 2018 Reply

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  • Arista Williamson
    19th May 2018 Reply

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