Business leaders have been dealing with new challenges on the supply side of their operations. These challenges include high inflation, persistent labour shortages, and disruptions in supply chains, all of which have hurt business performance.
According to the Australian Industry Group (Ai Group), these supply-side pressures have decreased profit margins for many companies. High inflation can lead to increased costs for goods and services, making it more difficult for businesses to maintain profitability.
Chronic labour shortages can lead to increased costs, as businesses may have to offer higher wages to attract and retain employees. Supply chain disruptions can cause delays in production and lead to increased costs, as businesses may have to source materials and goods from other suppliers at higher prices.
The key findings from this report suggest that in 2023, the majority of businesses (90%) anticipate that they will be affected by staffing shortages. To address this issue, they plan to implement various strategies such as increasing wages and benefits, hiring more staff, and investing in in-house training. Additionally, with the unemployment forecast to remain low, the focus has shifted from recruitment to retention and reskilling of current employees.
Additionally, the report highlights that supply chain disruptions are expected to continue to impact the majority of businesses (78%) and that many companies (88%) plan to invest in reducing their vulnerabilities in 2023. Some companies also plan to change their product offerings in response to persistent supply chain disruptions.
The report also states that three main challenges, inflationary pressures, labour shortages and supply chain disruptions, are expected to inhibit business growth in the coming year.
To mitigate these challenges, businesses plan to invest in improving their workforces through staff training, business process improvement and ICT, which are identified as the top investment priorities for 2023.
Finally, the report suggests that growth will be achieved by focusing on improving product and service offerings and adjusting business models to new market realities in the post-COVID era. Many companies prefer to focus on developing the Australian market rather than expanding internationally due to lingering uncertainties about the global environment.
On the brighter side, the report adds that businesses in Australia have successfully consolidated their post-pandemic recovery in 2022. The survey reveals that business conditions, turnover, employment, and investment all improved as the dislocations caused by the COVID-19 pandemic gradually abated.
Ai Group Chief Executive Innes Willox said: “While Australia’s business leaders are cautiously optimistic for 2023, most are concerned about the impacts of skills shortages, inflation and supply chain disruptions”.
“49 per cent of business leaders expect conditions to be stronger in 2023 than in 2022. But this optimism is tempered by a number of supply-side concerns.
“An overwhelming 90% of businesses expect to be affected by staffing shortages in 2023. These are most keenly felt in higher-skilled occupations but are evident across all skill levels, industries and geographic locations.
“Finding and developing more skilled people locally and through immigration remains a central workforce strategy. For example, 50% of businesses said they would increase investment in staff training next year to deal with skills gaps.
However, this year more and more businesses will look to address persistent skills and labour shortages through operational change. They will consider doing things differently, such as organising work and technology in new and innovative ways.
“Businesses are also expecting inflationary pressures of the past two years to continue, particularly for energy. Supply chain disruptions are expected to persist due to global challenges, despite the easing of pandemic-era constraints.
“There are also emerging concerns around global economic headwinds, inflation and rising interest rates that will see Australian economic growth slow in 2023.
“Investment plans for 2023 are carefully calibrated to these expectations. Business will attempt to seize growth opportunities by investing in staff capability, technology and supply chain resilience.
“As we suggest in our report, these strategies and investment priorities are critical for Australian businesses to achieve the economic resilience needed for prosperity in a time of global economic uncertainty.
“Our survey demonstrates that it will clearly be another challenging year for many businesses, and the need for a relentless focus on productivity across the broader policy agenda has become even more important.
“The Federal Government in particular, needs to put productivity and flexibility at the forefront, especially when considering the further changes to workplace relations it plans to introduce later this year.
“We need to catch up on years of below-par productivity growth and we need to gear ourselves for at least a return to 1990s level growth,” Mr Willox said.
Ai Group’s 2023 CEO Expectations Survey was conducted in October and November 2022.