How SMEs can get ready for 2024: Three megatrends to consider

Despite Australia’s general economic resilience, 2023 has been a challenging climate for many businesses. With growth forecast to slow, and the International Monetary Fund (IMF) seeing risks from high inflation, global uncertainty, and climate-related shocks, unfortunately, there’s likely to be more pain on the way in 2024.

Amidst increasing economic instability and the rapid evolution of technology, SMEs will need to be more proactive in managing their resources and keeping abreast of market trends and regulatory changes.

These are the key trends that SMEs should expect will influence the economic environment in 2024.

Megatrend 1: Persistent inflation amidst geopolitical pressures

Next year, the consensus is that inflation is going to be stickier for longer and will mostly arise from external pricing. This means, over the next couple of years, companies will be rethinking and flexing their business models where external factors affect their pricing. Central bank rates are unlikely to flatline or come down until the latter half of 2024, so anticipate small to moderate rate increases until then.

Anti-inflationary measures will increase financial pressure on general consumers, leading to a reduction in discretionary spending for everyday products. But the top end of the market will remain unaffected.

The stalemate in Russia and Ukraine, along with the conflict in the Middle East, will impact food and oil prices, affecting logistics and fuel costs.

On the upside for Australia, recent engagements with China and the thawing of trade relations may represent a short-term positive for companies. In the long term, the slowdown in China may be a negative pressure.

Megatrend 2: Labour market easing, but with new regulatory changes

In 2024, the tight labour market is likely to ease further. The Reserve Bank of Australia (RBA) recently forecast this easing to be more gradual than previously expected because of the stronger outlook for aggregate demand.

The trend of layoffs in large companies is expected to remain and other high-profile redundancy programs, similar to the bank layoffs we’ve seen in motion this year, means there will be greater availability of some professional roles and skills will be easier to find in certain sectors.

However, due to increasing regulation in other sectors (like NDIS), some SMEs may face more difficulties in hiring. We’ve already seen minimum wage increases and superannuation guarantee increases this year, and new, stricter rules around fixed-term contracts are already in place, after starting in December. Resultant higher costs and complexity when hiring and retaining staff means taking a one-size-fits-all, blanket approach to casual labour will be increasingly unrealistic for smaller organisations.

Megatrend 3: GenAI and cybersecurity pressures

Generative AI, with tools such as ChatGPT and Microsoft 365 Copilot, will be a massive opportunity for companies to increase productivity. In a recent study by MIT, users of ChatGPT saw a 40% productivity increase with an 18% boost in quality. AI’s potential extends to every area of a business, with marketing, finance, IT, and process documentation first cabs off the rank.

As AI technologies evolve, SMEs should identify which AI or software vendors can replace or augment existing systems. But they need to keep across regulatory and ethical developments.

SMEs should expect ongoing pressure in the cybersecurity space. Consequently, they must be vigilant in protecting themselves, as this threat isn’t confined to large enterprises. If you are an SME that holds valuable data, you will be a target. What we have seen so far in the news media only scratches the surface of the broad range of malicious cyber activity taking place but mostly going unreported.

Megatrend takeaways for SMEs in 2024

For SME leaders planning for 2024, firstly, analyse the financial structure of your company and identify areas of opportunity or risk, especially in pricing, cost of goods, or fixed operating costs. This analysis will help determine where your SME might have a competitive advantage or be under pressure in 2024.

For example, businesses with good cash reserves or access to capital can gain market share by managing pricing strategies effectively. By preserving cash right now, you can potentially maintain lower prices or swallow margin hits for longer and outlast the competition. We saw evidence of this approach in the recent banking results. Some banks lost share in mortgages during COVID-19, but took an aggressive view on pricing this past year and have gained back a substantial amount of market share, albeit at lower margins.

Secondly, consider forward-hedging in non-perishable supply chains as a tactic. Use cash reserves to bulk buy or increase orders to secure preferential pricing and deliver a competitive edge. On the other hand, companies at risk financially should consider diversifying or shifting to product lines with better margins.

Finally, maintain proactive communication with bankers about your financial status, not only in times of need but as part of ongoing relationship management. The right time to have a difficult conversation with your banker is not when you’re in crisis but well in advance. Similarly, it is important to keep key suppliers and customers informed if you face financial challenges. This will ensure you are ready to capitalise on opportunities or mitigate any risks that arise.

2024 promises to be just as economically turbulent as 2023. But by making smart decisions today, and planning ahead of time, Australia’s SMEs can navigate the choppy waters ahead and proceed with confidence.

Ryan Williams is the director of the Australian Centre for Business Growth at UniSA Business.