For small and medium-sized enterprises (SMEs), when it comes to economic recession, the most effective way to survive will be economies of scale.
Background: Economic downturn continues
In 2021, the global economy will recover rapidly from the epidemic, but the recovery will be uneven. In 2022, it will face multiple new shocks, affecting the energy market and financial sector, the real economy and supply chain, climate, and geopolitics.
Inflation has become the main concern of policymakers, and monetary tightening has become the main policy tool to deal with rising prices. There is a policy consensus among advanced economies that central banks can guide them to a soft landing and avoid a full-blown recession. This policy stance comes with short- and long-term risks. In the short run, tighter money will lead to lower wages, employment, and government revenue. In the medium to long term, the monetarist path will completely reverse the promise made at the time of the epidemic to build a more sustainable, resilient, and inclusive world. These risks have disproportionate impacts globally.
In a system weakened by the pandemic, developing countries are particularly affected by the policy decisions of developed countries. UNCTAD is concerned that developing countries are far more vulnerable than the international financial community believes, thus undermining the role of the global financial safety net. Forty-six developing countries face severe fiscal stress due to high food, fuel, and borrowing costs; twice as many are vulnerable to at least one of these factors. It can be seen that developing countries are indeed likely to experience a large-scale debt crisis and experience a "lost decade", and the risk of failing to achieve the Sustainable Development Goals by 2030 also exists.
Lights in the dark
The International Monetary Fund (IMF) has made a slight increase to its global growth outlook for 2023, due to "surprisingly resilient" demand in the United States and Europe, easing energy costs and the reopening of China's economy after Beijing abandoned its strict COVID-19 restrictions, according to World Economic Forum.
It still sees the pace of global growth falling this year compared with 2022, but by a smaller margin than it predicted in October. The IMF is now forecasting a 2.9% growth for 2023 – up from a 2.7% forecast in October – versus 3.4% growth last year.
For small and medium-sized enterprises (SMEs), when it comes to economic recession, the most effective way to survive will be economies of scale. The advantages of economies of scale are:
Ability to unify and standardize product specifications.
By purchasing large quantities of raw materials, the unit purchase cost is reduced.
It is conducive to the specialization and streamlining of management personnel and engineering and technical personnel.
Conducive to new product development.
Has strong competitiveness.
Making full use of economies of scale is of great significance for improving the benefits of enterprises and the entire national economy.
The pursuit of economies of scale is the production scale that can obtain the best economic benefits, rather than the larger the production scale, the better. Once the production scale of the enterprise expands beyond a certain scale, the marginal benefit will gradually decrease, even fall below zero, or even become a negative value, causing the phenomenon of diseconomies of scale.
To realize economies of scale, Chinese enterprises choose to expand their business abroad and some Chinese entrepreneurs choose to establish global businesses at the start. Therefore, it becomes important to target a potential market for profit.
The IMF now expects U.S. GDP to grow 1.4% this year, up from a 1.0% forecast in October, and 2.0% in 2022. This was attributed to stronger-than-expected consumption and investment in the third quarter of 2022, a strong labor market, and strong consumer balance sheets.
The outlook for the eurozone also rose to 0.7% from 0.5% in October, although that was below the growth of 3.5% in 2022. Europe has adapted to higher energy costs faster than expected, the IMF said.
The International Monetary Fund sharply raised China's growth outlook to 5.2 percent from its October forecast of 4.4 percent. A zero-COVID policy in 2022 reduces China's economic growth rate to 3.0%, below the global average for the first time in more than 40 years.
The outlook for India remains strong, with growth forecast unchanged to 6.1% in 2023 but rebounding to 6.8% in 2024, in line with its performance in 2022.
Britain is the only major economy where the IMF expects the economy to shrink this year. It forecasts a 0.6% decline in GDP as households grapple with rising living costs, including energy and mortgage payments.
For 2024, the IMF has slightly lowered its global growth forecast to 3.1% from 3.2% in October.
EqualOcean believes globalization is the option for any SME to realize economies of scale in order to survive the current recession. According to the real GDP from different regions, we believe the United States still attracts most Chinese entrepreneurs, yet regions like Asia and Sub-Saharan Africa will maintain high growth rates in the next few years, and emerging regions mean lots of potential opportunities and incoming capital.