Industrial manufacturing for the digital age
23 August 2021
Industrial manufacturing is undergoing a rapid transformation and the pandemic accelerated the pace of change. Digital technologies and changing customer demands are revolutionising the manufacturing landscape and how value is created, dramatically increasing the overall level of uncertainty.
Still, there are many opportunities to drive growth. Industrial manufacturing 4.0 — or the manufacturing for the digital age — is based on digital technology and novel methods such as big data and analytics, smart interconnected devices and cloud computing, advanced robotics and automated machines as well as additive manufacturing (3D printing) and advanced materials.
Big data analytics
Modern manufacturing is a data-rich environment that supports the collection, transmission, sharing, and information analysis across the organisation to produce invaluable intelligence.
The global big data analytics in the manufacturing industry was valued at USD 904.65 million in 2019 and is expected to reach USD 4.55 billion by 2025, growing at a CAGR of 30.9% from 2020 to 2025.
Like most organisations, industrial manufacturers are creating a growing digital footprint and have access to operational and business data from their processes, assets and workflows. They can leverage this vast amount of data about their inventories, products, people, and finances to gain a competitive advantage, control costs, optimise the use of resources and manage sustainability efforts amid evolving regulations. Big data analytics enable manufacturers to optimise manufacturing and field operations and respond to key business needs by integrating the data from and into the products themselves. Big data fuels other novel technologies such as the Internet of Things, robotics and automation and AI. Intel cites automation and the effective use of data as core elements of its competitive strategy.
Industrial Internet of Things
Internet of Things refers to the network of interconnected devices that communicate via embedded sensors and wireless networks. It is revolutionising the businesses across the board.
Data-gathering and analytics capabilities enabled by the interconnected devices offer a new source of value across the whole of the supply chain and manufacturing processes, opening new possibilities never seen before.
IoT allows operational technology and information technology to join forces to transform manufacturing and empower organisations to create new ways to optimise operations and engage with customers.
IIoT or a network of interconnected devices, products and people applied in industrial settings leverage the massive amount of data produced in organisations every day to extract deep insights they can use to optimise business and manufacturing processes by streamlining operations, making better, data-driven business decisions, and using predictive analytics to see the changes in customer behaviours as they emerge.
The impact on the bottom line is palpable. It is estimated that IIoT will increase manufacturing productivity by 10-25%, unlocking up to $1.8 trillion in global economic value by 2025. At the same time, IoT applications in manufacturing are expected to generate $1.2 to $3.7 trillion of total economic value annually by 2025.
IoT devices and Big Data-powered predictive analytics applied in all areas across the board, including supply chain management, operating efficiency and predictive maintenance, enable manufacturers to reduce overhead, save resources, increase profits, and optimise operational efficiencies. According to the American Society for Quality, 82% of manufacturers which digitised their businesses increased operational efficiency and improved product quality with 49% fewer product defects.
Connected products enable manufacturers to provide continuous monitoring and offer data-driven predictive maintenance services to their customers, detecting issues before they escalate into problems. IoT is a powerful novel technology that enables manufacturers to scale easily, go to market faster and expand their offering from a holistic platform.
The use of robotics is increasing across the value chain – from production to warehousing, distribution and customer management – helping manufacturers optimise productivity, reduce defects, and cost-effectively streamline supply chains. As one of the IoT devices, capable of adjusting to changing production and logistics environments, robots can receive signals from interconnected equipment and send them to digital platforms where they are collected and analysed as a large number of datapoints carrying invaluable insights.
Additive manufacturing (3D printing) and distributed production
Additive manufacturing, also called 3D printing, refers to digital technologies that allow the creation of a three-dimensional physical object from a digital model.
It is called additive as materials are added layer by layer instead of subtracted like in a conventional manufacturing process. Because materials are only consumed (or added) where needed, considerably less material is wasted.
According to 3D Printing Industry research, additive manufacturing revenues have been growing rapidly at the annual rate of 27% over the past three decades and is expected to reach $44.39 Billion by 2025. The explosive growth is driven largely by benefits such as the reduction in manufacturing errors, development cost and time, and the capacity to build customized products.
3D printing enables manufacturers to transform the supply channel by leveraging digital warehouses and the so-called distributed manufacturing on-demand. This novel approach involves a decentralized network of 3D printers located at or near the point of use that replace traditional centralised manufacturing facilities to better meet customers’ needs and deliver goods when and where they are needed.
By being close to the end-user, on-demand distributed production reduces inventory costs, lead time, and dependency on demand forecast as the production is flexible enough to respond to unpredictable customer demand at no additional logistics costs, such as transportation, customs and taxes.
The power of digital technology for the new era of manufacturing
Digital technology is powering a new industrial revolution, impacting all aspects of manufacturing, leading to radical improvements in speed, quality, productivity, and flexibility. At the same time, it is getting more and more affordable as robots and sensors are getting less expensive but also efficient and easier to use.
Advances in information technology bring rapid transformation to traditional manufacturing, changing the landscape and enabling manufacturers to achieve operational excellence and differentiate themselves in an increasingly competitive market. Unleashing the power of digital technology for manufacturing fit new era involves collaboration between people and machines. AI-enabled advanced data analytics results in machines taking increasing responsibility for decision-making in manufacturing and will require upskilling for the workforce to enable people to work alongside machines. For manufacturers that embrace digital transformation, the benefits are vast.
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What does the future of work look like?
What does the future of work look like? This question has been on the minds of many people since the start of the pandemic. Will we go back to the office, or will we learn from the earlier periods during the pandemic and keep the hybrid office model? What is the role of technology in the new world of work? How do we create and sustain a sense of connection and belonging in the hybrid workplace?
While the economy reopens step by step, it doesn’t necessarily mean you nor your employees want to return to the pre-pandemic status quo. With plenty of time to adapt to working remotely and discovering the benefits, more and more businesses are embracing a hybrid work style. By adopting new technology, reshaping work culture, and adapting your leadership style, you can settle into a new normal going forward.
Respondents around the globe have indicated in several surveys that they would prefer hybrid models of remote working to stay. Covid-19 has broken through cultural and technological barriers that prevented remote work in the past, setting in motion a structural shift in where our work takes place. In our industry, with highly skilled and highly educated workers, research shows that more than 20% of the workforce could work remotely three to five days a week as effectively as they could if working from an office. Accounting, tax and advisory services have a high potential, with 50-75% of time spent on activities that can be done remotely without a loss of productivity.
Some 41% of employees who responded to a McKinsey survey in May said they were more productive working remotely than in the office. However, one impediment to productivity may be connectivity. A researcher at Stanford University found that only 65 percent of Americans said they had a fast enough internet connection to support video calls, and in many parts of the developing world, the connectivity infrastructure is sparse or non-existent. Developing digital infrastructure will require significant public and private investment.
So, we can safely conclude that after adapting to work-from-home life during the pandemic, not all your staff may return to the physical workplace. Given the win-win scenario of having a virtual workforce, business leaders should allow their teams to continue working from home. This is an important option if you want to be competitive in attracting and retaining the right talent for your organisation.
A survey by LaSalle Network found that 77% of companies are moving to a hybrid model, with a proportion of workers at home and the rest working in the office. For teams that work better in person, leadership can invite them back and monitor productivity as well as the mental health and wellbeing of their employees, to achieve the ideal hybrid workforce balance.
The hybrid work solution implies that organisations will be reserving most of their office space for team collaboration, training, and client meetings, though leadership would have to ensure the arrangements suit both clients and staff. Physical space will still be important. People want to get together, bounce ideas off one another, and experience the energy of in-person events. Moving forward, office space needs to bridge the physical and digital worlds to meet the unique needs of every team – and even specific roles.
Technology that facilitates communication and collaborative work effectively is crucial for hybrid workforces. Maybe you updated your tech suite of business software back when work-from-home orders were mandated. With teams working from different places, you need one centralised place where everyone can meet virtually to work.
Companies deploying cutting-edge technology with smart automation can improve job satisfaction for their employees, according to a 2019 study. Repetitive, tedious tasks are shown to impact mental health by causing symptoms like fatigue, anxiety, and depression. Technology like AI and bots now exists in our industry, and it can take the repetitive and less interesting work out of the equation. Organisations should invest in technology solutions to increase employee productivity, satisfaction, and the bottom line.
Tech issues can quickly frustrate employees who are otherwise engaged with each other. Make sure you have solid conference calling software and provide remote workers with web cams, headsets or other equipment if needed.
The remaking of work culture
Employees working remotely have been relying on technology to stay in touch, and staying connected should be promoted in the hybrid workplace culture. To compensate for not being in a physical office, business leaders and employees alike should make themselves available online as much as possible throughout the workday. Having a chat feature built into your software is the best way to go. Team leaders and managers should check in on a group chat as often as necessary, sometimes daily, to make sure employees are engaging on the live chat feature. The cadence, content, and duration of check-ins varies based on the employee. Some want daily contact with their managers, others prefer to be left alone until an update is needed.
As your new model of post-pandemic work gets put into practice, your culture will have to catch up with it. The culture at your workplace is the common beliefs and mindsets that affect employee behaviour—the individual efforts and the way employees connect and collaborate with each other. While the core values of your company won’t change, the ideas that connect people may have to differ in a hybrid work culture.
Building culture in a hybrid world means both confronting new challenges and encountering new possibilities for creating an environment that’s inclusive and empowering, regardless of whether we’re in-person, remote, or something in between. Managers need to adapt their leadership style to the new way of working. And that isn’t always easy. It is hard work to foster a sense of belonging, connectedness, and trust among your people in a way that can extend beyond the office walls. But with some genuine attention, clear communication, and open feedback you can come a long way.
While many roles in human resources departments are being overtaken by AI-enabled automation, new opportunities are opening up for liaising between employees and companies. Talent professionals can help remote workers adapt and find solutions separately from their managers or team members and be there to answer questions. In the age of automation, having a real person whose sole job is employee satisfaction and success, can make a huge difference to improving your workplace culture.
When it comes to new hires, particularly those working remotely, it is important to make them feel connected to the company and culture as quickly as possible. Besides the direct manager, connecting the new hire with different people at different levels in different parts of the organisation as soon as possible is important. So, for instance, a peer in another line of business, a senior leader, and a lower-level colleague. The idea is to build a network of supporters and enablers that the new hire can go to for advice and learn about how things work at the organisation.
What does leadership look like in the new world of work?
Modern organisations were built on a foundation that is no longer relevant: the idea that you must be physically present with your people to see and evaluate their work. Now that we’ve proven employees can be productive and companies can be run with remote employees, our beliefs about management are shifting too.
Some organisations are concerned about how their leaders cope with the new circumstances of remote work. Some leaders are out of touch with their employees and need a wake-up call because the need for connection between managers and employees has never been greater.
Over the last year, people have been doing a lot of self-reflection on what’s important to them in their personal and professional lives. As a result, their priorities and goals have likely shifted. Leaders should not be afraid to go deep with people about their feelings. It is important for leaders to know what is important to each individual. An example of a topic to be discussed between a manager and an employee is what it means to work at that specific organisation; what are the purpose and values that are important? This can help foster a deeper connection, provided both sides can listen to each other’s view without judgement.
Another tip for business leaders is to not only listen carefully to what is being said, but to think about the how, what, and why of what you are hearing. Observe how your employees interact with you, colleagues, other teams, and those at levels above and below them. Paying attention to those details can help you anticipate the needs of the people in your team.
At the new stage of people returning to the workplace new very practical questions pop up for business leaders, they may need to decide whether or not to require jabs for employees. Either move is a gamble. Some organisations have mandated that all workers must get vaccinated, or at least divulge their vaccination status, before returning to the office. Plus, more organisations are making customers show proof of vaccination (or a recent negative COVID-19 test) to get service. It isn’t a decision that leaders are taking lightly. Many have wanted to impose a mandate; one spring survey from Korn Ferry indicated that 72% of current and recent CEOs of major companies were open to mandates. However, vaccinations have become a political hot potato. If a company does decide to mandate vaccines, it needs to complement it with a full education program. Set up town halls for all employees, so they can learn about the efficacy of vaccines along with the risks to themselves and others of not getting vaccinated.
Stay or go?
The data around quitting is the starkest indication that change is now the new normal. Being able to work remotely has opened up new possibilities for many workers. If you no longer need to be physically present in an office, your employer could, theoretically, be located anywhere. Some 46% of the people surveyed for a recent Microsoft report said they might relocate their home because of the flexibility of remote working.
With employees feeling they have more flexibility than ever, they increasingly are focused on making their job work for them. Employees are quitting instead of giving up the possibility of working from home. Some 41% of workers globally are thinking about handing in their notice, according to a recent Microsoft survey. The main reason given for considering quitting is if their employers weren’t flexible about remote work. The drive to get people back into offices is clashing with workers who’ve embraced remote work as the new normal. If anything, the past year has proved that lots of work can be done from anywhere, without lengthy commutes on crowded trains or highways. Some people have moved. Others have lingering worries about the virus and vaccine-hesitant colleagues. But as office returns accelerate, some employees may want different options. The lack of commute and spending more time with their family are among the top benefits of working from home.
Talent professionals and team leaders must get involved in understanding each employee’s needs and purpose for being at the company and follow-up to help ensure their job is giving them what they want from work and their employer. Some CEOs have already said that they will let their people choose where they need to be to do their best work, in balance with their professional and personal responsibilities. The important task for both leadership and talent professionals is to align the employee’s intentions with those of the company.
Many companies have found that working from home cuts costs, while employees have adapted their lives to working remote. The future of work post-pandemic will embrace a hybrid of what existed before the pandemic combined with what worked for the better during lockdown mandates. And we have to keep in mind that the pandemic has only accelerated trends that have been a long time coming: digitisation of workplaces and the platform economy, the expansion of remote and flexible work, and virtual education.
There are no one-size-fits-all answers when it comes to hybrid work. But there are research-based best practices and experience-informed strategies for ensuring that your organisation and employees reap both the benefits of working remotely and the strengths of traditional co-located work.
All this needs to be done based on flexibility, adaptability, and choice for both employers, employees, and customers, supported by clear communication.
How the Dutch Meat Tax could affect the global food and beverage industry
In an effort to reduce emissions and encourage healthier, greener lifestyles across Western Europe, many national governments are now taking up the idea of a levy or tax on meat, with an accompanying subsidy of fruits and vegetables. The goal would be to increase the price of meats like beef, pork, and chicken to better reflect environmental costs, which until now have not been reflected in the prices of these products. These environmental costs include CO2 emissions, as well as biodiversity lost to unsustainable farming practices.
Since Western European countries are some of the biggest consumers of meat in the world, this tax could potentially have a huge impact on exports. Most citizens of Western European countries consume an average of 80-90kg of meat per year, ten times the average of less developed countries like Rwanda and Ethiopia.
This tax and subsidy combination has the potential to have a hugely positive impact on the area as a whole, starting with the first countries that are discussing possible implementation, like in the Netherlands. In this article we’ll discuss the Netherlands’ history with this proposal, and the potential outcomes if it’s introduced as promised in the coming months.
Background on the Meat Tax proposal in the Netherlands
The Dutch Ministry of Agriculture, Nature and Food Quality recently announced plans to introduce this proposal to the Dutch Parliament in a session on April 22, 2021.
Although the Netherlands is one of the first individual EU countries to propose introducing the meat tax at a national level, it first came to international attention when it was discussed as part of a European Parliamentary session on February 5th, 2021.
The proposal was based on a report presented to MEPs by the True Animal Protein Price (TAPP) Collective, an organisation that seeks to introduce “effective policy measures aimed to lower consumption of meat and dairy by introducing fair prices for meat and dairy products, including environmental and other costs.” The coalition is made up of farmers, animal welfare and climate activists, as well as food companies.
Effectively, the TAPP Coalition’s proposal would introduce a higher tax on meat (some have proposed up to a 30% increase), which would be used to offset VAT on fresh produce by as much as 10%. It’s estimated that within the next 10 years, this could result in a fund of €32.2 billion per year spread across the EU Member States, which could be used to assist farmers who want to invest in more sustainable agricultural practices.
How it could affect meat exports in the Netherlands
After the meat tax proposal was created, market research company DVJ Insights was brought in to survey the general population in countries like the Netherlands, Germany, and France. They found that this proposal was broadly popular, and was surprisingly even more popular among members of traditionally centrist-right wing parties like Germany CDU/CSU and the Netherlands’ CDA, CU, SGP, and VVD. Overall, estimates put support at a robust 70% of Europeans.
The Dutch Minister of Agriculture, Nature and Food Quality has been pressed to give some insights on how this proposed tax could affect food and beverage businesses, as well as general consumers. She has said that she expects businesses to pass on these higher food costs to consumers at a rate of 75%. As long as businesses pass on these new taxes equally, the market will remain competitive.
In addition, the proposed tax on meat will hopefully lead to lower prices of fresh produce, which should encourage greater consumption of healthy and sustainable fruits, vegetables, and related products. In the end, most families may notice a small increase or even a reduction in their grocery spend, if they’re able to buy less meat, and take advantage of the lower cost of produce to purchase more of these items.
How this tax could affect Dutch competition on the global market
Most members of the Dutch Parliament support this tax proposal because they believe that it will have a net positive effect on their country’s ability to compete in a crowded export market.
By making more money available to invest in sustainable farming initiatives, they can support the next generation of farmers to ensure that they have what they need to succeed in a competitive global market.
However, some meat producers have pushed back against the data set used to determine the proposed tax. “The report does not take into account the protein density of meat,” says a spokesperson for the Liaison Centre for the Meat Processing Industry. “If emissions were calculated on the basis of essential amino acids instead of weight, the production of some crops that are used as a source of ‘alternative’ proteins would become more emissive than beef, pork or chicken.”
Determining the outcome of the proposed Meat Tax
Ultimately, this comment from the Liaison Centre for the Meat Processing Industry shows that there is still a lot to be determined before the Netherlands, any other EU country, or the EU itself puts a higher tax on meat in place. Although net positive effects on public health and healthcare costs, sustainability, and animal welfare can be expected, governments still must commit to consultation with meat producers and agribusinesses to ensure that they’re able to weather this change along with consumers.
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Why accounting firms are best placed to offer cybersecurity services
Cybersecurity is a major concern for businesses of all sizes. In fact, the threat of a successful cyber-attack increases every year. Without a protection plan in place, your business, customers, and data are all vulnerable. Even worse, if a cyber-attack occurs, you may never recover from the damage to your reputation and the cost of dealing with the fallout.
Working with our accounting firms that also provide cybersecurity services is one of the best ways to protect your business. In fact, our teams are uniquely suited to provide these critical services. Here are a few reasons why:
1. We’re trusted business advisors
Many large accounting firms already provide their clients with security and control-related services. This may include auditing, examinations, and advisory services. Since you already trust your accounting firm to help you achieve your business objectives, so it’s not a far leap to extend the services they provide.
Rather than spend valuable time interviewing a new firm that you’re not sure you can trust, adding new services from your accounting firm will save you time and give you additional peace of mind.
2. We take a holistic approach
Involving all levels of an organization’s management and your most trusted advisors allows you to take a holistic approach to your cybersecurity, rather than piecemealing it together. Considering how quickly the business and cyber landscapes change, this is truly the only way to stay ahead of the continually evolving threats and risks facing your business.
Accounting firms that offer cybersecurity services often have multidisciplinary teams that bring a combination of unique strengths to the table. From expertise in performing audits to extensive IT and cybersecurity knowledge, a knowledgeable accounting firm is uniquely positioned to detect potential vulnerabilities and provide actionable advice to help minimize risk.
3. We’re experts in preparation and protection
Properly protecting your firm from cyber-attacks requires organization and attention to detail. Trusting your accounting firm to handle your cybersecurity means you’re choosing an expert who is already familiar with much of the data and information that requires protection.
Since we’re already knowledgeable about the interior workings of your firm, your accountant can easily detect areas of vulnerability and make recommendations to close any potential areas of weakness.
4. You’ll Enjoy Cost Savings
While many cybersecurity firms cater to large businesses and organizations, the threat is very real for businesses of all sizes. Working with accounting firms that offer cybersecurity is often a much more cost-effective solution for small and medium-sized business owners.
Is Your Company Currently at Risk?
Now that you understand the benefits of working with an accounting firm that offers cybersecurity services, you may wonder whether your company is currently at risk. In almost all cases, the answer is yes!
If your business handles any type of sensitive client data, you’re responsible for protecting it. This includes Personally Identifiable Information (PII), Protected Health Information (PHI), and cardholder data. There are a variety of laws in place that dictate your responsibilities.
For example, if you’re located in the United States, you must follow the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Payment Card Industry Data Security Standard (PCI), and other applicable laws. There are also state breach notification laws that clearly explain your cybersecurity compliance obligations. In Europe, you’re required to follow General Data Protection Regulation (GDPR) rules. Failing to meet the rules that apply to your business and location can land you in serious trouble and cause irreparable damage to your business and your brand.
Companies that are considering or are currently undergoing a merger or acquisition or that have insufficient IT resources may experience even more cyber-vulnerability.
If any of these circumstances apply to your business, it’s important to consult with a cybersecurity expert as soon as possible.
Common Types of Cyber Attacks
Understanding how to avoid cyber attacks is one of the most important things you can do to protect your business. Here’s a look at some of the most common types of attacks business owners face:
Unfortunately, phishing attacks are becoming more common and more sophisticated. They often arrive in the form of an email that looks legitimate but is designed to dupe you into providing valuable information like your passwords or credit card information. These emails will often appear to come from your bank, a large retailer, or other trusted entity.
The term “malware” is short for “malicious software.” It’s unwanted software that is installed on your device or system without your knowledge or permission.
There are many different types of malware. Some, like spyware, are designed to track what you’re doing and gain access to your credentials and other valuable data. Others, like ransomware, are created to extort the victim while still other types are simply designed to create some type of disruption.
3. SQL Injection
If your business uses a database-driven website and the permissions are not set properly, attackers may be able to exploit the system to read, modify, create, or delete the data stored in your database. In some cases, they may also be able to shut down the database, recover deleted content, and even issue commands to your operating system.
Learn More About HLB’s Cybersecurity Services
HLB’s Cyber and Information Security Systems team is dedicated to helping businesses and organizations prepare for and protect themselves against cyber-attacks. If an attack occurs, we’ll provide you with the immediate support you need to quickly respond and recover, so you can minimise potential damage to your business.
To learn more about our cybersecurity services, contact us for a free proposal.
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Whistleblowers protected by EU Directive from December 2021!
By Patrick Van Impe, HLB Belgium
Until the introduction of the EU Directive on this subject, only a few EU countries had comprehensive legislation on the protection of so-called whistleblowers (the Netherlands, Norway, UK). Other countries limited themselves to reporting misconduct only in the public sector (Belgium).
With the introduction of this EU Directive, this is now extended to both the private and public sector and to all EU countries. The EU Directive obliges the member states to enact legislation by 17 December 2021 that will better protect the potential whistleblower in the private or public sector who report infringements of EU legislation.
These include, for example, breaches of financial services, consumer protection, data protection, GDPR, product safety, transport safety, food safety, environmental protection, public health, etc.
The Directive protects whistleblowers who have obtained information about breaches in a work-related context. This may not only concern employees or civil servants, but also applicants, former employees, self-employed persons, shareholders, directors, trainees and anyone who works under the supervision and direction of (sub) contractors and suppliers.
Its most notable features are:
- Effective, confidential and secure reporting channels
- The Directive imposes an internal hotline for (i) legal entities in the private sector of at least 250 employees by 17 December 2021 (50 employees – 17 December 2023) and for (ii) all legal entities in the public sector (although Member states may provide for an exemption for municipalities with fewer than 10,000 inhabitants or fewer than 50 employees or other entities with fewer than 50 employees).
- At member state level independent and anonymous external reporting channels
- Protection against dismissal, witholding promotion, financial sanction, change of working hours, intimidation, harassessment
- Confidentiality = protection against both identity and content
- Protection not only for the whistleblower but also for those who assist him/her
- Financial, legal and psychological support
Detection of occupational fraud
What is occupational fraud? One commits occupational fraud when individuals or groups of individuals make illegal use of their occupational position for personal advantage and victimise consumers, colleagues or/and the own organisation.
According to the last available Report to the nations for Western-Europe (2020 Global study on occupational fraude and abuse – ACFE), 43% of all occupational fraud is initially detected by a tip coming from employees (50%), customers (22%) or vendors (11%). We can therefore expect that the number of reports of occupational fraud will increase significantly with the introduction of this legislative framework, and with that the volume of fraude investigations in the future. Furthermore, the study shows that median losses were nearly doubled at organisations without hotlines.
In general those who are closely involved with this subject prefer to refer to the term ‘reporters’ rather than ‘whistleblowers’, considering the courage it takes and the positive effect it brings to society. Reporters can be crucial to bring to light incorrect behaviour, illegal activities and to save the ethical culture and values of an organisation, the environment, or even lives (product safety, food safety, public health).
Studies also show that staff members prefer to express their concerns regarding irregularities rather informally, choosing to talk to their direct supervisor (28%), the fraud investigation team (14%), internal audit (12%), a co-worker (10%), HR (6%) or other (15%).
How to protect your organisation against occupational fraud?
Still, according to the same Report to the nations, the most obvious anti-fraud controls in Western Europe are:
External audit 83%
Code of conduct 81%
Internal audit 74%
Anti-fraud policy 56%
Fraud training for managers / executives 55%
This illustrates why fraud prevention is often a culture-driven topic. All too often, a significant incident occurs before proper attention is given to fraud prevention. We should all be warned, and not let it come to that.
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The post-pandemic agriculture, food and beverage supply chain
By Arjan Mulders, HLB Netherlands
The COVID-19 pandemic hit the agriculture, food, and beverage sectors hard. Our 2021 survey found that 81 per cent of business leaders consider the consequences of COVID-19 the biggest business risk. Empty supermarket shelves revealed weaknesses in their supply chains. Consider that the supply chain affects producers, distributors, food-processing plants, and consumers. In many food-processing plants, production ended up either reduced, suspended, or temporarily discontinued due to workers who tested positive for COVID-19. Less production in processing plants meant less food on grocery store shelves.
The pandemic changed consumer behaviour and increased the demand for food. Closures of restaurants or limited-service at restaurants affected both the eating and buying habits of consumers, which resulted in a shift in demand from food service to retail. The number of trips to supermarkets greatly increased, with consumers focusing on staples with long shelf life such as pasta, canned foods, and frozen foods. Out of necessity, consumers preferred home delivery and takeaway options. Post-pandemic consumers are likely to continue buying groceries through home delivery. Consumers said grocery delivery is something they will continue to do post-pandemic, a survey found.
COVID-19 also disrupted the food supply chain, including crops rotting in the fields due to a lack of farmworkers. For example, European asparagus farmers lack enough workers to harvest the crop because border restrictions make it impossible for migrant workers from Eastern Europe to come to their farms. Even when produce gets harvested, some food processing plants scaled back or shut down to contain COVID-19. In addition, international transport of fresh foods is difficult due to border controls and freight restrictions.
The effects of international trade disruption
In addition to COVID-19, trade disruptions pose a problem for supply chains, with 58 per cent of those participating in our survey reporting concerns about international trade flow disruption. Trade routes are necessary for a global economy and few food and beverage companies can survive without international trade. A large container ship stuck in the Suez Canal for a week serves as a good example of the importance of trade routes. The blockage of the ship stopped 400 ships from moving through the Suez Canal and cost around twelve per cent of global trade.
COVID-19 itself disrupted international trade. Global merchandise trade recorded the biggest decline in one period in the second quarter of 2020, decreasing 14.3 per cent compared to the first quarter, according to a paper published in February 2021. The pandemic affected international trade in many ways, as the Organisation for Economic Cooperation and Development lists. When the pandemic began, ships in Chinese ports dealt with restrictions on their movement, which caused a shortage which led to a rise in the price of containers. Lockdowns impacted labour available to unload ships at ports and increased costs due to the added protective measures for workers. Supply chains, in general, remain affected by added health and safety measures for workers, and that affects both time and costs.
The post-pandemic food and beverage industry
Post-pandemic life will return to normal but for the agriculture, food, and beverage sectors that normal will not look the same as it did before COVID-19. Our 2021 survey of business leaders found that 60 per cent of business leaders surveyed believe that global growth will decrease in 2021, and only twelve per cent are confident their organisation can grow revenue. Twenty-four per cent of agricultural leaders say they are not confident in their company’s ability to grow revenue over the next twelve months. That seems to suggest that business leaders expect a downturn for the agricultural industry, which makes sense given that the pandemic hit industries hard that rely on the agricultural industry.
As lockdowns lift, restaurants return to in-person service and schools re-open, which increases the demand for bulk food supplies. Post-pandemic, the demand for food and beverage products will increase, and whether the increase occurs as fast as some anticipate or the build-up is slower, operational efficiency is key. Can the agriculture, food, and beverage industries keep up with the demand? As David Dollar, Senior Fellow at the Brookings Institute points out, for all sectors to keep up with the post-pandemic changes, they will need to improve operational efficiency. The good news is that in our survey, 72 per cent of agriculture leaders plan to improve operational efficiency.
There is more room for optimism. Our survey found that a high percentage of agriculture leaders suggest improving operational efficiency is a key way they will enhance their business in 2021, while 51 per cent of them plan to launch new products and services. Three-quarters of leaders also said they feel confident about their ability to grow in the next twelve months. Time will prove if the confidence business leaders put in their ability to grow in the next twelve months measures up to the ability of supply chains to keep up with post-pandemic demand. If food and beverage companies embrace operational efficiency and realize that a new normal will exist post-pandemic, the confidence expressed in our survey will prove prophetic.
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Foreign direct investments in Brazil and the FinTechs revolution
By Marcelo Fonseca, Global FDI Leader
Brazil has the largest economy in south America, and with a population of around 210 MM people this country represents a huge consumer market. Although inequality is a major problem, the potential market of Brazil is unarguable.
No differently from other countries, COVID-19 hit the Brazilian economy hard. Central government implemented several programs to support workers and businesses, and in response, fiscal deficit rose substantially. Fiscal measures seemed to be efficient at first, however, the second wave of the pandemic is again pressuring the weak situation of the fiscal imbalance.
Fiscal deficit and the path of its size in relation to Brazilian gross domestic product (GDP) must be addressed, as the sustainability of government debt usually impacts exchange rate and inflation. A feasible reduction of fiscal deficit must be part of central government commitment, amongst other measures, to guarantee public debt is payable.
The economy is expected to resume its growth path when vaccination rollout gains traction. Social distancing has affected several economic sectors and lockdowns are still being used to control the spread of the disease.
Although mass vaccination may pave the way to resume normal life, the agenda of sustainable growth depends on reforms – namely tax reform and administrative reform (to reduce the cost of the public sector). Tax reform is expected to raise productivity and to bring more social justice to the tax system. Parliament will be key to ensuring both proposals will be discussed during 2021.
Even with such an uncertain future, business opportunities are arising. To be more specific, the financial sector, and the potential to provide services to a large consumer market, is witnessing the rise of FinTechs (Financial technology – use of technology to improve financial services). Venture capital investments are soaring, with start-ups investing heavily in technology and innovation.
The technology revolution of the internet and the massive use of smartphones have made it possible to access the consumer market. Traditional banking may face a relevant change to its strategies, dealing with large fixed costs and branding issues. FinTechs are challenging incumbent players, with a positive impact on consumers and the economy.
The Brazilian Central Bank (BCB), in an unprecedentedly strategy, is backing all initiatives that may lead to a more competitive banking industry. The outcome expected will lower borrowing and transaction costs for companies and will boost investments in technology and innovation. This “revolution” has the potential to fill in an important gap in Brazil´s corporate culture as start-ups are focusing investments in technology, that may bring competitive advantages and the emergence of technological innovation.
This report is divided as follows:
- Macroeconomic outlook;
- Regulatory environment;
- Foreign direct investments;
- FinTechs landscape.
Brazil´s macroeconomic outlook
The COVID-19 pandemic upended the Brazilian economy as its growth is staggering since 2012. For the year 2020 negative growth was -4,1%. This result was mitigated due to the stimulus package released last year. Brazil´s package was the largest among the G-20´s emerging economies (8,3% as a share of GDP). When compared to its peers in Latin America, the Brazilian economy shrank less.
Fiscal imbalance, aggravated by the stimulus package, brought uncertainty to the market with impact on interest rates and the exchange rate. Brazilian Real (BRL) devaluation and its correlation with tradeable goods prices negatively affected inflation. Consumer price index rose 4,52% in 2020. Estimate for 2021 is higher (5%). In response, Brazilian Central Bank (BCB) raised SELIC (Brazilian federal funds rate) rate to 2,75% (previously set in 2%). Controlling inflation with a weak recovery of economic activity will impose an extra burden on an already high unemployment rate (14.2%).
Resuming economic activity will rely on vaccination rollout and addressing the problem of fiscal deficit. Without these the economy will continue suffering the social distance/lockdown effects and exchange rate and financial conditions will sustain high inflation rates. As already mentioned, BCB´s remedy is to raise SELIC, affecting consumption and investment. This vicious cycle imposes a challenge to policy makers and is not unusual in Brazil. In fact, dealing with the fiscal subject seems to be the major problem, with inflation, exchange rate devaluation and unemployment, being by-products.
Immunisation becomes an important economic indicator once full economic activity depends on social interaction. Some countries have taken this subject strategically (e.g. England, Israel, United States) with good results that should be reflected in economic recovery.
Initially, the Brazilian central government chose the Oxford-AstraZeneca vaccine to be its main immunisation drug, leaving aside negotiations with all other producers. In parallel, São Paulo State engaged with the Chinese producer “Sinovac Biotech” to produce this locally. As of today, 80% of immunisations are from Sinovac and 20% are from Oxford-AstraZeneca. Production of both is not continuous as the raw material needed (IFA – Active Pharmaceutical Ingredient) is imported and some delays are being observed. For this reason, immunisation is not following the desired path.
The corollary for this situation is a sluggish economic recovery, with social distancing measures and lockdowns still being applied in several regions of the country.
Brazilian businesses have been dealing with lots of regulation, a legislation difficult to comply with and bureaucracy. Not only are there lots of taxes to be calculated, but also companies must prepare and deliver ancillary obligations in time. The time allocated in these activities, and the resources spent, amount to an unnecessary and unproductive number of hours. Tax reform should also deal with outdated paperwork.
Anachronic bureaucracy translated into a struggle to obtain environmental and construction permits to start a new business (also to liquidate one) reflecting a needed change of mentality and the introduction of modern processes in the public sector.
Differences in culture and productivity between private and public sector must be addressed. The administrative reform of the public sector must not only reduce public spending with servants, but should also introduce mechanisms of motivation to improve public services.
Overall regulation and the comparison with other economies is better captured by the report “Doing Business” issued by The World Bank. As stated on this report:
“Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies— from Afghanistan to Zimbabwe—and over time”.
Figures below represent each item measured and its rank among 190 countries. An overall rank is given to each country in accordance to the World Bank method.
Foreign direct investments into Brazil
The Covid-19 crisis will negatively impact FDI inflows during 2021. Rearrangements of supply chains will be key to FDI prospects. Also, M&A projects have been suspended. Challenging operational and logistic conditions, and strategical reallocation of capital will tighten the inflow of capital.
Brazil, with its environmental policies being criticised, may struggle to attract capital, as society and corporations are monitoring how countries deal with the environment. Political turmoil and mismanagement of pandemics will also adversely affect inflows.
(Information below comprises completed projects)
The Brazilian banking industry enjoys very weak competition, since it is highly concentrated. For decades regulators (Brazilian Central Bank to be specific) saw a conflict between competition and systemic risk. Mergers and acquisitions occurred freely. Predicted outcome materialised: high bank spreads, poor quality service, fees and charges of all kinds and low investment in innovation.
On the other hand, demand for financial services, mainly online, has risen substantially during the pandemic. Even informal workers granted with emergency aid from federal government during 2020, most of them with no bank account, had to download an “app” to manage funds.
The response to this market structure, and line of services provided by traditional banks, came along with a vibrant venture capital industry and an unprecedented entrepreneurial spirit. It was obvious that a great market was unattended and that major banks were too conservative to reach it. FinTechs have risen to fill this gap and to compete with incumbent players.
Funding, technology and innovation, together explain the emergence of start-ups with a focus on financial services. However, important help came from the regulator. The Brazilian Central Bank has been supporting this important market change, through friendly legislation and several initiatives (see box Agenda BC#). At the end of the day, a more competitive market will emerge, with lower prices, better intermediation and more efficient resource allocation.
The FinTech market is extremely segmented with a wide range of services and subcategories:
- Backoffice (accounting, financial management, pricing);
- FX services;
- Cross border payments;
- Prepaid and credit cards;
- Credit (P2P lending, marketplace, anticipation, consortium);
- Crypto Coins (brokerage, investments, payments);
- Crowdfunding (equity crowdfunding, project crowdfunding);
- Debt negotiation;
- Customer loyalty (benefits program, loyalty program);
- Personal finance;
- Investments (financial assets, investment management, marketplace);
- Means of payment (mobile, processing);
- Risk and compliance (risk analysis, antifraud);
- Digital services (digital banking, eWallets);
- Technology (banking as a service, open banking).
According to a report from ABVCAP – Associação Brasileira de Private Equity e Venture Capital (Brazilian association of venture capital and private equity) and KPMG, the year of 2020 registered an impressive amount of venture capital (traditionally focused on start-ups) investments (BRL 14.6 billion). This amount was higher than the total investments in private equity (BRL 9.1 billion). The appetite for high risk shows the potential of returns from this market. Technology and regulation lowered entry barriers. Traditional banking needs to be reinvented or needs to partner with start-ups.
BRAZILIAN CENTRAL BANK INITIATIVE TOWARDS A MORE EFFICIENT AND COMPETITIVE FINANCIAL SYSTEM
“Ensuring to society the stability of the currency purchasing power, and a sound, efficient and competitive financial system.”
Agenda BC# comprises five topics: Inclusion, Competitiveness, Transparency, Education and Sustainability.
#Inclusion actions aim to provide access to market for small entrepreneurs, investors and borrowers, not only domestic but also for foreign clients, through the promotion of digital platforms and simplification of bureaucracy. Reduce the participation of public funds on credit operations is one of the main objectives of this program.
#Competitiveness seeks to promote a more competitive market through intensive use of technology. More competition leads to a more accessible market and lower costs. Highlights of this topic are:
– “PIX” – Brazilian instant payments: this system allows a 24/7 transactions in real-time via smartphones (transfers are processed in seconds). This new technology not only reduces transfer costs but also will meets the demand of rapid growth of mobile commerce in Brazil.
– Open Banking Systems: sharing customers data among financial institutions at customers´ discretion will help enhance competition by lowering switching costs and information capture.
#Transparency aims to improve the quality of regulator communication (e.g. monetary policy), central bank´s initiatives, and to strengthen relation with Brazilian government and interaction with public and the media.
#Education promotes financial awareness among citizens and to cultivate the habit of saving. Partnership with financial institutions and to include financial education as a mandatory content on the national curricular common base.
#Sustainability promotes sustainable finance and management of resource allocation and climate risks within the National Financial System.
Source: Brazilian Central Bank (www.bcb.gov.br/en/)
As the hospitality industry struggles, taxes are knocking on the door
By Carlos Camacho, HLB Colombia
One of the long-term effects of the pandemic – besides the business effects that vary between different activities in the hospitality industry – are the tax consequences that result from the dramatic changes due to COVID-19.
The hospitality industry in general, was performing at a great level until December 2019, while the pandemic was in gestation. Hotels, restaurants, adventure activities, airlines and all related services attached to that “normal” situation were in a booming stage; then suddenly every single activity related to hospitality reduced almost to nil.
Countries in full lockdown stopped hospitality and the freedom mobility value chain. Almost every flight was cancelled and a zero-tourism season – never seen before – became a reality. The nightmare started…
Despite all this well-known reality, governments have spent their scarce resources trying to address at least three priorities:
- To solve the health effects of the pandemic,
- To mitigate huge unemployment rates, another consequence of the lockdowns, and
- To compromise on both current and extraordinary expenditure; whilst income derived from taxes is also plunging, stressing the conditions of deficit severely.
The OECD has stressed the fact that governments must focus on getting the economy back to work, while acknowledging that fiscal equilibrium might not be the goal for 2020 -2022. Yet all jurisdictions are seeking innovative ways to obtain fresh fiscal income that will start the road towards the fiscal recovery.
Knowing this, the hospitality industry must prioritise transfer pricing and its impact in their taxable bases, when dealing mainly with cross border transactions. These cross border business relationships with related parties will become subject to scrutiny.
Thresholds vary from jurisdiction to jurisdiction and relevant documentation as well, yet most of the countries imposed the burden of proof on the taxpayer to document that those transactions with related parties are in accordance with the arm´s length principle.
On December 18th, 2020, the OECD issued a paper titled “Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic.” This document stresses the severe impact of the pandemic and the consequences of it, using several business models to illustrate the impact on the normal circumstances of transfer pricing adjustments, to be considered by both the tax administrations and taxpayers as well.
“Accordingly, this guidance focuses on how the arm’s length principle and the OECD TPG apply to issues that may arise or be exacerbated in the context of the COVID-19 pandemic, rather than on developing specialised guidance beyond what is currently addressed in the OECD TPG. This guidance focuses on four priority issues: (i) comparability analysis; (ii) losses and the allocation of COVID-19 specific costs; (iii) government assistance programs; and (iv) advance pricing agreements (“APAs”); where it is recognised that the additional practical challenges posed by COVID-19 are most significant.”
 OECD. Guidance on the transfer pricing implications of the COVID-19 pandemic. Dec 2020. Pg. 2.
Be aware that matters that are obvious today, might not be clear some years from now; when businesses in general may get back to their regular operations. You should have highly well documented the elements of current circumstances, mainly those issues about comparability analysis of your support documentation of related parties’ transactions, awaiting the audits by tax authorities.
Undoubtfully, economic activity for hospitality businesses would not be comparable to the pre-existing conditions prior to COVID-19. It is going to take many years to recover and get back on track, if ever, to those pre-2019 levels.
The OCDE’s recommendation is to create the appropriate documentation that shows the effects of the extraordinary expenses needed to be incurred as result of the pandemic, in an isolated manner. It would also be wise to create a separate profit and loss statement that illustrates the evidence of these effects. The need to isolate this is critical for the comparability analysis, mainly for the first quarter of 2020 and any periods of permanent or temporary reopening, so that the database analysis can be adjusted when doing the extraordinary adjustments that will be triggered by the COVID-19 effect.
It is also important to have clearly segregated information in the P&L, such as the received government support programs when applicable. Do not mix such income with regular income that will distort comparable numbers.
It is highly recommended to contact your team of transfer pricing experts to solve multiple issues regarding COVID – 19. Consider that there would be a high level of uncertainty surrounding tax inspections in the future. Our best advice is to fully document everything, to prepare for huge and potentially massive audits induced by the lack of fiscal resources.
At HLB we understand the hospitality industry and have vast experience in cross border transactions that could become a new nightmare soon. We will move from the pandemic to the endemical effects in taxation and in transfer pricing matters.
Pride month at work
Blog by Marina Kooijmans, HLB's Chief People Officer
8 June 2021
Every June, the world celebrates diversity and inclusion with Pride month. It is a time to recognise the importance of diversity in our communities and businesses around the world.
Pride month is a global movement to show support for and raise awareness of the LGBTQ+ community. Currently most business, whether they operate globally or locally, big or small, are starting to acknowledge the need for a more inclusive and diverse workplace. Pride month is an opportunity to celebrate the differences and similarities that bind us together and make sure that everyone feels welcome, respected, and comfortable in their own skin, regardless of sexuality, race, gender, religion, or ability.
For the most part, many organisations are supportive of LGBTQ+ employees. However, as with all other forms of discrimination there is still a very long way to go to ensure that we stamp out discrimination against LGBTQ+ colleagues everywhere, once and for all.
The end of discrimination at work starts with the development of strong internal talent policies that focus on diversity and inclusion. An inclusive and diverse workplace matters, not only for the employees of the firm but for long term business success.
What does diversity and inclusion at work look like?
Strong policies are a fantastic start, but diversity and inclusion at work should move beyond a legal policy obligation. In its core, diversity and inclusion in the workplace should be that no-one feels left out, discriminated against, passed over for promotion, or singled-out for a development opportunity because of their gender, sexual orientation, age, ethnicity, or their ability. Everybody is entitled to a sense of belonging.
A sense of belonging is not just a critical component of improving workforce performance, it is woven into the fabric of human nature. Belonging is the feeling of psychological safety that allows employees to be their best selves at work. Even at the most diverse of companies, employees will disengage and leave if they do not feel respected.
Firms that want to remain competitive in a rapidly changing world should continue to focus on adapting their people processes to attract, retain and develop talent from a truly diverse talent perspective.
At HLB International, our people are our biggest and most valuable asset. Each person’s individuality and unique point of view contributes to our success as a global network as we work together towards a common goal. We are committed to creating a respectful and safe environment for every one of our nearly 30,000 people – no matter their race, religion, gender or sexual orientation.
Building an inclusive culture where people can be their authentic selves is at the core of our purpose and values. Engaged, connected employees bring their best ideas and the best attitude to work every day – and in turn, deliver the best services to our customers across the globe. We also know from experience that there is a strong correlation between employee engagement and customer experience.
Why is diversity and inclusion in business important?
As well as the apparent benefits of a healthier, more productive workplace, a diverse and inclusive workforce offers deep and broad benefits across the entire organisation. Having a diverse workforce will create a more heterogeneous group of people, allowing an organisation to see things from different points of view, helping both the individual employees, and the business as a whole to reach their full potential. It creates a better experience for everyone, and, ultimately, develops a culture of creativity and innovation and better outcomes for customers worldwide.
A diverse organisation will gain a better understanding of their customers, because it is likely that customers come from diverse backgrounds as well, with large cross-sections from underrepresented groups. A diverse and inclusive workforce could therefore support a firm to tap into markets represented by their customer base.
A report from LinkedIn about global recruiting trends from 2018 found that diversity is directly aligned with a company’s culture and financial performance. In fact, 78% of companies prioritise diversity to improve culture and 62% do so to boost financial performance.
Companies that embrace LGBTQ+ policies outperform their competitors. Cultures that embrace the diversity that the LGBTQ+ community represents help to attract top talent and foster innovation, and people perform significantly better when they can be themselves at work. Yet more than a third of LGBTQ+ staff still choose not to disclose their sexual orientation at work for fear of discrimination.
How to support LGBTQ+ colleagues at work
During Pride Month we’d like to suggest ways that your business can support LGBTQ+ colleagues in the workplace:
- Better anticipate the LGBTQ+ community
Start by ensuring that all your talent activities and policies are created through an LGBTQ+ lens. For example, when it comes to parental leave, not all parents are heterosexual, some fathers are the primary caregiver, and anyone may decide to adopt a child. The various scenarios should be anticipated, and a fitting policy built and communicated to employees.
- Reward inclusive behaviour
Firms need to be braver in their journey towards a more inclusive and respectful culture. This can start with keeping employees accountable for inclusive behaviour. To be engaged and supportive of inclusion, which includes respecting LGBTQ+ colleagues, means that anyone who is being successful in their role, should be considered for promotion as an essential hallmark of performance.
- Search for active allies
Allies are proactive in their support and defence of individuals in an underrepresented group. To be a true ally means taking on the struggle of another as your own, carrying the weight felt by those in a marginalised group and never putting it down. Allyship means valuing people with experiences different from your own, learning about privileges and unconscious biases. Allyship is a journey of personal learning and growth, but it is also a powerful driver of broader change. By helping your firm to understand and embrace a wide variety of experiences and viewpoints, it empowers the people in your organisation to challenge themselves and others to drive meaningful change and to create a workplace where everyone can thrive.
Diverse perspectives, combined with an inclusive culture, drive better decision-making, stimulate innovation, increase organisational agility and strengthen resilience to disruption. Inclusive organisations maximise the power of all differences and realise the full potential of their employees. Creating and maintaining a culture of diversity and inclusion can help organisations sustain long-term success in the marketplace. The change we realise inside the workplace will end up having a broader positive impact on all aspects of our lives. And not just this Pride Month, but always.
Above all, Pride month should prompt us to think about the role each of us plays in fostering LGBT+ inclusion. Looking out at the world, with the COVID-19 pandemic highlighting inequalities in our businesses and in society, diversity and inclusion at work is more important than ever. We all have a responsibility to call out bias and inequality if we see it, and we can promote and uphold the fundamental rights and well-being of all.
Understanding the latest tax treaty developments (part 2)
Webinar: 15 June 2021, 1pm BST
Join us for episode 19 of our International Tax Webinar series as we continue our discussions on the latest tax treaty developments – including the amendment of tax treaties by the MLI and its practical implication, plus insights from India regarding new rules on taxation and the digital economy. This webinar follows-on from episode 18 held on 27 April 2021.
Aaron Boyer, HLB USA
Surabhi Bansal, HLB India
Nick Farmer, HLB UK
Christian Jahndorf, HLB Germany
Till Zech, HLB Germany
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Embracing opportunity while overcoming supply chain challenges
HLB's Survey of Business Leaders - Manufacturing analysis
Key survey findings at a glance:
- Manufacturing business leaders are more optimistic about the economy than their global peers.
- Improving efficiency and reducing costs are ‘top of the agenda’ for nearly all business leaders, however launching new products or services was the third most important action for manufacturing business leaders
- 28% of manufacturing business leaders plan to reassess their supply chain to source closer to home, opposed to 16% of their global peers
When COVID-19 shut down factories, companies across the globe felt the impact. Raw material delays combined with shipping bottlenecks affected nearly every manufacturing segment. Although some manufacturers saw a decline from reduced consumption, others thrived with newfound demand for products.
Since many facilities require workers on the floor, businesses had to find a way to improve airflow and infiltration. Doing so resulted in higher utility usage and investments in air filter and duct improvements. Higher costs, reduced output, delayed supplies, and a decline in consumer demand posed problems.
With rising shipping costs and uncertainty about new virus variants, manufacturing executives must improve operations and explore growth opportunities. To gauge executives’ confidence levels across the globe, we conducted our HLB Survey of Business Leaders. From there, we looked at datasets from specific sectors to determine how manufacturing leaders plan to grow revenue and build resiliency into their operations.
Overall, manufacturing leaders express more confidence about the upcoming months than their global peers. However, uncertainty still exists. Learn about the challenges affecting the industry and what steps leaders are taking to persevere.
Pent-up demand increases manufacturing optimism
Curtailments during the pandemic drove up demand for manufacturing in certain sectors, such as pharmaceutical and medical equipment. Other segments adapted factory lines to produce goods for the direct-to-consumer (D2C) market. But some, such as food and beverage manufacturers, saw reduced demand for out-of-home products.
After over a year of restrictions, people are anxious to spend money on goods and services. Moreover, professionals feel optimistic about the continued vaccine rollout and the systems used to ensure business continuity. Consequently, leaders anticipate a surge in consumer and wholesale spending.
On a global scale, manufacturing leaders are slightly more optimistic about the rate of economic growth. 25% expect an increase, whereas just over 50% believe it’ll decline. Like their global peers, executives overwhelmingly believe economic uncertainty and the impacts of COVID-19 are the top two threats to growth. Nevertheless, the manufacturing industry faces other challenges.
Lingering questions about barriers to growth
Rising costs and supply chain issues continue to plague manufacturers, as 62% of leaders worry about international trade flow disruption and 58% express concerns over geopolitical uncertainty. Although Brexit initially caused concerns, organisations are adjusting to new regulations and paperwork. Yet, nearly all manufacturers face ongoing supply chain and shipping issues.
The Suez canal was just one high-profile incident during many months of delays. Bottlenecks at ports reflect an ongoing container shortage, with average container wait times for Asia to North Europe trade increasing by an estimated 35 days. The unprecedented problems even led Ikea to address delays with customers on Facebook, saying: “The surge in demand worldwide for logistical services at this time has resulted in a global shortage of shipping containers, congested seaports, capacity restraints on vessels, and even lockdown in certain markets.”
The combination of challenges has skyrocketed spot freight rates. Mark Yeager, chief executive officer of Redwood Logistics, told American news station CNBC that “freight rates from China to the U.S. and Europe have surged 300%” compared to March 2020. Additionally, major shippers like Hapag-Lloyd increased congestion surcharges from North America to United Kingdom ports. Container production is expected to increase, but high consumer demand for products creates a cycle of shortages that may impede fast shipments of raw materials and goods manufacturers require for seamless operations.
Furthermore, 50% worry about regulatory change, and 48% are concerned about exchange rate volatility. Each of these issues can hinder the flow of goods from manufacturers to retailers while increasing costs. To ensure rising prices and other concerns don’t become a barrier to growth, manufacturing leaders aim to enhance operations in various ways.
Manufacturers’ top growth priorities
Increasing operational efficiency and reducing costs are at the top of the list for the majority of industries. Compared to their global peers, manufacturing leaders are 15% more likely to focus on operational efficiency. Although organisational improvements are always a goal, the pandemic and ongoing logistics issues emphasised its importance.
As leaders concentrate on reducing supply chain disruptions, it’s essential to ensure smooth delivery of materials and goods. Operational objectives vary by segment and consist of digital systems, automation, workforce upskilling, and many others.
The third most crucial action is launching new products, with 43% of executives prioritising it. Consumer behaviour changes drive innovation as manufacturers search for ways to embrace opportunities. Moreover, 41% are focusing on organic growth versus 37% of their global peers. Using existing resources to enhance sales and increase output fits the overall goals for efficiency and cost reductions.
In addition, 29% aim to invest in human capital, and 24% will prioritise the adoption of emerging technologies. Upskilling workers to meet upcoming technology needs will help manufacturers navigate forthcoming changes. To meet growth objectives, leaders also plan to address business vulnerabilities.
Goals to strengthen manufacturing weaknesses
Similar to global leaders, manufacturers consider operational effectiveness a core weakness needing improvement in 2021. However, executives in manufacturing cite supply chain issues as a more significant vulnerability than their global peers. With 27% noting it as a weakness compared to 16% globally.
Before the pandemic, international trade tensions highlighted procurement and distribution problems. But, lockdowns affecting factories in China and Asia also impacted numerous manufacturing segments. Port bottlenecks, shipping container shortages, and labour deficits compounded these issues. Consequently, executives are exploring alternative suppliers and considering sourcing raw materials regionally.
27% of leaders also emphasise the importance of improving digital capabilities this year. Using technology to reduce errors and optimise processes can support supply chain, cost reduction, and operational goals.
The manufacturing sector also considers brand strength a weakness, with 25% focusing on it compared to 20% of global leaders. This may be due, in part, to executives looking for opportunities in the D2C sector. As companies moved to online purchases, manufacturers lacking online presences faced stiff competition. To retain and grow market share, leaders must boost brand visibility.
The expansion of digital capabilities
Digital capabilities vary widely across the manufacturing industry. Therefore high-tech sectors may prioritise technological expansion, whereas more traditional facilities may spend fewer resources in this area. Although nearly 50% of global leaders consider cloud computing important to future business success, only 35% of manufacturing executives say the same.
Cloud computing, robotics process automation (RPA), and the internet of things (IoT) rank in the top three technology advancements considered most important for business leaders. Both RPA and IoT support operational efficiency while bolstering weak areas, such as operational effectiveness. Likewise, the technologies can help leaders address existing supply chain issues, with 88% agreeing that technological advancements will help overcome cross-border business challenges.
Steps to attract a skilled labour force
Appealing to a diverse and skilled labour force continues to be a priority for manufacturers, with 81% of leaders saying a more diverse and inclusive workforce will ultimately improve financial performance. Also, 83% acknowledge that building diversity in the board and workforce is increasingly important, and 98% agree on the significance of ensuring equal support and opportunities, particularly in the current environment.
Interestingly, 65% believe remote working will make it easier to source diverse talent in the future. Although many warehouse and factory positions require on-site workers, technological advancements can enable virtual oversight of critical processes related to safety and compliance. For example, cloud-based gas detection and air quality systems allow management to oversee and act on real-time safety data from any location.
Factories that adopt state-of-art processes, equipment, and products may have an easier time attracting tech-savvy and diverse individuals. Moreover, growth objectives geared towards investing in human capital can focus on upskilling workers to navigate the shift towards RPA and artificial intelligence.
Preparation for climate disruption
During the pandemic, many companies put green initiatives on the back burner. However, 72% of business leaders in manufacturing are making changes to their business to profit in the low-carbon economy. Specific segments, such as iron, cement, and steel production and chemical and paper operations, face extra challenges from potential regulations. Countries will continue to monitor direct greenhouse gas emissions and expect corporations to take action or face steep fines.
Since many regions focus on a greener economy by 2030, manufacturing leaders must act now to ensure compliance and growth. Fortunately, potential tax credits or government initiatives may help manufacturers start small with green goals. By testing various tactics on a smaller level, companies can assess which activities are sustainable and explore ways to create greener businesses at scale.
Climate concerns also expose potential opportunities for certain manufacturing segments, both with branding and products. Companies can leverage green capabilities to reach a larger market segment while producing goods geared toward climate-aware individuals. Furthermore, sourcing raw materials closer to home and increasing operational efficiencies can support sustainability objectives while helping manufacturers prepare for future climate disruption.
Re-discovering the human connection
Like global leaders, 94% of manufacturing professionals agree that staff physical and mental wellbeing is a top priority for human resources. Additionally, 83% agree that social distancing and remote working make it challenging to deploy the value of the human touch in their businesses. Social distancing rules on factory floors and remote office workers affect company culture, making it difficult to sustain connections vital to employee morale.
Indeed, 49% of executives miss collaborative working, 38% report it’s harder to establish trust remotely, and 34% say it hinders creativity. Vaccine rollouts, improved air filtering systems, and an expansion of safety protocols can make workers feel more secure in warehouses and factory lines while enhancing corporate culture.
Confident in ability to adapt post-pandemic
Our HLB Survey of Business Leaders finds that 93% of manufacturing executives are confident in their ability to successfully steer the business in a new direction in response to the impact of COVID-19. Moreover, they feel more optimistic than their global peers regarding their company’s growth prospects, with 83% of manufacturing leaders expressing confidence versus 75% of global executives. Notably, 35% are very confident in contrast to 25% globally.
Challenges create manufacturing opportunities
Any challenge opens the door for opportunity, especially for businesses nimble enough to adapt quickly. Although concerns remain about price increases, raw material shortages, and shipping delays, agile manufacturers can assess ways to mitigate issues going forward. As the demand for products and services increases during 2021, leaders who devise strategies that protect their bottom line and grow their market share can stand out from the competition.
Findings in this article are based on 88 survey responses from manufacturing business leaders collected in quarter 4 of 2020, as part of HLB’s Survey of Business Leaders 2021. The majority of businesses surveyed are privately or family owned. For the full research report see HLB’s Survey of Business Leaders 2021: Achieving the Post-Pandemic Vision: leaner, greener and keener.
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HLB Cross-Border Business Talks Podcast Series
Welcome to our podcast series, where we’ll be exploring the latest cross-border business topics with HLB thought leaders and special guests. Our podcast episodes provide bite-size analysis on today’s issues in 10 to 15 minute long episodes.
New episodes will appear regularly, as we share insights and ideas on a range of international business topics, from FDI and global economic trends, to the latest technology advancements in business and sector specific analyses. Sign up to listen to our podcast series via Spotify or Apple Podcasts.
Eps 24: Emerging growth companies and M&A activity during the pandemic
For many emerging growth companies, the pandemic has presented unique opportunities. We sit down with Chris DeMayo, HLB’s Global Emerging Technology Leader, Patrizio Prospero from HLB Malta and HLB USA’s David Sacarelos to discuss how these companies have navigated M&A activity during 2020 and the expectations for 2021.Hide
Eps 23: Cyber-risks in the age of remote working
In light of Cybersecurity Awareness Month, HLB’s Chief Innovation Officer Abu Bakkar is joined by Global Advisory Leader Jim Bourke and HLB Digital Partners Almerindo Graziano and Gustavo Solis to discuss the most pressing cyber-risks of today, the lessons learned from lockdown and the road ahead for CTOs to protect against cyber-crime in the age of remote working.Hide
Eps 22: How the European investment climate is adapting to the New Normal
In a follow up to our North America podcast, we sit down with Bart de Volder from HLB Netherlands and David East, Head of FDI at Bureau van Dijk to discuss in what ways the European investment climate looks bright, despite the ongoing pandemic.Hide
Eps 21: COVID-19’s impact on the North American investment climate
The global investment climate has been considerably impacted by the pandemic. We sat down with Anant Patel, HLB’s Global Transaction Advisory Services Leader and David East, Head of FDI at Bureau van Dijk, to discuss the North American investment climate and the impact COVID-19 is having on cross-border activity.Hide
Eps 20: The ongoing impact of COVID-19 on financial reporting
COVID-19 has disrupted most professions across the globe with auditing being no exception. We sat down with HLB’s International Assurance Committee Member Jennifer Chowhan and HLB UK’s Caroline Monk to discuss the broader impact the pandemic is having on financial reporting. This includes some of the key issues global businesses and their auditors need to be aware of in light of operating in the “New Normal”.Hide
Eps 19: Transfer Pricing considerations in light of COVID-19
With the abrupt change in economic conditions and likelihood for ongoing challenges, existing Transfer Pricing policies may no longer reflect economic realities. We sat down with HLB’s Global Transfer Pricing Leader, Carlos Camacho and Marina Gentile from HLB USA to explore some of the issues being encountered and transfer pricing policy considerations when addressing short-term business disruptions as well as considerations for developing long-term strategies.Hide
Eps 18: Emerging technology trends for 2020
Smart technologies such as IOT and blockchain are having a huge impact on global businesses. We sat down with HLB’s Patrizio Prospero and Jim Bourke to understand what new emerging technologies trends are on the horizon for 2020 or if we can expect businesses to embrace these existing technologies more.Hide
Eps 17: Transforming business through AI
Business leaders across the globe consider Artificial Intelligence (AI) the most important technological innovation for business future success. We sat down with HLB’s Jim Bourke and Claus Frank and guest speaker Heiko Altrichter from AI research laboratory Laxford Capital to understand the benefits and limitations of AI for business.Hide
Eps 16: Investor confidence remains uncertain but opportunities are ahead
David East, Director of Product Strategy at Moody’s Analytics working for Bureau van Dijk and Andrew Mosby from HLB’s Global Accounting and Compliance Services group discuss how increased levels of uncertainty are affecting European FDI trends.Hide
Eps 15: The role of Not-For-Profits in the development of Africa
What role does the Not-For-Profit sector play in the development of Africa and overcoming key challenges such as social integration, unemployment and poverty alleviation? HLB’s Clensy Appavoo and Dave Springsteen discuss the matter.Hide
Eps 14: M&A Trends in Africa
Africa remains an attractive destination for buyers, with its growing middle class, improving economies and increasingly stable political environment. HLB’s Marco Donzelli sits down with Neermal Shimadry from MCB Capital Markets, William Hunnam from Orbitt and Clensy Appavoo from HLB Mauritius to discuss the latest M&A trends across the continent.Hide
Eps 13: Cities of the Future
Some of the world’s most well-known cities are often the most competitive. They must compete for talent and investment to ensure they become global hubs for businesses and people alike. In our latest podcast, Justin Kreamer, Senior Vice President, Partnerships, New York City Economic Development Corporation; Jason Mariarathanam, Practice Leader of Advisory Services HLB Netherlands; and Robin Chin, Senior Partner, HLB Singapore discuss what has made the top performing locations world leaders and where we see the ‘cities of the future’.Hide
Eps 12: Consumer behaviour changes and the response of global businesses
Consumers no longer buy simply on price or brand name -there are now a variety of factors that influence their choices. For global businesses, keeping on top of the latest trends can be a challenge. Barry Sheldon, President & Chief Operating Officer, Illy Caffe, North America & Jim Bourke, HLB’s Global Technology Advisory & Digital Solutions Service Leader discuss the change in consumer behaviour and how global brands are responding to these challenges.Hide
Eps 11: Challenges and opportunities in today’s global real estate market
Mark Robinson from Colliers International and HLB’s Global Real Estate Leader, Ralph Mitchison discuss how the global real estate market is well positioned for growth and why disruption in the market is not just limited to technology.Hide
Eps 10: Why does the world need Cyber Security Awareness Month?
With the number and variation of cyber-attacks continuing to increase, cyber security remains a top concern for business leaders across the globe. On this episode, HLB Chief Innovation Officer Abu Bakkar and Global Technology Advisory Leader Jim Bourke discuss the importance of education and implementation of best practices to minimise cyber security risk.Hide
Eps 9: Blockchain intelligence: A compliance framework for crypto-currency transactions
How is blockchain changing society and the way we do business? Together with HLB’s Patrizio Prospero, HLB CEO Marco Donzelli discusses the societal impact of blockchain technology and regulation around crypto-currency transactions with Giancarlo Russo, Founder of Neutrino and Alessandro Perillo, Innovation Manager at Young Platform.Hide
Eps 8: Made in Italy: How Italian companies are successfully conducting cross-border business
While in Milan, HLB Italy Chairman, Marco Gragnoli, discusses the Made in Italy industry and how Italian companies are successfully conducting cross-border business.Hide
Eps 7: The importance of soft skills in business
Professor Adrian Furnam and HLB’s Bettina Cassegrain discuss how having the ability to influence, persuade and negotiate with others, both inside and outside an organisation, is crucial for leadership success and business growth.Hide
Eps 6: A profession in transformation: Audit practices are becoming more technology driven and culturally diverse
Julie Carman, Head of Global Strategic Alliances and Digital Transformation for Accountants at Sage and HLB’s Jim Bourke discuss the tech and culture driven evolution of the accounting profession across the globe and how it is creating value for clients.Hide
Eps 5: Investor confidence remains fragile
David East, Director of Product Strategy at Moody’s Analytics working for Bureau van Dijk and HLB’s Marco Donzelli discuss global FDI trends and how escalating trade tensions and policy uncertainty is impacting investor confidence.Hide
Eps 4: Why the revision of ISA 540 is creating a more collaborative dialogue between auditors and clients
Bettina Cassegrain, HLB’s Global Assurance Leader and Jennifer Chowhan, Leadership Team Member for HLB’s International Assurance Committee, discuss the importance of the ISA 540 revision and how a new emphasis on professional scepticism will impact and improve accounting estimates.Hide
Eps 3: The next generation of start-ups: Going across borders
In the heart of Silicon Valley, HLB’s Industry X.0 Marco Donzelli, Chris DeMayo and David Sacarelos together with guest speaker Lei Wang, Chairman and CEO of Huahai Technology discuss the next generation of start-ups and the challenges and opportunities to grow across borders in today’s global business environment.Hide
Eps 2: US-China trade conflict: In every crisis there are always opportunities
Zhenge Zhao, General Representative of China Council for the Promotion of International Trade in the USA and HLB’s Coco Liu, Chief Regional Officer Asia Pacific discuss the trade war between China and the US, the impact on FDI activity between the two economies and the opportunities the current situation presents.Hide
Eps 1: Challenges and opportunities for foreign companies in the US in times of trade uncertainty
Trade conflict and Brexit are cause for turbulent times for international businesses. Stephen Cheung, President of the World Trade Center Los Angeles and HLB’s Yan Jiang, Senior Tax Manager specialised in US-Asia cross-border activity discuss current challenges and opportunities for foreign companies operating in the US.Hide
Industrial manufacturing for the digital age
New technologies are driving change in the industrial manufacturing sector, which is undergoing a rapid transformation.
What does the future of work look like?
With plenty of time to adapt to working remotely during the lockdowns and discovering the benefits, more and more businesses are embracing a hybrid work style.
How the Dutch Meat Tax could affect the global food and beverage industry
In an effort to reduce emissions and encourage healthier, greener lifestyles across Western Europe, many national governments are now taking up the idea of a levy or tax on meat, with an accompanying subsidy of fruits and vegetables.