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Amidst economic turmoil, are there any positives?

Amidst economic turmoil, are there any positives? Certainly, the problems are clearly visible as the UK economy moves into recession. Many shops will not re-open, with hospitality businesses also hit. Normality for pubs and travel seems a long way off. But many online businesses are trading well and companies providing technology, finance or business services have learned how to operate remotely. 

Often social and economic transitions are born of necessity. Wartime was a catalyst for social and political change. Now, many have been forced to order online, learn new remote working skills and access services through their smart devices. This is driving a rapid move into the cloud, digitising many services. Home delivery is just the visible part of this change, but it extends to digital health and remote delivery of a wide range of complex services. This is forcing a re-examination of the role of the workplace and city centres, alongside changing society views on work/life balance and sustainable living. In recent years the economy has been moving gradually in this direction – now, it is a rush is for business survival. 

Certainly, the change will involve a cut in city centre physical office space. But a change in the mix of office and remote working will bring more activity into the suburbs. Even workers moving from a five-day commute to three or four days, could decide to move home, at the same time as offices might downsize. For business this will drive demand for flexible office space, with bigger common areas to encourage relationship building. City centres will take time to adjust, but some downsizing seems likely. The Scottish home property market has seen strong demand since restrictions were eased and stamp duty cut. There seems to be a trend to move from city centres, encouraged by 5G and better data connectivity.

Although management of the pandemic and the eventual arrival of vaccines will ease current business pressures, old practices will not return. Better use of technology should boost productivity. But at the same time, machine learning and automation could take over some of these jobs. When data is on the cloud, it is simpler to bring cheaper standardised technology to work on it. And, once a job has been moved to remote working, a further shift to transfer some of that work overseas becomes easier. Manufacturing supply chains are likely to be shortened in future, recognising the potential for disruption. But there is now the potential for more business services to move abroad.

As a service economy, the UK has much to lose from this change. The pandemic is driving a business restructuring - with digitisation and remote working at its core – that lowers barriers to competition. To date, many services have enjoyed protection from global competitors, supported by a distrust of remote organisations. At the moment, these UK services are seeing increased demand and able to push out some cost. But it is imperative that they move up the value chain and develop branding or intellectual property that protects their profit margins. And employees will need to raise their skills in this new world. Online taxes and trade barriers are unlikely to hold back this service globalisation.

If there is a silver lining in all this business change, it is that businesses are now building-in resilience and customers are more focused on sustainability. People want to support small businesses with genuine craft. There is a future for those that can provide differentiated locally delivered services and products.

The stockmarket is already recognising the potential for change. Strong performance by shares of the major global technology businesses – mainly American – points to the greater opportunity they now have. But it is a fertile environment for new businesses that have digital or medical technology at their core. Universities and creative industries will be key. Scotland could fare well if it invests in talent and creates a supportive infrastructure.

A version of this article was published in The Herald on 27/08/2020.