Businesses up and down the country and across all sectors have shown incredible resilience and an impressive ability to adapt, and re-invent business models, to rapidly changing market conditions.
Last year, SME leadership teams rose to the challenges of the Covid pandemic by looking at different ways of doing business. In some ways a unique opportunity for leaders to re-think how to keep driving their businesses forward – and many seized the chance to revamp their strategies, optimize their operations, rationalize their cost base, and make their supply chains more efficient.
That strategic approach, backed up by government support schemes and a greater focus on working capital, means many SMEs now probably have more liquidity than they have ever had. Many will be in a strong position to invest in new equipment and facilities, products, people and markets in 2022.
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One sector showing confidence and leading the way is whisky, which has continued to flourish despite the severe challenges of the pandemic. As well as pivoting operations to produce much-needed sanitisers and gels, the industry has reaped the rewards of investment in premium brands and even new distilleries to deliver strong sales across its global market.
Barclays has a wealth of experience and expertise in supporting the whiskey industry in Scotland throughout the supply chain. Only recently, we announced a substantial multi-million-pound funding package with Kilchoman Distillery, on Islay, allowing it to invest in new production facilities. Kilchoman aims to produce 40 per cent more whiskey within the next 12 months and increase its presence in big markets like the US and China.
Despite challenging economic conditions, the production of our national drink remains an expanding industry and there is still a huge appetite for single malts, with many people still prepared to pay premium prices.
Our teams in Scotland have a breadth of knowledge and understanding of how varying levels of investment are key to supporting distilleries, where in most cases the whiskey produced today will not be brought to market for several years.
Elsewhere, with the gradual relaxation of restrictions, hotels and other hospitality and leisure businesses can hopefully look forward to Easter and beyond with the beginning of the tourist season. The sector has had to adapt to cope with a growing demand for staycations, and recent research has shown that it is expected to continue in 2022.
VisitScotland points to figures showing that 53 per cent of people in Scotland are planning a staycation trip in the country. The North of Scotland and the Highlands continue to be some of the most popular holiday destinations in the UK.
In manufacturing, we should see more investment in machinery and technology to drive automation, and as we can see from the continuing demand for whisky, the food and drink industry should continue to see a strong appetite for its products. Consumers are becoming more sophisticated in their tastes and placing more importance on food provenance. Scotland is well-placed to tap into this market with a global reputation for producing quality seafood, beef, soft fruits and vegetables, and let’s not forget our passion for sweet treats such as shortbread.
Exploring new markets is now high on the agenda of many SMEs, as shown by the partnership between Scottish Development International, Scotland Food & Drink, and a Middle Eastern multinational supermarket chain to promote a range of Scottish produce in stores in the United Arab Emirates.
Of course, there will be challenges ahead. Covid aside, one of the key issues for SMEs in the coming year will be higher costs across the board, as reflected in the latest inflation figures, with research by the British Retail Consortium showing a 0.9 per cent hike in non-food items. Although it may recede, we are unlikely to see it return to the low levels to which we’ve become accustomed.
Some sectors are still likely to struggle with labor and skills shortages, and resulting wage inflation, and the challenge of fragility of some supply chains. The havoc created by the fuel supply crisis last autumn clearly demonstrated the vulnerabilities of just-in-time supply chains and this is a global issue that’s unlikely to disappear any time soon.
Many SMEs may currently be in good shape from a liquidity point of view, but I think we’ll see greater pressure on working capital in the next few months of next year as we move into a higher GDP growth environment, at a time when government support loans will need repaying and built-up tax liabilities will become due.
Businesses will need to ensure they have the necessary capital structures in place to cope with these pressures – although we don’t expect to see a significant increase in companies defaulting.
Despite these challenges, and the ongoing uncertainty of Covid, I’m pretty bullish about the prospects for the months ahead. The lessons learned by businesses throughout the pandemic and their ability to quickly adapt to market trends means they are in a healthy position to take full advantage of the robust economic growth predicted for 2022.
Jamie Grant, managing director for Scotland and head of mid corporate (North), corporate banking, Barclays
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George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.