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How flexible are German companies regarding volatile markets?

Bildnachweis: PhotoMIX-Company für Pixabay (via Canva pro)

How flexible are German companies regarding volatile markets?

Markets today are faster, more dynamic and more unpredictable than ever. And companies face the challenge of constantly adapting to the changing needs of customers, new technologies and global competition.

On top of this, the global economy has been increasingly affected by uncertainty and turbulence in recent years. The Corona pandemic, Brexit, the trade war between the USA and China, geopolitical tensions around Taiwan, the climate crisis and raw material shortages are just some of the factors that pose major challenges for companies.

Volatile markets are characterized by sharp fluctuations in prices and changes in demand and supply that are often difficult to predict.

In this blog post, we look at the most important influences on the markets at the moment and show ways in which companies can deal with them.

What strategies can companies use to counteract these uncertainties?

When it comes to dealing with these uncertain circumstances, each company should adapt its own strategy to its specific situation. However, there are some general tips that can help minimize the risks and take advantage of the opportunities that volatile markets offer.

  • One important aspect is diversification. Companies should ideally not invest all their resources in a single segment but diversify their portfolio of products, services, markets, and customers. In this way, the risk of dependence on a single factor can be reduced. In addition, this also creates new growth opportunities.
  • Precaution is also crucial. The sole aim should not be to make short-term profits, but rather to plan and invest for the long term. Companies should, for example, build up reserves to bridge financial bottlenecks or promote research and development to increase the company's competitiveness.
  • And learning is also crucial. Companies should regularly draw meaningful conclusions from their experiences and critically review their current performance, and improve it if necessary. Possible measures can include, for example, collecting and analysing data to identify and anticipate trends or gathering feedback from customers and employees to increase their satisfaction.
  • But above all, flexibility is the most important key concept in this context. At best, companies should be able to adapt quickly to changing market conditions. This can be achieved, for example, by varying production capacities, prices, or marketing. At the same time, the needs, and expectations of customers should always be kept in mind and value should be placed on good service.

How can companies become more flexible in relation to volatile markets?

In short, flexibility is the ability to adapt quickly and efficiently to changing situations without compromising quality or increasing costs. Flexibility is an important competitive factor that enables companies to respond to opportunities and risks, foster innovation and increase customer satisfaction.

There are different dimensions of flexibility that are relevant for companies:

  • Product flexibility refers to the ability to adapt product supply to demand. This can be done by developing new products, modifying existing products, or combining different products.
  • Process flexibility refers to the adaptation of production processes to meet requirements. In the process, resources are reallocated, capacities are expanded or reduced, and alternative processes are used.
  • Organizational flexibility enables the adaptation of the organizational structure and culture to the environment. Hierarchies are dismantled, teams are formed, and decision-making powers are delegated.
  • To achieve these dimensions of flexibility, companies should pursue different strategies:
  • Investing in technology can increase flexibility by using digital technologies such as artificial intelligence, cloud computing and the Internet of Things. These technologies accelerate information processing, enable automation and promote networking.
  • Investing in human resources also contributes to flexibility by developing skilled, motivated and committed employees. This supports continuous learning, stimulates creativity and improves collaboration.
  • Furthermore, investing in relationships can increase flexibility and create synergies at the same time. Maintaining long-term and trusting relationships with customers, suppliers, and partners plays a crucial role here.

Flexibility is therefore not an actual state to be achieved, but a process that requires constant efforts. Companies should be aware of which dimensions of flexibility are important for them and which strategies they should pursue at their best. Because current events in particular, which we will briefly discuss below, require an enormous amount of adaptability in order to continue to be successful.

Protectionism in the USA and China

The world's two largest economies, the US, and China, have pursued increasingly protectionist and confrontational trade policies in recent years. They impose high tariffs on each other, restrict market access for foreign companies, promote their own industries and technologies and accuse each other of unfair practices. This development has a negative impact not only on bilateral trade, but also on the global value chain, which many companies use to manufacture their products more efficiently and cost-effectively. To adapt to this situation, companies should therefore diversify their supply chains, tap into alternative markets and strengthen their capacity for innovation.

The German export-oriented economy in particular suffers from the global trend towards compartmentalisation. Protectionist measures can take various forms, such as tariffs, licensing procedures for imports and exports, complex licensing procedures as well as compulsory requirements for local value creation when awarding public contracts or market approval. In the period from November 2008 to October 2021, all G20 countries implemented more closing measures than opening measures – led by the US and China.

The lack of staff.

Another factor affecting the flexibility of companies is the lack of personnel. Especially in the service sector, there is a shortage of qualified skilled workers, which is exacerbated by demographic change and digitalization. This leads to bottlenecks in production, quality losses and higher wage costs.

There are various measures that companies can take to combat staff shortages. One way is to invest in staff training and development, create attractive working conditions and allow new forms of work such as home office or part-time.

Another strategy is to introduce professional, in-house human resource planning to prevent staff shortages effectively. This way, companies are not surprised when they need additional workers. They rather rely on forward planning of all business activities and staffing needs.

An additional possibility is to improve the leadership culture in the company. According to a Leadership Study 2022 by the Munich-based interim consultancy Atreus, 61 per cent of managers in Germany named recruiting, retaining staff and getting employees excited about their own company as the biggest challenge. This is because a lack of staff can significantly affect the flexibility of companies, as it becomes more difficult to react to changes in volatile markets.

A possible invasion of Taiwan by China – and a possible decoupling

A particularly explosive source of conflict is the situation around Taiwan, which is considered a breakaway province by China but is recognized by many countries as an independent state. In recent months, China has increased its military activities near Taiwan, raising tensions in the region. A possible attack by China on Taiwan would not only trigger a humanitarian catastrophe, but also have serious consequences for the global economy. Taiwan is a major producer of semiconductors, which are essential for many electronic devices. A failure of this supply chain would lead to a global bottleneck that would cripple many industries. To prepare for this scenario, companies must reduce their dependence on Taiwanese suppliers and find alternative sources of semiconductors.

A Chinese attack on Taiwan would thus have far-reaching effects that are difficult to predict. It is known, however, that despite the strained relationship between Taiwan and mainland China, trade relations are close. However, Taiwan is seeking new markets, which could have political consequences.

And what about decoupling? In short, it is already in full swing. China and the USA are pushing their political and economic interests with increasing intensity. Decoupling, however, does not mean the end of globalization. However, the era of hyper-globalisation is obviously over.

Raw material shortages

Another problem that limits the flexibility of companies is the shortage of important raw materials and energy. This is because many urgently needed raw materials such as metals, petroleum or wood have become significantly more expensive in recent months or are no longer available at all. This is due to various factors, such as the increased demand caused by the economic recovery after the pandemic, the logistical difficulties caused by the lockdown or the environmental damage caused by climate change. To adapt to this situation, companies should increase their resource efficiency, use more sustainable materials and optimize their inventories.

Companies can also take various measures logistically to deal with raw material shortages in volatile markets. One option is to move away from the current single sourcing approach, where companies source their raw materials from a single supplier and thus become dependent. Instead, companies should diversify their supply chains. This is because sourcing raw materials from different suppliers in different countries can minimize the risk of bottlenecks.

The key to success: flexibility

In conclusion, companies face great challenges in volatile markets. The rapid changes and uncertainties require a high degree of flexibility and adaptability. To meet these demands, companies should focus on diversification, both in terms of products, services, markets, and customers, as well as supply chains. Planning ahead and investing in technology, human resources and relationships can also contribute to flexibility.

However, there are also external factors that limit flexibility, such as protectionist tendencies, staff shortages, potential conflicts like an invasion of Taiwan and raw material shortages. To meet these challenges, companies need to be proactive, develop alternative strategies and adapt to changing market conditions.

Overall, flexibility is considered the key to success in volatile markets. Companies that are able to react quickly and efficiently to changes have a better chance of being successful and surviving in the long term.

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