One of the many things I value about my role is hearing the differing perspectives of our members, who are based all over the world. Recently, I was interested in some insights our members in China provided since they have a lot of experience managing growth in an inflationary environment. It’s an issue of growing concern to finance professionals elsewhere. Over the past decade, inflation in China has often been higher than in the Western economies.
Recently, our North Asia Regional Advisory Panel (RAP) shared with me several practical suggestions to mitigate inflation risks:
- Use hedging strategies to complement procurement. Hedging strategies mitigate the risk that commodities and other raw materials suddenly skyrocket in value and affect a business’s profitability.
- Increase the prices charged to customers. Higher prices help to offset the impact of rising commodity prices on profit margins. Companies with a strong market position are particularly well placed to do this, and should take advantage of that position. Ideally, price rises should be small but frequent.
- Renegotiate terms with suppliers. This is a particularly good option if the business is growing and has ever-larger contracts to offer.
- Be innovative. Find opportunities to reduce the cost of the goods or services your business provides — perhaps by using fewer components in a product, or simplifying packaging. Also, find new channels to engage with customers — try connecting through social media rather than by hosting face-to-face events.
- Look for ways to reduce fixed and variable costs. An obvious option is to downsize office space and encourage more home working so that people are not in the workplace full time. Also, minimise travel costs by using videoconferencing tools. Applying digital technology can improve the efficiency of manufacturing and service processes.
- Drive revenue growth. Higher revenue helps minimise the impact of inflation on salaries as long as other strategies are also applied to protect profit margins — for example, management of supply-chain costs and passing on price rises to consumers.
- Focus on sustainability. Sustainability initiatives can potentially help buffer companies from the negative impact of inflation. Becoming more energy-efficient is a way to reduce costs. Companies may also be able to sell any carbon credits they generate on a carbon trading market.
Alongside their strategies for managing inflation, our RAP members also shared their perspectives on the recruitment market for finance talent. I was pleased to hear that management accountants are highly sought after in China — not only by multinationals but also by local businesses, including businesses preparing to list on stock exchanges.
Recruiters seek finance leaders with a commercial mindset who can advise a business and drive financial transformation using technological solutions such as robotic process automation. Given the dynamism and volatility of the present operating environment, they also favour candidates who can cope with ambiguity and are confident about responding to, and driving, change. Today’s finance leaders are expected to grow themselves, their team and their business.
Finally, our members in China reiterated the importance of finance leaders being there for their people. They are contacting their teams, and regularly connecting with them online to foster solidarity, retain vital talent and preserve their organisational culture. In these uncertain times when we need our people more than ever, this is a fundamental lesson for us all.
The Association has several tools for developing resilience thinking and practices to mitigate inflationary pressures in the economy affecting their business model and operations.