Navigating business in today’s uncertain global landscape

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast, brought to you by CPA Australia.

Elinor Kasapidis:
Hello and welcome to With Interest. I'm Elinor Kasapidis, CPA Australia's chief of policy, standards and external affairs. I'm joined today by our international business and investment lead, Gavan Ord.

Gavan Ord:
Oh, great to be here, El.

Elinor Kasapidis:
We're recording from Melbourne at a moment when the global outlook is very unsettled. Geopolitical conflict, trade disruption, stubborn cost pressures, and a lot of uncertainty about what comes next.

Gavan Ord:
Yeah. Well, it's definitely unsettled and it's not unusual. I think we are part of a decade of crisis. If you look back, we've had COVID, the war in Ukraine, and now this Iran-US conflict. So we are now in this period of almost ongoing crises. But what we're seeing is this is clearly impacting businesses of all sizes across the region, not just Australia. 12 months ago, they're worried about US tariffs, particularly businesses with a high exposure to the US.

Today, businesses, particularly those who where fuel and transportation costs make up a large share of their costs, they're worried about the spike in fuel prices. And also now they're starting to worry about fuel supply and the certainty of fuel supply as well. So it is usual to be in crisis at the moment, but it's unusual to be in a fuel crisis.

Elinor Kasapidis:
So the words that we hear a lot: volatility, complexity, uncertainty, and things that these generations over the last two decades, you've got inflation for the first time. You've got complex financial instruments, corporate failures as well. So businesses that are trying to build themselves, they're trying to survive the headwinds.

The only thing that is certain is that nothing is certain. As we emerge from the launch of our CPA Australia's Asia Pacific Small Business Survey, the 17th one this year, this gives us one of the most comprehensive snapshots of how businesses are actually coping on the ground across the APAC region. What are you seeing there?

Gavan Ord:
First of all, the survey was done in November, December last year before the crisis. But even at that time, rising costs was the number one challenge for businesses. So what's happening with fuel prices is it's just adding another layer of pressure to many businesses, especially small businesses and especially in Australia and New Zealand. And this will hit their margins further. And also we're now starting to see that it's also hitting their sales as well. So it's definitely coming through that businesses were already in a difficult situation, and this is just adding to an already difficult situation.

Elinor Kasapidis:
We want to unpack what a world in flux really means. So this reactive response, there's a lot of calls for governments to step in, advisors like accountants, how to help. We have a lot of regular changes. So even things like the passing on of credit card costs, all that margin pressure that you're talking about, as well as the supply chain disruption. Being reactive is a real challenge.

So the small business survey really looks to see how businesses are positioning themselves, not just for the short-term responses, but also the medium and long-term, and how they can respond sensibly. Any observations on that front, how well-positioned are Australian businesses and just APAC businesses more broadly?

Gavan Ord:
Looking at the small businesses, I think particularly in Australia, New Zealand, they're not well-positioned. They've got very tight margins. They're not necessarily growing. They're not necessarily investing in technology or innovation.

And our survey over 17 years, and if you're over 17 years, that covers a global financial crisis. Who remembers that? It covers COVID, it covers the war in Ukraine, it covers Brexit, and it covers this new conflict in the Middle East. There are certain things that come through from the survey, and it shows that businesses, regardless of the circumstances that are investing in technology, that are innovating, that are focusing on management capability, they're performing well in good times and especially bad.

So businesses need to continue to invest in their own capabilities, technological and management, and also continue to look to the future. And those businesses and the data shows this are best placed to manage through the crisis. And not just manage through the crisis, but come out stronger.

So not only should you look at that technology and innovation investment as part of your future long-term growth, but it will also build your resilience. And that's where particularly Australia and New Zealand's small businesses are falling behind. They're not making that investment in technology as much as other businesses across the region.

Elinor Kasapidis:
So it's a clear articulation of where is your North Star. So as the world around you might be in chaos, that sense of being innovative, taking advantage of tech, and we can talk a little bit about AI and some of that disruption, what do you think as well about the risk mindset? So you talked about investment. Investment is also about trade-offs and challenges. It sounds like there are lots of opportunities. So how can a business position itself from how it thinks about risk, how it thinks about its future?

Gavan Ord:
That's a really good question. And what we also see in crisis is that crises encourage a more risk-averse mindset. So business, what we see from the data is that they take on a more risk-averse mindset, which is perfectly natural in this environment. And that leads to a more defensive mindset. So they're focusing in on business strategies which try to defend their current position rather than grow.

So they're focused on cost control. They're focused on customer loyalty. Whereas growth-oriented businesses are focused not just on cost control and customer loyalty. They're focused on growing their customer base through satisfaction. They're focused on improving their management capability.

So what we see is as they take on this risk-averse mindset, and it's particularly relevant in Australia and New Zealand, that they move away from growth-oriented strategies. And that's perfectly reasonable. If I'm running a business, I would be looking at cost control at this point in time. But you can't forget the longer-term picture and you can't forget that you still need to invest for the future, you still need to invest for long-term growth.

And that's what I would like listeners to come out of this is, don't forget the longer term, even in this period of great volatility and flux.

Elinor Kasapidis:
So when you've got a buffer, let's say you're trying to defend that buffer, but you are underinvesting in technology, in your management capability, your succession plan, your innovation, when you get exposed to a shock and repeated shocks, what I'm hearing from you is that it's not worth it. You always need to have a space in your business to really explore new opportunities, build a new audience, grow new markets. Is that right?

Gavan Ord:
Absolutely. I think that's a great analysis of you still need to have that space. I like what you said, that you still need to focus in on the future, the medium to long-term. Look, I can understand why people are become focused on the short-term and responding to what's in front of them, but you still have to have that vision of what your business wants to be in 12 months, two years, five years. And you still need to work towards that, even though most of your efforts is still placed on responding to what's in front of you.

Elinor Kasapidis:
You can't cost control your way to business success.

Gavan Ord:
That's right. You can cut and cut and cut. That doesn't actually mean you're going to be successful. And often we see businesses cut too much and they find it really hard to grow out of that.

Elinor Kasapidis:
And what we see right now is actually cutting, and there's a narrative that it's because of technology, that it's because of new investments in AI, and that it's to enable growth. How do you see that narrative actually playing out? So what parts are just the cost control? How much of it is genuine investment in new technology? And where do you see the opportunities lying with technologies such as large language models, generative AI?

Gavan Ord:
That's a good question because if you're making investments in technology, that can actually reduce other costs, so operating costs. And it could lead to a more productive employee. So the opportunities out of AI and the various AI models is it actually can lead to a more efficient, productive business, and it can actually lead to reduced costs over time. But there is an upfront investment that's required to achieve that. And we're seeing larger businesses doing a lot of that.

We're seeing businesses in mainland China and in Hong Kong doing that. And you start to see, for example, in mainland China, that increasing costs or rising costs is not as big a issue as it is in, say, Australia and New Zealand. And I think that's because they've made that investment in AI. They've actually been able to, through technology, reduce some of their operating costs. And so they're well-positioned to grow into the future as they get through this crisis.

Elinor Kasapidis:
When we think about the accounting profession, particularly advisory services, you and I have certainly noticed some of the supply constraints, the labour demands, and we do see a lot of our members adopting and adapting to the new technologies. So we've got a lot of new research tools. We see a lot of the service providers implementing and including AI-supported technologies, and that's actually helping some of their productivity. So I'm proud of the accounting profession. We've always said that the profession is a very good adapter and adopter of technology, and that's something that they can then also share with their clients and their businesses. Is that something that you think there's that ripple effect across the economy?

Gavan Ord:
Yeah, look, I agree with you. What we see from our members in practice is, as you said, they're really at the forefront of adopting technology. And when they learn how to do it, then they pass it on to their clients. And I think some of the lessons I learned from members is if you haven't adopted AI yet, and most businesses do, start off small, start off with a small projects like you might be running a marketing campaign.

Put that through AI and develop the content and the wording through that, and just learn as you go along. And that's sort of the lessons that our members are learning and in their own practice. And I know that many of our members are passing on these lessons to their clients. And they can speak with authority because they've done it themselves.

And like you, I'm proud of our members being at the forefront of technology. Some of them are really great at it. And when you listen to it, it's quite inspiring to hear how they're using technology in their practice and what they're learning and how they're making it better as iteratively as they go along.

Elinor Kasapidis:
And sometimes there's nothing like a crisis to make you look at new opportunities. And we've also spent a bit of time at CPA Australia and from our professional standards point of view, looking at guardrails, the ethics, I think there's a little bit of fear as well for a lot of businesses when they're thinking about technology, what's going to happen if they make a mistake. Again, how do you see the risk mindset, particularly of Australian and New Zealand business owners and their advisors? What can we do to encourage them to, like you say, just take the first steps?

Gavan Ord:
This came up at the panel session for the launch of the small business survey in Australia, and this came up from the Australian Small Business Ombudsman. And she said, "Maybe we are being too focused in on the risks." And that shapes our thinking about technology. And we're not looking at the advantages. And I think maybe that's where we need to spend more time on the advantages of the technology without forgetting how to manage the risks.

But I think you see that very much in Australia and New Zealand is, how do you manage the risks? And governments have been talking about this and doing lots of work and doing good work around cybersecurity and things like that. But it's maybe having an effect that shifted the mentality to a risk-averse approach to technology rather than going, "How do we make the most out of this technology?" And I thought there was a good observation from the Small Business Ombudsman.

Elinor Kasapidis:
It's starting from the right mindset while being mindful of all of the obligations and making sure that you keep that balance.

Moving along to government support. Every time there's a crisis, and we definitely saw it during COVID, there's a call on government to step in and fix things. And there are real constraints ever-increasing as fiscal deficits and structural deficits become embedded, more and more calls for support. We've seen the Australian government cut excise for a period of time looking to lock in fuel supply chains. And it exposes some of the weaknesses in various countries, economies, and jurisdictions, supply chains. What kind of support actually makes a difference and where do you think the levers are? What remains available?

Gavan Ord:
So as you said in Australia, there's been cuts to excise, fuel excise. The tax office has announced that there's going to be a little bit more easier on businesses and taxpayers struggling to pay their tax obligations, but they're very short-term.

What we need is, and I mentioned before about the hallmark of a good business is tech investment, the management capability, innovation. And they're the most resilient businesses. So while governments are focused very much in on the short term through fuel excise cuts and things like that, they can't forget the longer term. They can't forget that they have a role in encouraging business, particularly small businesses, to invest in tech, to embrace innovation, to build their skills and capability.

So often we see in the crisis, government focusing on the short term. I can understand that, but don't forget the long term. And also, don't use this as an excuse to step away from productivity enhancing reform.

And I can almost see budget night, the treasurer saying, "We can't actually do this because we're stuck in a crisis." Well, I don't want to see that. I want to see government continue to embrace productivity reform, continue to embrace red tape reduction. And that's the risk out of this.

And obviously the big constraint on government is their fiscal position, that they have deficits as far as the eye can see, and it's not just an Australian issue. But don't forget that reform can unleash the animal spirits of the market, can unleash businesses. And we need that. We don't forget that. And I'm just very concerned we may see government step away from that because it's too focused in on the now.

Elinor Kasapidis:
I'm glad you mentioned federal budget because the treasurer and the government has got a challenging narrative to put forward. What's really encouraging is your call to say it's not about supporting with reactive subsidies and cost support, but actually what will grow the pie. So even in these times of uncertainty, even with this difficult position, how can we actually let business do what businesses do best? How do we get workers to really maximise their productivity and position Australia for a much better future, which makes us as a society, as an economy, more resilient?

How do you see the government balancing those two tensions?

Gavan Ord:
I hope they can. Past history shows in Australia, governments have both persuasions struggled to balance both. And that's why, for example, tax reform in Australia keeps falling off the agenda because something comes up that's more immediate.

I just recall started the global financial crisis. There's an image of Ross Garnaut was commissioned by the Rudd government to report on climate change and policy responses to climate change. He delivered his report on the day that Lehman Brothers collapsed. And you can see the prime minister right at the time being totally disinterested. He was totally focused in on the Lehman Brothers collapse and what that meant for the global economy.

And that was sort of a pictorial representation of what happens in government, is that they become totally fixated on the now. And it requires strong voice within the cabinet to say, "Yes, there's 150,000 public servants in Australia.” There is the capacity to do both at the same time. Is there's a fiscal space? Not sure, but there's definitely the resources within government to actually try and do both the long-term and the immediate response.

Elinor Kasapidis:
Great point. So while the government finds its way and navigates its way to the next federal budget, let's look at accountants and advisors. We mentioned them before. Accountants consistently come out as the most trusted source of advice for small businesses and businesses more generally. What role are they playing right now in helping business owners navigate this environment?

Gavan Ord:
First and foremost, we see our members, they're providing forecasting and scenario planning to management. And they're not just providing one scenario. A good accountant will be providing multiple scenarios because it's just so difficult to know what's going to happen. So they might have a baseline scenario of the war, the current ceasefire. And this is being recorded on April the 9th, the current ceasefire holding, and maybe the war concluding at the end of the month with fuel supplies picking up in May. Maybe that's the baseline best case scenario.

The middle scenario could be a more pessimistic one. The ceasefire falls apart, the war continues for three or four months, and fuel supply, fuel shortages may go out until September, October. And then they also need a worst-case scenario, and that's where the conflict goes on for the rest of the year. There's increasing fuel shortages and further spikes in fuel prices. So you need those scenarios. And then from those scenarios, you can inform management what this could mean for your business in terms of sales, in terms of costs.

Our members are also helping businesses distinguish signals from noise, and there's a lot of noise at the moment. You just have to wake up in the morning and go, "Oh, what happened overnight? Trump's done this or Iran's done that." So accountants are actually trying to say, "Okay, what are the facts on the ground rather than just reading the daily news?" They're helping support calm, informed decision makers.

Accountants dealing with facts, they can help calm, informed decision making, not reactive decision making. And they're also ensuring responsiveness that's not short-term. So we talk about short-term with the government. Also, businesses have a habit of focusing on the short-term. So accountants can say, "Let's not forget we still need to make these investments to help the business grow out of this crisis and beyond. Let's not forget the strategy, let's not forget our budget, but here's what we can do to respond to the current crisis." And a lot of accountants have the skills to manage through crisis anyway.

And to give you a sense of the environment, so Australian economic commentator, Alan Kohler, said on the Tuesday the 8th of April that Australian petrol prices have risen 41% since the crisis began. Wednesday, there was a ceasefire, oil prices fell 16%. Also diesel prices are up 83% over the same time. So on Wednesday the 9th, there was a ceasefire announced, crude oil prices fell 16%. Overnight, there was problems with the ceasefire, oil prices are up 3%. Don't go chasing the daily movements in oil prices.

You're just going to do your head in. And that's where accountants can step back and say, "Okay, let's not read the oil prices every day. Let's look at the trend over time and let's look at how do we manage that trend." So accountants are really well-placed to help businesses through this crisis, through scenario planning, and taking that step back and looking at the broader picture.

Elinor Kasapidis:
We'll leave volatility to the traders on Wall Street and in the financial markets, but you're absolutely right in the sense that there's a trendline. And how do you trade through that trendline? How do you prepare for the various outcomes that might be there? You mentioned there are a lot of noises, so many business owners would be feeling quite overwhelmed.

Waking up each morning, the headlines are going every which way. And it's not just globally, it's also locally. So every new regulation, every new requirement, every new idea that's put forward as a policy, that can cause a lot of stress as well. So what's the mindset you'd encourage them to adopt?

Gavan Ord:
The mindset is to stay informed, but not overreact to everything. And there is a lot going on. As you said, it's not just what's going on in the Middle East. There's a whole lot of other things going on. So stay informed.

I think if you're a business operator, seek professional advice. So talk to your CPA because they can provide that more holistic context of what's going on. I think businesses should be assessing their exposure through scenario planning, and that's where the accountant comes in. In crisis, they should conduct a financial health check just to see where they are at this moment. They should try to maintain their profit margins. And that can be done through various ways, through cost cutting, through passing on the cost, even through changing the product mix to maybe promoting more higher margin products.

Then there is adjust your product or product mix. So we see it talk about shrinkflation. So some businesses will shrink the size of their products. Some businesses will bundle high value items with low value items. So there's different ways.

Strengthen your cash flow, get your money in quicker. Market your unique selling proposition. Don't forget you've got this unique selling proposition and don't forget to market that. And keep an open mind to opportunities. There's always opportunities that come out of crisis, as you mentioned. Don't forget there are opportunities and don't lose sight of your medium to longer-term strategy. I know that's tempting to be pulled in and focusing on responding to the now, what's in the news, but don't lose sight of your strategy, your medium-term strategy, and your long-term strategy.

Elinor Kasapidis:
Fantastic advice. Stay true to your vision, but know where you are, and then look for where your opportunities lie and keep moving forward. Gavan, thank you so much for unpacking all of this today. It's a great reminder that uncertainty doesn't mean paralysis.

Gavan Ord:
And that's exactly right. And it's a hard thing to say. Analysis paralysis is also a problem. While the global environment is volatile, the evidence shows thoughtful preparation and capability building do make a real difference longer term. So we do have some resources on our website. We've got tools on managing through tough times and also tools on managing through high-cost environments. So have a look at our website as well. It gives you some pretty high-level tips on how to manage through this crisis.

Elinor Kasapidis:
We've also mentioned the small business survey a few times. We have a livestream available to watch on our YouTube channel. Like and subscribe. As well as the report is available on our website. And that gives a really great breakdown of the various metrics and insights from across the APAC region so that you know what you can invest in, where Australia and New Zealand businesses sit, as well as for our international listeners, where the opportunities and advantages lie across the region. Thank you so much for listening to With Interest. If you found this useful, please hit subscribe and we'll see you next time.

Garreth Hanley:
To find out more about our other podcasts and CPA Australia, check the show notes for this episode. And we hope you can join us again for another episode of With Interest.