6 minute read 21 Jul 2020
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Ten trends shaping the post-COVID-19 landscape for family enterprises

By Robert (Bobby) Stover, Jr.

Americas EY Family Enterprise and Family Office Leader

Leader and advisor in helping family businesses navigate the challenges they face. Instructor and speaker about business succession and wealth transfer.

Contributors
6 minute read 21 Jul 2020

The consequences of the current crisis will likely reverberate for years to come.

The economic and health crisis triggered by the COVID-19 global pandemic has unleashed a host of threats and opportunities for all organizations. As businesses work to understand the next and beyond amid the pandemic, many private family businesses should rightly ask what the economic, social and political landscape will look like in 2021 and beyond. Just how will the pandemic accelerate, alter or amplify megatrends that were already in motion before the wave of shutdowns, re-openings and new shutdowns? The impact of this crisis will likely change the way business is done now and for years to come.

Trying to predict the future is even more complicated given the conditions that preceded the pandemic. While the US economy was on solid footing before the pandemic, the global economy was beginning to show signs of weakening. The COVID-19 pandemic deepened these fissures and now many companies are looking to develop strategies that will either support their climb out if they were struggling or sustain growth and drive new opportunities if they benefited during the crisis. Most importantly, all companies should prepare for the next unforeseen event so they are poised to recover from an economic downturn.

The virus has curtailed demand in certain industry segments. Airlines, hospitality, restaurants and other service-related fields have faced massive layoffs as revenues or prices have collapsed. Other segments, however, are booming — namely videoconferencing, streaming and gaming, medical equipment and supplies, retail food stores and online ordering, particularly last-mile delivery services.

As the pandemic persists, some forecasters remain hopeful that we’ll experience a V-shaped recovery, though uncertainty about virus containment continues to fuel concerns about the strength of economic recovery. In our reading of the global economy — and our conversations with clients, industry thought leaders and futurists — it’s clear that all business leaders will need to reassess business plans, growth assumptions, capital or asset allocation decisions and, possibly, their entire business models.

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  • Retreat or slowdown in globalization

    With trade disputes escalating between the US and many of its major trading partners, a number of companies had already begun to rethink their global supply chains. The pandemic could very well accelerate this trend, leading global organizations to make plans for relocating or reshoring certain manufacturing operations.

  • Heightened focus on digitalization

    Many business leaders view this moment as the “tipping point” that will accelerate digitalization and redefine many industries, placing a new emphasis on data, robotics and other “5G” technologies. For example, the decision by many companies to cut back on travel prompted a major surge in demand for virtual meeting technology. In addition, more companies are accepting remote work as a viable option and may lead to future adjustments in requirements for marquee office space.

  • Rise of small cities

    The pandemic could very well inspire a migration from large cities on the East and West Coasts to smaller cities, towns and rural regions. This development will likely expand capital investment and trading opportunities within those regions and also impact your ability to find talent and expand the geographic markets that your business serves.

  • Intensified concerns about food safety and biosafety

    Heightened consumer safety concerns are also expected to further influence the global food industry. In this new paradigm, food by design will enter the mainstream as AgTech, plant-based proteins, urban gardening, lab-based animal protein production and new food supply chain solutions continue to gain market share, threatening to displace long-established food supply chains.

  • Molecular health economy and preventative health care and wellness

    For a number of years, US health care consumers have increasingly placed a premium on preventative health care and wellness programs. The COVID-19 crisis has also boosted the use of telemedicine and diagnostic tools in health care facilities and at personal residences. The adoption of telemedicine will likely continue in the months ahead.

  • Long-term concern over capital market and demand conditions and distortions

    Businesses were concerned about capital market conditions and distortions even before COVID-19 surfaced. Over the next 12–18 months, concerns will increase over rising household debt, companies with inflated valuations and a public equity market liquidity driven by share buybacks rather than strong inflows of net capital. These trends could hamper any long-term recovery from the current economic downturn.

  • Heightened emphasis on environmental, social and governance (ESG)

    In the future, companies may need to emphasize ESG, as it may become a requirement for future credit and capital access. The rapid onset and breadth of liquidity and solvency challenges across multiple industries have triggered increased unemployment and unprecedented fiscal stimulus and quantitative easing. These extraordinary stimulus measures have altered fundamental credit and market rules, which could distort future valuations and further accentuate income disparity. Investors and businesses should pay close attention to these factors as they unfold.

  • Intensified pressure on transition wave companies

    In the US, a high percentage (i.e., roughly 35%) of family businesses currently have CEOs aged 72 or older, suggesting a major transition wave is on the horizon. In the wake of the pandemic, owners with a legacy mindset may want to consider revising their exit, generational transition, shareholder liquidity, governance and/or succession plans. This could lead to an increase in owners who either roll forward ownership into the next generation or pursue an exit strategy as they seek to monetize their business. Click here to learn more about current wealth transition and succession planning trends.

  • Peak oil demand

    Industry watchers predict global oil demand and automotive vehicle production have peaked, even though demand for natural gas should continue to grow. This will force a rationalization on upstream earnings and profits balance sheets as both oil and natural gas prices continue to fluctuate.

  • Expanded view of unexpected risks

    Over the last 30 years, we’ve been fortunate to have had a relatively stable global playing field. Even the global war on terror, sparked by 9/11, and minor outbreaks of disease have not forced a global shutdown on this scale before. The forces of globalization, which fostered improved travel and an interconnected economy, leaves the world vulnerable to the rise of unexpected threats like the COVID-19 pandemic.

As the US and global economy emerge from the aftermath of the pandemic, much will also depend on its duration. At this time, governments and drug companies are still seeking to find more effective therapies for the virus, particularly a vaccine. No matter how long it continues, however, these megatrends will shape the future economic landscape and all private family businesses should plan for them accordingly.

Summary

The economic and health crisis triggered by the COVID-19 global pandemic has unleashed a host of threats and opportunities for all organizations. As businesses work to understand the next and beyond amid the pandemic, many private family businesses should rightly ask what the economic, social and political landscape will look like in 2021 and beyond. To be successful, any strategy needs to consider these megatrends.

About this article

By Robert (Bobby) Stover, Jr.

Americas EY Family Enterprise and Family Office Leader

Leader and advisor in helping family businesses navigate the challenges they face. Instructor and speaker about business succession and wealth transfer.

Contributors