Friday, June 9

Four trends challenge the tech industry amid slowdown

Two years into the global pandemic, a large number of technology companies have benefited from the organizational drive toward digital transformation, which has accelerated almost overnight across all sectors of the economy. But after a period of rapid growth, the market began to show signs of slowing down in 2021.

Grant Thornton spoke to technology experts from across his member firms about how key trends could affect businesses in the next 12 months and what their short-term priorities should be. He interviewed 475 top middle-market executives from technology companies in 29 countries.

It was discovered that with a market as dynamic and innovative as technology, there are many opportunities for companies not only to extend their competitive advantage, but also to generate their future growth.

Today, companies must take into account 4 mega technological trends to face the new challenges that arise in the short term. These are the following:

  1. The impact of inflation on profitability and access to capital

Rising inflation presents a clear challenge to the tech sector and the global economy. There are concerns about labor and energy costs in many markets. These will have to be passed on to consumers and many in the industry are anticipating record price increases. And while the current funding shortage has eased from a peak in the first half of 2021, it was still cited by many executives as a key business constraint in 2022.

What should technology companies do?

Technology companies need to streamline operations to drive efficiency and effectiveness. Tax changes around the world and increased regulatory oversight will also drive the restructuring.

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Raja Lahiri, a partner at Grant Thornton Bharat, says that “in 2022, we are already seeing signs of tech company valuations moderating, and those in the mid-market should focus on profitability and unit economics, as well as building a plan. of sustainable growth. Companies need to plan around their readiness around business model, governance, business systems and processes, and financial reporting.”

  1. Internationalization continues in sales, service and supply chains

Building on the momentum of the previous two years, many companies will continue to prioritize international growth. Some 60% of the executives we spoke with are allocating more employee resources to this goal, despite the additional complications of higher energy costs, transfer pricing, supply chains, compliance burdens, and ongoing concerns about ongoing disruptions to transportation infrastructure. This is the highest percentage of any industry we monitor. In fact, 57% plan to sell their products and services in more countries in 2022, and 52% plan to use more non-domestic providers and subcontractors.

What should technology companies do?

Internationalization presents a great opportunity for technology companies, but it also exposes them to several different risks, especially around Compliance. Companies need to ensure that compliance keeps up with growth. This means ensuring that fiscal positions are prepared for any jurisdiction they may enter, but also that governance processes are aligned with their international ambitions.

  1. Talent, culture and taxes in the new world of work

For many companies and employees, one of the most significant impacts of the pandemic has been the widespread shift to hybrid working. The tech industry is used to high turnover, competition for talent, and a continuing shortage of skills in emerging technologies. And the move to remote work could continue to compound these problems for some companies.

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What should technology companies do?

Retaining talent, upskilling digital talent, and focusing on culture should be a key strategic priority going forward. Technology companies need to expand their global talent base, especially in countries with a deep tech talent pool, and create centers of excellence in new areas such as cloud, quantum computing, AI, and cybersecurity.

Matt Stringer, chief international tax partner at Grant Thornton UK points out that companies need to quickly educate themselves on things like permanent establishment risk, foreign employment taxes and social security requirements.

Oliver San Juan, Tax Manager of Grant Thornton Chile, adds that “this industry in particular has been affected by important regulatory and tax changes in Latin America and, without a doubt, in Chile. Thus, for example, the last Chilean tax reform incorporated VAT on the so-called “digital services”, granted -the vast majority- by technology companies. Another example is the discussion that is taking place in our National Congress, on a bill that regulates the activity of online gaming platforms and casinos”.

  1. The growing importance of environmental, social and governance (ESG) criteria

When it comes to sustainability, stakeholders (customers, employees, and investors), as well as ongoing rule changes around ESG reporting, will require tech companies to take action in areas like climate change. ESG is increasingly seen not only as an additional compliance piece, but also as something that is linked to creating value and preparing for the long-term future.

What should technology companies do?

When we spoke to executives, common barriers to better ESG performance included a lack of clarity around new regulations, measurement frameworks, and the skills and capabilities needed. Developing a clear strategic plan on how to overcome these challenges will be an important step. Companies need to think about how to position themselves in this space and how aligned their ESG business strategies are. ESG reporting is key to proper disclosure and transparency for investors and the broader stakeholder community,” says Raja Lahiri.

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