Companies of the IT industry must face a new set of challenges resulting from an economic slowdown. The worldwide economic slowdown has now gripped the tech services market, affecting businesses in various ways. With growing inflation, the consequences of a war in Europe, and layoffs related to drops in revenue during the last quarter, one thing is certain – everyone is experiencing the consequences. What obstacles are companies now facing in 2023?
”The most common difficulties faced by SMEs around the world are a lack of new business opportunities, unfavourable economic factors, market uncertainty and a shortage of appropriate staff which is still a problem.’’ – Talent Alpha, Tech Talent Business Survey Report 2023
By far the biggest fear for all companies, including those from the IT sector, is the uncertain economic situation. For many, inflation, rising costs, including the rising salaries of IT professionals over the years, and a lack of financial liquidity are the biggest hurdles on the path to growth. According to Talent Alpha’s latest report, over 70% of SMEs see economic recession as one of the biggest external risks for their business in the upcoming year. After all, it’s hard to thrive while simultaneously concentrating on survival. All this makes it necessary for companies to rethink their strategies, shift expenses to strategic points, and make smart yet rapid decisions. In a PwC survey conducted in November 2022, 42% of senior executives said that cost cutting would be a priority in 2023. One of the areas companies have been looking at while planning their cost cutting strategy is real estate – reducing office spaces and switching to flex office spaces, especially popular now as the hybrid working model has established itself in the IT industry. One of the leading IT brands, Cognizant, announced recently that it would be reducing its office space and cutting its annual real estate cost by $100 million (based on its 2022 budget) by 2025.
The worst-case scenario – staff reduction
The employment area looks particularly troubling. The beginning of 2023 resulted in the layoffs of thousands of specialists – some companies cutting staff by up to 25%. In January, the situation reached monthly peak, with the number of layoffs totalling more than 84,000 professionals from companies around the world. For the half-year of 2023, this state is over 213,000. This is because, happily, the problem in this area has eased and increasingly fewer companies are opting for staff reductions. Among small and medium-sized (SME) IT service companies, sentiment was fairly optimistic at the start of the year – as a survey conducted by Talent Alpha indicated only 6% had plans to reduce their staff. Even if the situation changes over time and companies may be forced to act, for many losing their staff would be the worst-case scenario. Therefore, they are turning to other solutions first. On a more positive note, the layoffs in the giant global companies have given SMEs a window of opportunity to fill tech talent gaps which had been affecting their business. This was illustrated by many specialists being rapidly reabsorbed into the market after being laid off.
Lack of new business opportunities
Growing costs are affecting everyone – including larger companies, which were previouslyeager to use the help of smaller players, but now must focus on reducing expenses due to rethinking their budget and cutting costs. The result of big players’ restraint in spending is a lowering of the need to use outside vendors – and therefore IT service providers. It is the second most frequently identified obstacle for SMEs in the current year, as 55% saw it as the main danger to their respective operations. Moreover, as many as 57% of companies have been affected by the issue of current projects being downgraded or closed down.
At the same time, one can hear positive opinions regarding the issue. According to a Gartner study, the situation for SaaS companies may turn around as some companies’ investment in work optimization and implementing more automation in the business is seen as a way to rein in costs in the long term.
This shows that the tech business is sensitive to external, global conditions. For more insight on how SMEs around the world are facing current trading headwinds, see the latest Tech Talent Business Survey Report 2023.