War in Ukraine - a slump and rebound for SMEs

Nearly 9 in 10 entrepreneurs have felt the effects of the war in Ukraine in their business. Across Europe, rising costs, supply chain disruptions and inflationary pressures are the biggest challenges facing SMEs. Will companies, especially Polish ones, seize the opportunity presented by Ukraine's reconstruction?

In recent years, the global geopolitical scene has experienced drastic events. In particular, Russia's invasion of Ukraine and the ensuing consequences, most notably increased costs, have transformed the economic situation of SMEs around the world.

Entrepreneurs in the new reality:
The survey "Growth in turmoil: how are SMEs coping globally?", commissioned by factoring company Bibby Financial Services, confirms that war-induced turbulence, such as rising energy costs, disrupted supply chains and rising commodity prices, have become some of the most important challenges for SMEs worldwide.

More than half of all respondents (54 percent) suggest that the war has increased costs, while a quarter say it has affected their supply chains, and 18 percent have had to look for new suppliers. Interestingly, the cost increase caused by the war was felt most acutely by businesses in France (61 percent), the UK (60 percent) and Ireland (58 percent).

Overall, however, the effects of the war in Ukraine are felt most strongly by countries in the immediate vicinity of the conflict:

- Poland
The war has put many Polish companies in a difficult situation, with only 23 percent saying they have not been affected. The biggest threats to SMEs are inflation and rising costs (70 percent), with high energy costs and problems in supply chains (59 percent) right behind. As many as 55 percent of Polish companies report rising costs, and 26 percent feel the impact of the war through currency fluctuations. 21 percent say the war has affected supply chains and reduced the number of suppliers, which has also raised costs. As many as 18 percent of companies say their suppliers have declared bankruptcy in the past 12 months.

- Czech Republic
Also for Czech SMEs, rising inflation-related costs are the biggest challenge (51 percent), just ahead of high energy and supply prices (46 percent). The conflict in Ukraine has had a significant impact on almost a third of SMEs (28 percent). For 43 percent of them, it means increased costs, and for 25 percent. - had an impact on supply chains.

- Germany
Nearly a third of companies (30 percent) see the conflict in Ukraine as a key challenge. 57 percent of companies have experienced an increase in costs, while 34 percent have noted the conflict's impact on supply chains.
It is worth noting that the war in Ukraine has also had a serious impact on the Polish labor market. According to the Organization for Economic Cooperation and Development (OECD), some 1.6 million Ukrainians had settled in Poland by March 2023, which significantly helped ease wage pressures. Only 10 percent of Polish companies cited labor shortages as a key challenge in 2023, that's the lowest percentage of any market surveyed by Bibby Financial Services.

Is there a panacea for higher costs?

"Undeniably, the war in Ukraine and its consequences have been a key challenge for SMEs in Poland and across Europe. Companies have had to adapt to a new reality of rising costs and supply disruptions. For small and medium-sized entrepreneurs, however, there is no one-size-fits-all solution to deal with the uncertain future outlook. Liquidity certainly requires greater concern," says Tomasz Kukulski, CEO of Bibby Financial Services.

To address some of the challenges - particularly inflation and high energy costs - SMEs plan to implement a diverse mix of strategies. On average, half of all companies surveyed in the nine countries will raise prices to customers, while just over a quarter (27 percent) plan to review their supply chains for efficiency. Similarly, 18 percent will freeze recruitment, 17 percent intend to put their investment plans on hold, and 15 percent will downsize or relocate their headquarters.

In Poland, six out of ten companies expect to increase sales in the next six months. Sixty-three percent expect to owe this to acquiring new customers, while 34 percent believe they will build new relationships with suppliers, and 28 percent say they will use new distribution channels.

Will Polish SMEs rebuild Ukraine?
While the effects of the war in Ukraine are still being felt by SMEs in Europe, the country's reconstruction process offers hope for the future and creates new opportunities for entrepreneurs.

"After the end of hostilities, a dynamic process of rebuilding Ukraine will begin with broad international support. It will become a key element in shaping the economic situation in the region, which brings, including for small and medium-sized companies, new prospects and challenges," says Tomasz Kukulski, CEO of Bibby Financial Services.

The reconstruction of Ukraine is an opportunity for companies to:
- increased investment - the renewal of Ukraine's infrastructure and economy is already attracting outside investment. For SMEs from Poland and other European countries, this creates an opportunity to take part in reconstruction projects and access new markets;
- demand growth - the reconstruction of Ukraine's economy and financial support from the international community will contribute to increased demand for products and services in Ukraine, creating many opportunities for exporters;
- partnership and cooperation - increased efforts at reconstruction will foster cooperation between Ukrainian and European companies, offering opportunities to build long-term partnerships and strengthen regional cooperation.
3,000 Polish companies ready to take part in reconstruction.

According to recent World Bank estimates, repairing the damage done in the first year of the war is expected to cost more than $400 billion. The Ukrainians themselves are even talking about the $1 trillion that will be needed for this purpose after the war. So far, more than 3,000 companies in Poland have signed up for Ukraine's reconstruction program. Moreover, although the war is ongoing, Polish exports to our neighbor are growing. According to data from the International Monetary Fund, the value of Polish exports to Ukraine last September - that is, six months after the outbreak of war - was 46 percent higher by 2021, while imports were 23 percent higher. However, it is worth noting that while this already opens the door to new opportunities, it is also accompanied by changing conditions: from regulations to unpredictability of supply. Equally high is the competition from companies from other countries. Polish companies must be flexible and ready to adapt to these new conditions.

How to get out of the chaos?
The war in Ukraine has presented companies with new challenges, forcing them to adapt and seek new solutions in the face of rising costs and supply disruptions. Despite these challenges, many companies are showing resilience and entrepreneurial spirit in the face of adversity. Ukraine's reconstruction process offers hope for the future and creates new opportunities for companies. However, like any change, it also brings challenges that companies must face as they adapt to the new reality in the region.

Source: Bibby Financial Services