SME strategies for the time of pandemic and Ukraine war

Aachen The war in Ukraine has drastically increased the cost of electricity for consumers and businesses. Compared to the previous year, electricity prices have almost tripled. The IHK Koblenz calculated an example in a study published in March. Accordingly, a medium-sized company in the glass industry paid an average of 100,000 euros per month for its energy supply in 2015. Currently, five to six times as much is due for this on average.

Energy-intensive industrial sectors are particularly affected by this price jump. An example of this is the Siempelkamp Giesserei in Krefeld, which specializes in the manufacture of large, hand-formed castings weighing up to 320 tons. The company is one of the largest hand mold foundries in the world. “We pass on the higher production prices due to the increased electricity costs to our customers,” says Siempelkamp Managing Director Dirk Howe. “This works – at least temporarily – but only because we are very well positioned in the market.” For smaller companies in the industry this is not so easy, says Howe.

Consider liquidity

For the manager, however, the question arises as to how long his corporate customers, for example from the mechanical engineering industry, will continue to bear the increased prices. When many raw materials were scarce last year due to disrupted supply chains, the people from Krefeld began to rethink. They are now factoring in much longer delivery times for their offers and have stocked up on materials.

Many companies have been caught on the wrong foot by the outbreak of the war in Ukraine. According to a study by the Koblenz Chamber of Industry and Commerce, they had opted for a relaxation of the markets and had waited with purchasing or only concluded supply contracts for short periods of time.

The renewed price increase hits the German economy massively. In addition, even before the Ukraine crisis, medium-sized companies had to pay the highest energy prices in Europe in an international comparison due to taxes and government levies.
Against this background, many industry associations and industry representatives are currently sounding the alarm.

At the current price level, many companies in this country would be on the verge of collapse. The experts at the IHK Koblenz therefore propose, for example, improving the framework conditions for direct contracts for green electricity. In this way, companies would secure stable electricity prices in the long term and at the same time improve their corporate climate balance.

“In view of the exploding costs for energy and raw materials as well as the delivery bottlenecks, professional liquidity management is now more important than ever for medium-sized companies,” says Tillmann Peeters, founding partner and managing director of the consulting firm Falkensteg. It is now obvious for the companies to pass on the high costs to the customers – but they also have to go along with it.

Good communication is necessary

In order to ensure one’s own production, he recommends as a second measure to expand the stock. The catch: This increases the tied-up capital and increases the cost of capital. It is therefore important to create financial transparency through intensive controlling and to track income in order not to run into liquidity bottlenecks.

“On the customer side, the companies must operate active receivables management,” recommends the consultant.

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Good communication is paramount in all of this. “For example, you can talk to the customers whether they are willing to pay earlier or even more for the services than before. And if there is a delay in payment, pick up the phone straight away,” says Peeters. When it comes to purchasing and sales, a great deal of “tact” is required.

Taken by themselves, these measures all sound banal and correspond to business administration textbook knowledge. But when it comes to concrete implementation, there are usually unpleasant discussions with business partners. “It is important to become active yourself and actually have these discussions,” says Peeters, who is responsible for the company.

pursue evasive strategies

The problem of rising prices also affects the Federal Association of Small and Medium-Sized Businesses (BVMW). “New innovative products, new markets and other sources of supply must be developed to an increasing extent,” says BVMW Federal Managing Director Markus Jerger.

Creativity and inventiveness are required for small and medium-sized companies. He also recommends diversifying sales and procurement channels and examining where there are opportunities for optimization in order to remain competitive.
“Honestly, however, the picture only becomes complete if you admit that these strategies cannot be implemented successfully for all companies,” says Jerger. After more than two years of the pandemic and the loss of customers due to sanctions, there are many companies that cannot survive economically without state support.

The BVMW therefore calls for tax, levy and bureaucracy relief for companies so that they can concentrate on their business and their potential and thus ensure their continued existence.

More: How the economy itself causes bottlenecks when order books are full.