Welcome to 2023!
This week I have pulled news from the last three weeks, with an emphasis on what to expect for 2023 in these five key areas. For each of the five topics, the “My take” shares why I think these stories are relevant and what I think it will mean for small businesses in 2023 and beyond. Please reach out to share your thoughts with me!
1. The Future of U.S. Manufacturing
Technology/Economy/Politics
Summary: Many manufacturing firms are starting to seek out alternate locations for manufacturing – other than China. This is partly due to the supply chain fiasco during COVID, and partly due to issues with the Chinese government. Some examples of this transition, which I think is likely to continue:
Due to COVID policies, “geopolitical tensions and tariffs”, many companies are diversifying their supply chains away from China. The countries “stepping up to replace the world’s factory” include India, Vietnam, Thailand, Malaysia, and Bangladesh.
U.S. manufacturing orders from China are down 40% (in early December) based on decreased demand and higher levels of inventory in the U.S.
There has been a growing trend of moving manufacturing from China to Mexico. One key advantage is the ability to ship rapidly as compared to China. Exports from Mexico were up over 20% in 2022 as compared to 2021. Ironically, many of the supplies the Mexican companies need to produce for the U.S. are still coming from China…
One growing e-bike company has moved its production from China to Detroit, “unlike almost every electric bike now on the market” currently being produced in China. Between the low volume production (for China) and their desire for the bike design to stand out from the “cookie-cutter e-bikes” being made in China, the choice to move to the U.S. made sense. It also helps with maintenance, servicing and spare parts shipments.
A recent survey of CEOs showed that 91% “are preparing for deglobalization”, about half are adjusting their supply chains, and about a third are “onshoring their workforce.” This shift to more American made production is expected to both generate jobs and also increase prices of consumer products. There is hope that both subsidies (aka CHIPS Act) and automation will help U.S. manufacturing remain competitive.What kind of community are you looking to build here
My take: My prediction for 2023 – we will see more ‘nearshoring’ and ‘reshoring’ but China will continue to dominate the world when it comes to manufacturing. I do believe that U.S. manufacturers will start exploring more alternatives, and perhaps find more than one source manufacturing to be less reliant on China. Manufacturing in China has been getting bad press, so it helps to point out any parts of the supply chain/manufacturing process that take place elsewhere.
2. The Future of the Economy
Economy
Summary: For 2023, the “Recession Yes or No” game is being dropped. Too much variation, and everyone’s circumstances in this odd economy seem to be different. Here is a summary of some of the key predictions or indicators regarding the economy that showed up in the last couple weeks:
The Wall Street Journal claims that “almost everyone on Wall Street and in Washington got 2022 wrong.” That includes predictions about interest rates, inflation, and the stock market. The lesson, “Be prepared for more surprises.”
Some measures of the 2022 market:
The U.S. auto industry saw the worst sales “in more than a decade” in 2022.
The U.S. manufacturing sector “contracted in December at the steepest pace since the onset of the Covid-19 pandemic” mainly due to “weak client demand” because of economic uncertainty.
“The pace of hiring cooled in the second half of 2022, and several large employers laid off workers or planned to cut jobs." The unemployment rate is expected to “reach about 5% by the end of 2023.”
Some thoughts on what’s to come in 2023:
European markets seem to be improving, with signs that “inflation, supply chain bottlenecks, and natural gas prices are all easing.” However, the International Monetary Fund “expects one third of economies to fall into a recession this year.”
Small business owners in the U.S. say it’s “getting easier to hire workers and keep them around” with the hope that “the worst of their labor problems are behind them.”
“More than two-thirds of the economists at 23 large financial institutions” are “betting that the U.S. will have a recession in 2023” with two others predicting it for 2024. This will mainly be due to an increase in the unemployment rate and concerns about interest rate raises.
The Wall Street Journal is predicting a “richcession” with the potential 2023 recession expected to affect even the rich, with recent layoffs and the falling stock market affecting higher-income folks more so than others.
How to prepare for a potential recession? Check out advice from 14 founders and CEOs on how to lead through a recession. tl;dr version: be good to your employees and customers, be honest and transparent with your team, keep things in perspective, prepare for the worst, and remember that “the cream rises to the top.”
The Visual Capitalist has a great infographic of key economic indicators (leading, coincident, and lagging) that is worth a look.
My take: I’m not going to play the Recession Yes or No game this year, because I expect it will turn out very similar to 2022 – a mixed bag of stories. My best advice - focus on the leading indicators for your own industry, continue to reach out to customers to deliver the best product or service you can, and be on the lookout for the opportunities that come with down times and disruption. Be sure you pay attention to cash flow, don’t decrease your marketing budget (but certainly be critical about where you are spending that money) and consider the possibility of buying out a competitor or supplier if they are struggling in the downturn.
3. The Future of Big Tech
Technology/Social/Economy
Summary: For the last several years, Big Tech firms (the FAANG/MAMAA firms) have dominated the stock market along with the world. Is 2023 the year that anti-trust concerns force a break-up? Or the year that upstart competitors destroy their dominant market share?
Some of the latest news on these companies can give you some indicators of their direction:
Layoffs
Amazon “plans to eliminate 18,000 corporate and technology jobs”, an increase from their initial estimate of 10,000 layoffs, and representing about 6% of “Amazon’s corporate workforce.”
Salesforce is laying off about 10% of its employees and closing some offices, following a time of over-hiring during the pandemic (similar to Amazon)
Overall, “some 152,000 employees were laid off in 2022 from more than 1000 companies” with the “biggest spike in tech layoffs in November with almost 53,000 cuts.” These layoffs are expected to continue “until at least the first half of 2023.”
Samsung Electronics predicts a “tech slump” to continue through 2023 as demand for “consumer gadgets” declines due to high inflation and interest rates. But the co-CEO of Samsung claims “A crisis usually creates a new opportunity. When everything’s stable, it’s hard to shake up the market order.”
Contractors - Big Tech firms that hire gig workers in India have been “blasted” for not offering fair conditions for gig workers. This includes not paying the hourly local minimum wage, not offering benefits such as life insurance, and generally exploiting these gig workers and “limiting corporate liabilities.”
Marketing/Advertising Dominance
“For the first time in nearly a decade, the two largest players in online advertising are no longer raking in the majority of U.S. digital-ad dollars.” Google (Alphabet) and Facebook (Meta) combined accounted for just 48% of 2022 ad spending, with that number expected to drop again in 2023.
Some key reasons for this drop include the fact that other larger retailers are launching their own ad services (Uber, 7-11, Walmart, CVS, Home Depot, etc.) – along with competitors like TikTok and Amazon.
Other signals of a shift in Big Tech dominance:
The person in charge of VR hardware at Meta has left, and issued a ‘departure message’ that was “a scathing indictment of crippling inefficiency at Meta.”
Leadership at Amazon, Google, Microsoft, and Facebook have all “scaled back their ambitious ‘moonshot’ projects” because they are now more focused on generating revenue than on innovation.
The Atlantic offers some interesting insights into the fall of Big Tech companies, noting that these companies that claimed to be so different, ended up “embracing profit over safety, market expansion over product integrity, and rent seeking over innovation.” And now they are stuck; too big to pivot and “paralyzed when it comes to product development.”
My take: History has shown us that big, bloated companies struggle to innovate, and the Big Tech firms are no exception. And now the executives are so dependent on the stock market value that they aren’t able or willing to take a risk again. Ultimately, this will not work in their favor, as I expect to see lots of entrepreneurial ventures taking tiny stabs at the giants, and eventually toppling them. Will the new ventures then turn into the New Big Tech? Will the giant firms decide to break into pieces? Or will the tech-connected world have enough opportunity for lots of competitors? We’ll see how Big Tech reacts to these threats to their current domination of the world.Readers love clarity. Be clear when you explain what they should expect: how often will you be posting? Can they expect certain posts on specific days? What will the free subscribers get? What does a paid subscription buy them? (You can list these benefits in bullets.)
4. The Future of Chat GPT
Technology/Social
Summary: The world is still gaga for ChatGPT and its human-like writing skills, even though it writes like a bland person writing middle-school level essays for the most part. Here is a highlight of some of the discussions surrounding this new tool from the last couple weeks:
How will a tool like ChatGPT impact education? The chatbot’s ability to write essays, poems, scripts and more could be a huge benefit, but of course the tool only sounds knowledgeable. Its sources could be completely made up and the content can be as biased as the internet. Teachers are concerned that students will let the chatbot write their essays and complete their homework. It could, of course, also supplement the teacher’s work by creating content for them as well.
In New York City schools, access to ChatGPT has already been blocked to avoid cheating, which won’t keep the tool from writing unique essays (not plagiarized) for students working outside of the school buildings. And just this week, a student from Princeton built an app that “can detect if ChatGPT wrote an essay” which crashed due to high web traffic as soon as it was released.
So what is the value of a chatbot like ChatGPT? It can write some amazing poems and even movie plots that incorporate all the best parts of prose or story lines. But ultimately it shows its true colors. There is no personality in the writing. It makes “factual errors” and “relies heavily on tropes and cliché, and it echoes society’s worst stereotypes.” But it certainly can provide some entertainment as it creates content for you, as demonstrated in a list of “20 Entertaining Uses of Chatbot You Never Knew Were Possible”. Twitter threads, Q&A Prompts for interviews, translations, lesson plans and more!
As AI capabilities continue to grow, hopefully we will find more helpful and productive uses for it – and hopefully it will do a better job with accuracy. One cool new AI tool on the market is DoNotPay, an AI chatbot that “can help you negotiate bills and cancel subscriptions without having to deal with customer service.” It is a chatbot that represents your needs when chatting with a chatbot that represents the companies like Comcast. Would’ve come in handy when I tried to cancel my trash service…
Finally, Microsoft, an investor in OpenAI, the company that created ChatGPT, is hoping that ChatGPT will help its search engine Bing to become bigger and better than Google. Google’s management is threatened enough by ChatGPT to “declare a ‘code red’” – the potential “arrival of an enormous technological change that could upend the business.”
My take: AI chatbots are just beginning to show their capabilities and usefulness. Their main downside is that they are too dependent on flawed data available on the Internet. But these tools are going to change how we work in many ways, including those of us writing newsletters! Ack.
5. The Future of Employment
Social/Economy/Technology
Summary: COVID changed lots of things about how and where we work. And those changes are going to continue. Some top news stories about the shift in how we work:
Remote Work
While companies are still working to attract top talent, it turns out that the ‘top talent’ have more control than the employers when it comes to how and where they work. And they want “extreme flexibility” – the ability to “work from wherever they want.” Companies that don’t adapt to this change may find that they will lose their best employees. And who likes office-based working the most? Just one group of employees – senior leaders with their own private offices.
Despite the warning above, larger employers are beginning to send “directives” to employees asking them to come into the office more often in 2023. They are seeing lots of pushback, but if we start to slip into a recession and the unemployment rate goes up, employers expect that their teams will suck it up and come into the office more.
Meanwhile, many employers are seeing huge turnover among employees who are looking for jobs that offer more flexibility or more pay or both. This has left employers struggling to hire and train employees, causing a slowdown in production, especially for manufacturing work that requires some skill.
Gig Work
The number of new business applications has been trending up since 2021. But the majority of these new businesses are one-person companies. Within the next few years, it is expected that “as much as half of the American workforce – almost 87 million people – will be freelancing.”
The ‘gig economy’ is most popular among Gen Z and Millennials, with over 40% of Gen Z and nearly half of millennials having done some freelance work in the last year. Their main goals – extra income and more flexibility.
It’s not just Uber drivers either. Over half of freelancers provide “knowledge services like computer programming, marketing, and business consulting.”
What does this mean for larger corporations? It might mean that they can add on freelancers as “interim workers” if they need particular skills or extra help during busy times. One step beyond an interim worker is an “interim professional” such as part-time CFOs or other C-suite positions. These ‘gig workers’ come with a tremendous amount of experience, but don’t want to work exclusively for one company for the long haul. Keep following trends like this.
Just be sure if you run your own solopreneur-ship to avoid taking advantage of your own subcontractors. Apparently, virtual assistants in some developing countries like the Philippines, are getting paid sub-standard wages (like $2.50/hour) by some small business owners, while a more fair rate would be closer to $10-15/hour.
Shift in Leadership?
It’s been said that the world has been ruled for some time by white men. That time is starting to change. As more stories come out about the boys’ club culture of many employers, the popularity of those companies starts to decline. For example, records from a gender-discrimination lawsuit against Nike “employees described ‘sloppy drunk’ men, witnessing oral sex, and requests to ‘dress sexier’ at work.”
Based on that example, it’s not surprising that Black women, “worn out from discrimination in corporate America” are leaving to start their own businesses. The percentage of Black women in the labor force dropped from 2019 to 2020, and is expected to continue to fall. This is likely to the benefit of entrepreneurship and to the detriment of large companies and their diversity goals.
Another change expected in the future comes from Gen Z. Many Gen Z women “are facing mental health challenges like anxiety”, which is likely to cause them to be less successful than Gen Z men, since they are less inclined to take risks, and more likely to need more time off.
Finally, check out these top 2023 small business trends from the Small Business Association blog. tl;dr version – Ecommerce isn’t going away, but brick & mortar is growing, protect your customer data from fraud, look out for sustainability changes and focus on your customer experience more so than price or quality to best compete.
My take: The world of employment is changing, and if your business doesn’t adapt, you’ll have a hard time retaining and hiring employees, recession or no. Be open to hiring remote employees, offering more flexibility in either hours or work location, and bringing in ‘gig workers’ to cover tasks that are either temporary or don’t require full-time work.
RECESSION - YES OR NO?
My Recession Conclusion: There will be some form of a recession that will impact some people more than others. Be prepared but don’t be overly pessimistic. This section is now officially retired.
Bonus Stories
Two bonus stories this week – enjoy!
Bonus Story #1: Who will play SBF?
After multiple episodes of the Sam Bankman-Fried (aka SBF) and FTX drama in past Five4Fri issues, it was fun to see this article making some guesses about which actors should play SBF and his associates and parents “when the FTX implosion gets made into a movie or TV show.” Who are your picks?
Bonus Story #2: Just like the movie Office Space
“A Washington man allegedly transferred thousands of dollars from his employer into a personal account after being inspired by the 1999 cult movie “Office Space,” according to an arrest report by the Seattle Police Department.” He was a software engineer working for Zulily, and his “malicious code” allowed him to steal just over $300k before he was terminated. Investigators found a file on his laptop called “Office Space Project” which detailed his scheme.