People are the main challenge for micro and SMEs in 2022

While in 2021 the focus of companies was mainly on sales - taking into account the impact of the pandemic - and on digital transformation, this second edition sees a reversal of the paradigm.

In a survey conducted on a total of 853 micro, small and medium enterprises operating in Portugal, the majority (59.9%) elected people as the main challenge for the year 2022, an increase of 32.5% compared to 2021, replacing sales, which moved from the top of the challenges to be considered as the third biggest challenge for companies this year (from 65% in 2021 to 47.7% in 2022). In addition to people, sustainability also assumed a primary role in the challenges for this year (52%).

Considering the last quarter of 2021, compared to the same period in 2020, the percentage of companies that reduced their workforce fell from 19.6% to 15.1%, while the percentage of companies that increased their number of employees rose from 16.3% to 20.5%. The percentage of companies that kept the same workforce remained stable, rising from 62.4% to 60.5%.

In relation to 2022, 48.8% of companies expect to be able to increase the number of employees, mainly in the areas of operations (45.4%), sales (18.7%) and human resources (8.4%).

João Silveira Lobo, assistant professor at Nova SBE Executive Education, underlines: "The main note that results from reading the data is a feeling of optimism from the respondents! Not an unbridled optimism, rather a restrained optimism, but nevertheless a more auspicious outlook on the near future than the one that characterised the previous edition!"

With regard to finance, 59.7% of the companies surveyed resorted to financial support, however, companies no longer feel such a need to resort to the simplified layoff, and now resort to support for hiring and maintaining jobs. In 2021, 21% of the surveyed companies resorted to the simplified layoff, 11.5% less than in 2020. In the opposite direction, the use of hiring support rose in 2021, from 10.8% to 16%. The use of credit moratoria remained constant and represented 22% of the surveyed companies, as well as bank financing (20.8%).

Based on the last quarter of 2021, 29.3% of companies received from suppliers in cash and 30.9% of these also paid in cash; 28.3% of companies receive at 30 days and 41.5% pay in this mode, while 25.3% (down 9.8% compared to the same period of 2020) receive at 60 days and 19.8% pay at 60 days, a decrease of 6.6% compared to the same period of 2020.

When it comes to sales, 64% of companies saw their turnover increase in 2021 compared to 2020. Of the respondents, 31% report an increase in sales between 1 and 20%, 17.5% report that sales remained the same between 2020 and 2021, while 18.3% of companies saw their sales fall between 2020 and 2021.

For 2022, 48% of companies expect to exceed 2021 sales and 46.6% expect to return to turnover levels close to those of 2019, before the pandemic.

"SMEs were confident of an increase in sales (about 50% considered that they would reach pre-pandemic levels by the end of this year), feeling less need of financial support and directing their concerns to the need to hire and retain employees (fundamentally in the operations area), to make their businesses more resilient to the challenges of environmental sustainability and with about 60% of the companies showing that digital transformation became a relevant tool to boost business," adds João Silveira Lobo.

Marketing investment remains low, with 57% of companies expecting to invest only 1% of their budget in this area. Only 14.8% of companies expect to invest more than 10% of their budget in marketing campaigns in 2022.

In 2021, 55% of the companies surveyed invested in digital marketing services, a percentage that rises to 75% when asked about investment forecasts for this year. Campaigns in social networks (68.6%) and trade marketing in e-commerce channel (42.1%) are the main bets for this year.

With regard to offline campaigns, in 2021, 36% of companies invested in this area, forecasting a drop to around 29% of respondents this year, with promotional marketing (64.4%) and telemarketing (58.9%) being the main bets of companies for 2022.

Regarding digital transformation, there is an increase in investment in tools to accompany the digital transformation for 31.8% of respondents, being the investments in software (29.6%), in digital platforms (17.5%) and in websites (16.9%) and e-commerce (16.4%) the most expressive. The main reasons for this investment are the relevance for the business (13.3%), the ease of communication (12.2%) and the generation of leads (10.2%). On the contrary, 40% of the surveyed companies do not use digital tools, the main reasons being that they are not relevant for the business (18.3%), the value of the investment (13.8%) and the fact that they are not used (11.7%).

Among the respondents, the percentage of companies selling through e-commerce increased by 2.8%, to 26.6%.

With regard to sustainability, 41.5% of the companies state that they have quality processes and certifications that contribute towards business sustainability, the main ones being the ISO 9001 standard (7.2%) for quality management, the seal of approval of PME Leader from IAPMEI (4.2%) and the HACCP system of hazard analysis and control of critical points (3.2%). Furthermore, 47.7% of the companies mention having plans on environmental impacts and state that they feel pressured by environmental problems such as drought (25.4%), climate change (20.9%) and by the desire to have a smaller environmental footprint (14.9%).

Taking into account the current conflict situation in Ukraine, João Silveira Lobo recalls, however: "If the years 2020 and 2021 were demanding because we were facing a demand shock, what we are facing today will be a supply shock due to the increased cost of raw materials and energy, logistical difficulties, increased cost of money and, therefore, inflation on the supply side that will not be able to be passed on in full to customers!".

"The volatility and uncertainty that, on the day of writing this commentary, surround the business world are such as to suggest that the risks and concerns expressed in the responses to the SME Barometer 2022 should be amplified, optimism should be mitigated and entrepreneurs should prepare for a difficult year that will again test their abilities to manage cost-side impacts as well as their investment plans," he concludes.