The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
If 2021 was the story of global pandemic woes continuing to impact all aspects of society, 2022 is shaping up to be the annus horribilis for its ugly cousin, the broken supply chain.
In a recent article online, ‘Supply Chain Woes Refocus Investment Strategies as M&A and PE Soar’ published on Oct 12, 2021 on mergers.whitecase.com, the vastly complex disruption was neatly summed up here: When buy orders fell precipitously last year, supplier factories wound down their activity. Supply chains have now been whipsawed by resurgent demand on the one side and a lack of supply on the other, as suppliers struggle with shortages of both labor and materials as well as inflationary pressures. Inventory levels in Europe and the US remain at their lowest levels on record.
THE PROBLEM ‘Ps’
Much has been and will continue to be written on the subject, but the issue is so widespread and impacts virtually all elements of society that it seems a good time in this last month of the year to try and organize the crisis components as we look forward to its undoubtedly headline status for 2022.
Sridhar Tayur, professor of operations management at Carnegie Mellon University’s Tepper School of Business, said, in a December 7, 2021 article on Forbes.com, that the future of the crisis depends on these 4 Ps: Product, Prices, People, and Politics.
These areas will continue to see troubles, as products remain in short supply, prices rise along with inflation, the labor market for both skilled and unskilled suffers from unfilled jobs, and perhaps most importantly, on the political side, ‘decisions related to mandates, inflation, multi-national trade policies and immigration (both high skill and low skill) will have a sizable impact.
With an eye towards the interlocking issues that affect products, prices, people, and politics throughout the supply chain, alternative investments will likely see opportunities to exploit in M&A and PE. Efforts that center on technology solutions and innovations surrounding the movement of materials and supplies around the globe will certainly be a key focus for investment activity in 2022. Experts are predicting that companies who cannot satisfy backlogged customer orders will continue to lose these unhappy clients, while those companies who can find ways to deliver sooner on backlogs and/or improve the transparency to customers on order status and expectations for fulfillment will gain in strength on customer loyalty and business.
Returning to the October 12, 2021 article mentioned previously, it goes on to state: Likely the biggest winners amid this ongoing disruption will be the tech-enabled companies that help to improve inefficiencies and ease bottlenecks along supply chains. Logistics players will be eager to snap these up to improve their operations, and private equity will continue to seize upon an opportunity it identified long before the stress supply chains are now under.
WHAT SHOULD INVESTORS BE MOST CONCERNED ABOUT IN 2022?
Last week Wells Fargo published their investment outlook white paper, Which Way To The Recovery in 2022? that provides some key markers for investors to consider in their portfolio planning over the coming year.
A TRANSITION YEAR IN 2022
- Our view is that the U.S. will serve as a global-growth locomotive in a challenging transition year from a pandemic-driven economic cycle.
- We expect U.S. 2022 economic growth of 4.5%, a still elevated 4.0% inflation rate, and fourth quarter unemployment down to 4.1% to favor risk assets, such as equities.
- A shortage economy will likely keep inflation elevated well into 2022, before supply-chain pressures ease and allow inflation to subside during the second half of the year.
- A stronger dollar is a negative for international investment returns and reinforces our preference for U.S. financial markets.
Likewise, investment managers who will be analyzing these dynamics might see significant growth opportunities next year, and earn the 2022 moniker of Smart Money for their investment partners.
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