Russia-Ukraine Conflict: 5 Considerations for Small and Midsize Businesses
The current Russia-Ukraine conflict is a quickly evolving situation with global, national and local economic implications. Despite uncertainties about the duration, intensity and long-term impact of the conflict, businesses can benefit from staying attuned to the unfolding events and considering several actions to strengthen their organizations for the future.
Viewing the conflict from an historical perspective provides business owners with important context that may help guide these decisions. It’s noteworthy, for example, that U.S. markets have been remarkably resilient during other recent geopolitical events, including the Brexit referendum (2016), the annexation of Crimea (2014) and the U.S. invasion of Iraq (2003). Going back further, investors can see that markets even held their ground during WWII. Despite some pullbacks in U.S. markets, the S&P 500 was up about 50% from 1939 to 1945. The point is that history has proven that geopolitical conflicts are manageable for capital markets. But there are other important factors to keep in mind as well.
First, it is important to remember the scope of the current conflict. For example, let's assume that the current conflict in Ukraine does not escalate to include other countries. Collectively, Russia and Ukraine are responsible for only about 5% of the world’s economic activity. Because of this fact, even major disruptions to the economies of these two countries are likely to have limited negative impact on the U.S. economy.
Secondly, the conflict has already contributed to short-term market volatility and an initial spike in fuel costs that have concerned consumers around the world. That said, it should also be noted that the cost of oil is already showing signs of leveling out, and the current administration has initiated several strategies to help bolster the domestic oil supply.
Additionally, as the situation in Ukraine continues to unfold, an ongoing concern for business owners is inflation, which has surged to its highest rate in 40 years. But despite projections that rising gas prices may continue to boost inflation in the short term, most economists expect inflation to decrease by the end of 2022, though it may be at a slower pace than initially anticipated.
And finally, another factor to consider is that many businesses are returning to more normal operations following a two-year period of disruptions initiated by the pandemic. As more individuals return to the office and consumers resume their pre-pandemic activities, many businesses are expected to experience more consistency in their workforce and sales.
So, there are a number of reasons to believe that the current situation in Ukraine may not spell disaster for businesses in the U.S. and abroad.
Here are five recommendations for small and midsize business owners as you navigate the uncertainties of the Russia-Ukraine conflict.
- Examine the benefits of hedging.
Hedging is a risk-management strategy to limit potential losses in current financial assets by investing in offsetting assets, such as commodity futures. For small and midsize businesses, a hedging program might be a consideration to offset the potential volatility of energy markets or other investments. Your Enterprise team can help you assess the potential benefits and opportunities of this sophisticated investment strategy.
- Reevaluate pricing strategies.
Increasing prices is another potential opportunity to offset the rising cost of energy, raw materials and business operations. But before deciding to raise prices, be sure to conduct some market research and evaluate price elasticity to ensure the increases won’t negatively impact customer demand and loyalty.
- Focus on energy efficiency.
One possible outcome of the Russia-Ukraine conflict is an acceleration of the nation’s transition to clean energy. To prepare for this shift, business owners should explore opportunities to modify or adapt their organizations to become more energy efficient. Even simple tactics such as consolidating delivery or travel schedules will contribute to immediate savings while positioning the firm for the future as the U.S. continues reducing its dependence on fossil fuels.
- Rely on diversified information sources.
As you face this season of uncertainty, try to maintain a balanced perspective on global developments and their potential impact on your business. Seek out trustworthy news and information sources that provide objective insights from credible experts.
- Don’t abandon your long-term business strategy.
While you may choose to initiate some tactical changes or refinements to your operations, it’s important to remain focused on your big-picture goals and long-term business strategy. Please don’t hesitate to reach out to your Enterprise team for resources, guidance and support.