It has been a tough few years for those in business. Lockdowns shut down whole industrial sectors worldwide, turning profitable businesses into loss-making ones, while a lot of smaller businesses went under entirely. Many companies will now be hoping for a return to some type of normality after the COVID crisis. However, there are strong signals that a resumption of how things were is not on the cards any time soon, as the world appears to have entered into an age of accelerating grand crises.

Even before COVID, the climate crisis was increasingly disrupting the world (and the companies operating it in) through extreme weather events. Then, just as some countries had declared their war against COVID to be won, the invasion of Ukraine has not only reshuffled global geopolitics, but also led to a dramatic increase in energy and food prices, having big knock-on effects on a whole host of other sectors. 

One day there may be a time after COVID, after the Ukraine war, and even after the climate crisis. But there’s unlikely to be a point of general stability any time soon. Humanity is pushing environmental limits to breaking point, risking further crises – whether in terms of disease, conflict, or natural disasters. Businesses, therefore, need to shift how they operate. This means responding to current crises, being better prepared for future crises, and addressing their own role in generating these crises in the first place. With that in mind, here are three types of business models companies should start adopting now.

1. Respond to Crises

What is needed are reactive business models that can respond to crises at hand. Such adaptability will naturally have a survival element, in which organizations do whatever is necessary to mitigate negative effects on themselves. This means aligning companies’ management practices with the “new normal” after the crisis, instead of holding on to the old normal from before. Where appropriate, such models should also have a crisis-mitigation element, addressing the wider negative effects of the crisis at hand where they can.

It appears fossil fuel behemoths such as Shell and BP might be starting to do just that. Having long been under attack for knowingly contributing to the climate crisis and counteracting shifts to more sustainable energy systems, they appear to now be adapting to crisis forces. These forces include, most notably, the global trend towards phasing out fossil-fuel vehicles. As such, these companies have begun to transform key aspects of their business. A first move, for example, seems to be repurposing their petrol station operations into an electric vehicle charging infrastructure. As they ride the waves of the climate crisis, we can expect to see them make many disruptive greening changes like this.

2. Be Ready for Future Difficulty

Businesses also need to move from stability-based business models to accepting that the business reality is now one characterized by volatility, uncertainty, complexity and ambiguity. Value propositions encompass the benefits a business offers, for example to its customers, employees, and the community. Building business models for this new world means establishing value propositions for companies that are fit for the long run, that can morph into all kinds of crisis scenarios. It also means being agile and quick to adjust. 

One form this could take, for instance, is for a business to offer products and services that address timeless and fundamental needs like health, food, or security, rather than short-lived superficial wants like those related to fast fashion or the latest technological fads. A good example of such a business model is that of Chinese electronic goods corporation Haier, which has  explicitly tuned in to an ever-changing world, aiming to deliver “products that respond to the constantly changing needs of the modern home.” For instance, Haier responded to Asia’s air pollution crisis by developing an integrated air conditioner and air purifier.

Alongside this, Haier employs its unique “RenDanHeYi” (or 人单合一), which freely translates to “one single person in unity,” way of working, making it a collective of smaller, semi-autonomous companies that gives both individual freedom and collective responsibility to self-organized micro-entrepreneurs. This makes Haier a fluid, agile and resilient organization. By operating as a network of micro-enterprises, each of which works closely with customers to respond to their changing needs and situations, the business can evolve more easily as each new crisis plays out. Because of these features in their business model, Haier has done exceptionally well during and after the COVID crisis.

3. Help Prevent Crises of Tomorrow

Finally, businesses can better set themselves up for the future by adopting models that specifically mitigate or even prevent future crises. While COVID, the Ukraine crisis, and climate change are still ongoing problems, many business models have been geared towards keeping other things from becoming the next grand crisis. Some companies, for example, are adopting business models that promote reconciliation and peace, with view to preventing disruptive future armed conflict. Examples range from former Colombian guerrilla group members building adventure travel businesses that show the previously hidden side of the conflict, to coffee cooperatives in Rwanda designed for Hutus and Tutsis to reconcile through collaboration.

Managing businesses in an age of accelerating crises is challenging. However, transforming business models and managerial practices can go a long way in both making current and future crises manageable, and possibly even mitigating future crises.

Oliver Laasch is a Senior Lecturer in Entrepreneurship and Innovation at the University of Manchester. (This article was initially published by The Conversation.)

Valentino has settled a legal battle over the lease for its sweeping store on Fifth Avenue in New York. In a joint statement on Monday, the Italian fashion brand and its former landlord 693 Fifth Owner LLC confirmed that they reach an “amicable settlement” in connection with their respective lawsuits, that both parties are “satisfied,” and that Valentino’s lease for the Fifth Avenue store “will be terminated.” The statement comes almost two years after Valentino filed a lawsuit against its then-landlord in a New York state court, alleging that its business in the four-story midtown Manhattan boutique “has been substantially hindered and rendered impractical, unfeasible and no longer workable.” 

Filing suit against 693 Fifth Owner LLC in June 2020, Valentino argued that “the current social and economic climate, filled with COVID-19-related restrictions, social distancing measures, a lack of consumer confidence and a prevailing fear of patronizing, in-person, ‘non-essential’ luxury retail boutiques,” has prevented it from operating its store as usual, something that it does not see changing in the near future. As such, the complaint pointed to a provision in the parties’ lease, which started in August 2013, that mandated that it use the retail space in a manner that is “consistent with the luxury, prestigious, high-quality reputation of the immediate Fifth Avenue neighborhood.”

This was made impossible as a result of the global health pandemic, according to the Valentino lawsuit, which set out claims of impossibility of performance, rescission based on failure of consideration, constrictive eviction, and declaratory judgment for frustration of purpose, and argued that it was unable “to offer in-boutique retail sales, or associated services such as fittings.”

In a loss for the fashion brand, Justice Andrew Borrok of the New York Supreme Court granted 693 Fifth Owner LLC’s motion to dismiss the complaint in February 2021, holding that the parties had “expressly allocated the risk that Valentino would not be able to operate its business” in their May 2013 lease agreement, making it so that Valentino is “not forgiven from its performance, including its obligation to pay rent by virtue of a state law,” and prompting an appeal from the fashion brand. At the same time, 693 Fifth Owner initiated a separate – but related – lawsuit of its own against Valentino, in which it accused the brand of breaching the terms of the lease by abandoning the space in December 2020 and failing to pay rent even before that, while also allegedly failing to repair damage to the property. 

Despite Valentino’s claims that it was damaged significantly as a result of the pandemic and resulting lockdowns and marked drops in luxury goods sales, 693 Fifth Owner argued that the brand blamed the pandemic in order to get out of the lease, when in reality, the brand “had been suffering since well before the COVID-19 pandemic,” and has opted for a smaller – and less expensive – lease at 135 Spring Street. 

With the foregoing in mind and given the property damage that was allegedly caused by the brand, including “sizable holes” in and paint on the Venetian Terrazzo marble panels within the store space, 693 Fifth Owner sought more than $200 million in damages – $15.3 million for the damages and rent lost during the time that repairs were being made, $6.6 million for unpaid rent between September 2020 to February 2021, and $184 million in rent for the rest of the 16-year lease’s duration. 

The terms of the parties’ settlement have not been disclosed. 

As for a Valentino lawsuit that is still very much underway, that would the high-stakes case it initiated against Mario Valentino back in July 2019. In a status report filed with Judge John Kronstadt of the U.S. District Court for the Central District of California in January, lawyers for both of the Italian brands revealed that proceedings are currently underway in federal court in the U.S., as well as in Italy – and in one instance, will require at least two more years to resolve. The latest update from the like-named but unaffiliated brands comes two and a half years after Valentino filed suit against Mario Valentino in the U.S., accusing it of breaching a co-existence agreement they signed more than 40 years ago in an attempt to avoid legal complications stemming from their nearly-identical monikers.

The case is Valentino USA, Inc. v. 693 Fifth Owner LLC, 652605/2020 (N.Y. Sup).

Ongoing tensions between the United States and China have affected many companies around the world. At the same time, the COVID-19 pandemic has also made it very clear that when it comes to a company’s supply chain, reliance on China can have disastrous consequences in the event that these supply chains are interrupted. During this challenging and uncertain time, many companies across various industries are trying to reorganize their supply chains and reduce dependencies that are vulnerable to political tensions and rising costs

While the pandemic has already compelled many companies to become more agile – for example by increasing their number of suppliers – business leaders must now start thinking about the long-term implications of increased uncertainty in the markets since volatility is likely here to stay. Our ongoing research suggests two factors are most important when making decisions on how to respond to the U.S.-China trade war: location and supply chain dependence, and technology. 

Ending dependence on two fronts

The first factor deals with how much dependence companies have on Chinese suppliers and customers. China offers a uniquely complete combination of supply chains and a growing middle class that fuels high demand for almost any good; luxury goods (and the robustness of Chinese demand for them) are among the most headline-making. According to a United Nations report, China is home to almost every industry and its companies offer almost the full range of products and services in each of these industries. 

The second factor is technology dependence. In some industries, blazing a trail on the technology frontier is key to success. North America is still the leading region for many of these technologies (including biotechnologycultured meat, and artificial intelligence) and it is increasingly concerned about its intellectual property falling into Chinese hands. Recent restrictions on Chinese researchers in Canadian universities are one example of protectionist actions spurred by these concerns.

In the future, companies that deal with North American technologies in cutting-edge areas will probably have to avoid delivering to China or using this technology in collaborations with any Chinese companies.

Low vs. high Chinese dependence

Companies with different degrees of dependence on Chinese supply chains and North American technologies are likely to behave very differently. There are four scenarios. First there are companies with low reliance on both North American technology and Chinese supply chains that tend to relocate their manufacturing facilities to a third, low-wage country, such as Vietnam and India, because it is easy to find alternative production sites and to access technology. 

In addition to big names in the mass-market fashion and retail space, Samsung’s display business, which offers digital signage and hospitality displays, is an example. The tech company’s reliance on supply chains in China is low because it owns a relatively complete supply chain ranging from upstream activities (inputs to products, such as chip design) to downstream activities (outputs such as products, like smartphones). In short, Samsung designs, manufactures, and markets its own products. Its reliance on North American technology is also low because the technology required to produce display devices is not limited to North America. As a result, Samsung has shifted its manufacturing of IT and mobile displays from China to India, avoiding tariffs and higher wages in China.

But companies with high dependence on Chinese supply chains could have a hard time leaving China. Take Google’s Pixel phone as an example. In 2019, Google decided to relocate the manufacturing of the Pixel phone from China to Bac Ninh in northern Vietnam to avoid tariffs into the U.S., an important market for its phones. Two years later, Google reversed the decision and started producing the new smartphone in China due to supply chain problems amid increasing uncertainty from pandemic-related restrictions

Relocations to North America

Companies with a high reliance on North American technology and a relatively low reliance on Chinese supply chains, on the other hand, are likely to relocate manufacturing to North America. For instance, TSMC, one of the world’s leading semiconductor foundries, uses substantial American technologies and equipment, including advanced equipment for ultraviolet lithography. Therefore, the Taiwanese company decided to build a new advanced chip factory in Arizona, a decision closely connected to its dependence on both U.S. technology and customers. 

Companies with high reliance on both North American technology and the Chinese supply chain face the biggest challenges. They have no choice but to keep operating in both countries while navigating political risks and market turbulence. 

Tesla is a prime example of this. While dependent on its research and development in the U.S. to enhance its leading technology position, China’s supply chain benefits Tesla with manufacturing speed, cost, and proximity to the Chinese market. That leaves companies like Tesla with no choice but to navigate political tensions and stay present in both markets. As a result, Tesla has built and expanded a factory in Shanghai. Additionally, it has promised to conduct more research and development activities in China and to recruit local talent for local design.

The COVID-19 pandemic has been another wake-up call for business leaders – including in their retail space – that should have prompted them to consider the importance of technological progress and supply chain security. While we do not know how long the pandemic and its restrictions will endure, successful companies think ahead and build resilience and flexibility into their operations.

Felix Arndt is the John F. Wood Chair in Entrepreneurship at the University of Guelph. Abby Jingzi Zhou is an Associate Professor in International Business at the University of Nottingham. Christiaan Röell is a Lecturer in International Business at the University of Sheffield. Steven Shijin Zhou is an Associate Professor in International Business at the University of Nottingham. Xiaomeng Liu is a PhD Student in International Business at the University of Nottingham. (This article was initially published by The Conversation.)

Everything was about supply shortages in 2021. COVID vaccine shortages at the start of the year were replaced by fears that we would struggle to buy turkeys, toys or electronics for the holidays. For most of the year, retailers’ shelves, car showrooms, and even petrol stations were emptier than usual. Some shortages were resolved quickly, others linger. So, are we facing another year of shortages or will the supply chain crisis abate in 2022?

It is worth acknowledging that the shortages have happened for many reasons. During the early 2020 lockdowns, a sudden run on essentials, such as toilet paper and pasta, left shelves around the world bare. Singapore ran out of eggs as consumers hoarded them, for example, and retailers ordered more eggs, desperate to satisfy demand. But once the demand had been satisfied, there was suddenly an oversupply. In June of that year, distributors threw away 250,000 eggs.  

This is what happens when demand temporarily changes. The effect magnifies with each tier of the supply chain as every supplier adds an extra buffer to their order to be on the safe side. Minute changes in customer demand can, therefore, result in huge extra demand for raw materials, giving rise to what is called the bullwhip effect. As with a whip, a small flick of the wrist can lead to a big crack at the other end. 

The bullwhip effect can result from demand suddenly falling, as well as rising, and during the pandemic these forces have sometimes combined. For instance, a combination of the crash in demand for new cars and higher demand for devices like laptops and games consoles for lockdown entertainment contributed to the semiconductor-chip shortage.

With modern cars that sometimes contain 3,000 chips, car makers are major customers for chips, but as car sales plummeted in 2020, supplies of chips were redirected to manufacturers of smaller electronic goods. When demand for cars picked up again a few months later, there were not enough chips to go around. Carmakers were forced to stop production lines and could not make enough cars to satisfy demand. They also started hoarding chips, making the shortages worse.

Shipping shenanigans

Other imbalances in today’s supply chains are larger than competing companies or industries. Shipping containers move some 1.9 billion tons per year by sea. alone, including virtually all imported fruits, gadgets and appliances. Normally containers are continually loaded, shipped, unloaded, and loaded again, but severe trade disruptions resulting from lockdowns and border closures broke that cycle. Containers were left in wrong locations as trade shifted, shipping capacity was reduced and vessels could not land where and when they intended. Coupled with congested ports and problems with timely unloading and onward transportation, a typical container now spends 20 percent longer in transit than before the pandemic. 

Unsurprisingly, shipping rates (and prices more generally) have soared in this environment. Prices on major east-west trade routes have increased by 80 percent year on year, which is bad news for economic recovery. Even a 10 percent increase in container freight rates can reduce industrial production by around 1 percent

The human factor

Technological advancement may have reshaped manufacturing, but production and delivery still rely heavily on people. Waves of layoffs in production due to lockdowns resulted in labor shortages when demand picked up. To give one example, Vietnam – which is a major home for garment manufacturing, with factories in the country counting brands like Zara, Ralph Lauren, North Face, Lacoste and Nike as customers – saw a mass exodus of workers from industrial hubs to rural areas, which could not easily be reversed. 

Worker shortages were also particularly evident with lorry drivers in the United Kingdom and other countries. The sector already struggled to recruit and retain drivers because of pressures of rising demand, an aging workforce and worsening working conditions. Meanwhile, Brexit has made it harder for migrant drivers to work in the UK. 

There were at least early signs of the driver problems easing in the run-up to Christmas as more recruits came through the system, which will have been one reason why goods shortages were not as bad as they might have been. Equally, however, we should not expect a swift end to the supply chain crisis in 2022, as the omicron variant is leading to more staff shortages as people take time off sick and suppliers navigate new restrictions. China’s zero-COVID strategy is likely to continue to disrupt both production and transportation of goods, possibly for the entire year.

Large-scale supply chain changes

Yet, we might also see problems in the opposite direction, via another crack of the bullwhip. Back-orders in many sectors will have been filled, but consumer demand may well be cooling now that furloughs have ended, and interest rates are beginning to rise. So, some companies (including those in the apparel and footwear industries) might find they end up with an over-supply of goods. To avoid this, they will have to level their production rates with demand, but demand may still be difficult to forecast – and not only because of omicron and China. A new variant of concern leading to a new wave of lockdowns could easily result in people once again spending money on things rather than holidays and nights out.

Supply chains with good visibility of actual demand and clear communication across supply chain tiers will be at a considerable advantage. In sum, it is likely that different industries will experience both shortages and over-supply problems throughout 2022.

A longer-term issue is to what extent supply chains change. The pandemic has raised new doubts about outsourcing production to far-away countries with lower labor costs. Equally, problems were aggravated by strategies to maximize supply-chain efficiency such as just-in-time manufacturing, where companies keep inventories to a bare minimum to reduce costs. 

A major theme of 2021 was how to make supply chains more resilient. But building additional capacity, holding inventory, and safeguarding against disruptions is not cheap. As shipping logjams ease and recruitment rises, the talk of reform could peter out. Some companies will probably continue to improve their just-in-time with a sprinkle of just-in-case. Others will bring production of some products closer to home markets while also keeping offshore production facilities to serve local markets. It also remains to be seen to what extent COVID reverses globalization.

Ultimately, supply chains are driven by people, and 2021 showed the limitations of the system. As companies and consumers adapt, current knots will untangle somewhat. But as the pandemic wears on and the realities of keeping businesses profitable come back to the fore, you probably should not expect a resolution in 2022.

Sarah Schiffling is a Senior Lecturer in Supply Chain Management at Liverpool John Moores University. Nikolaos Valantasis Kanellos is a Lecturer in Logistics at the Technological University of Dublin. (This article was initially published by The Conversation.)

Finding good employees has always been a challenge – but these days it’s harder than ever. And it is unlikely to improve anytime soon. The so-called quit rate – the share of workers who voluntarily leave their jobs – hit a new record of 3 percent in September 2021, according to the latest data available from the Bureau of Labor and Statistics. The rate was highest in the leisure and hospitality sector, where 6.2 percent of workers quit their jobs in September – but retail was not too far behind. In all, 20.2 million workers left their employers from May through September. 

Companies are feeling the effects. In August 2021, a survey found that 73 percent of 380 employers in North America were having difficulty attracting employees – three times the share that said so the previous year. And 70 percent expect this difficulty to persist into 2022. Observers have blamed a wide variety of factors for all the turnover, from fear of contracting COVID-19 by mixing with co-workers on the job to paltry wages and benefits being offered. 

While the current resignation behavior may seem like a new trend, data shows that employee turnover has been rising steadily for the past decade and may simply be the new normal employers are going to have to get used to.

The economy’s seismic shifts

The U.S. – alongside other advanced economies – has been moving away from a focus on productive sectors like manufacturing to a service-based economy for decades. In recent years, the service sector accounted for about 86 percent of all employment in the U.S. and 79 percent of all economic growth. 

That change has been seismic for employers. A majority of the jobs in service-based industries require only generalizable occupational skills, such as competencies in computing and communications, that are often easily transportable across companies. This is true across a wide range of professions, from accountants and engineers to truck drivers and customer services representatives. As a result, in service-based economies, it is relatively easy for employees to move between companies and maintain their productivity.

And thanks to information technology and social media, it has never been easier for employees to find out about new job opportunities anywhere in the world. The growing prevalence of remote working also means that in some cases employees will no longer need to physically relocate to start a new job. Thus, the barriers and transition costs employees incur when switching employers have been reduced. 

Greater options and lower costs to move mean that employees can be more selective and focus on picking jobs that best fit their personal needs and desires. What people want from work is inherently shaped by their cultural values and life situation. The U.S. labor market is expected to become far more diverse going forward in terms of gender, ethnicity and age. As such, employers that cannot provide greater flexibility and variety in their working environment will struggle to attract and retain workers. 

Employers now have a greater obligation than in the past to convince existing and would-be employees why they should stay or join their organizations, and there is no evidence to suggest this trend will change going forward.

What companies can do to adapt

It has been estimated that the cost to the employer of replacing a departing employee is on average 122 percent of that employee’s annual salary in terms of finding and training a replacement. This means that there is a large incentive for businesses to adapt to the new labor market conditions and develop innovative approaches to keeping workers happy and in their jobs. 

A May 2021 survey found that 54 percent of employees surveyed from around the world would consider leaving their job if they were not afforded some form of flexibility in where and when they work. Given the heightened priority employees place on finding a job that fits their preferences, including on the ESG front, companies need to adopt a more holistic approach to the types of rewards they provide. It is also important that they tailor the types of financial, social and developmental incentives and opportunities they provide to individual employees’ preferences. 

And it is not just about paying workers more. There are even examples of companies providing employees the choice of simply being paid in a cryptocurrency like bitcoin as an inducement. While customizing the package of rewards each employees receives may potentially increase an organization’s administrative costs, this investment can help retain a highly engaged workforce. 

Managing the new normal

Companies should also plan on high employee mobility to be endemic and reframe how they approach managing their workers. One way to do this is by investing deeply in external relationships that help ensure consistent access to high-quality talent. This can include enhancing the relationships they have with educational institutions and former employees. For example, many organizations have adopted alumni programs that specifically recruit former employees to rejoin. These former employees are often less expensive to recruit, bring access to needed human capital and possess both an understanding of an organization’s processes and an appreciation of the organization’s culture. 

The quit rate is likely to stay elevated for some time to come. The sooner employers accept that and adapt, the better they will be at managing the new normal. 

Ian O. Williamson is the Dean of the Paul Merage School of Business at the University of California, Irvine. (This article was initially published by The Conversation.)