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Small firms plan outsourcing and pay cuts to stay afloat

7 July 2020

Almost a third of UK businesses are looking to outsource parts of their operation as a direct result of the pandemic, according to new research.

A study by Opinium for LiveArea has found that 28% of businesses are looking to outsource at least one area of business in an effort to reduce risk. It says that business agility and operational resilience are being seen as "mission critical" post-pandemic.

The research reveals that 32% of UK firms plan to outsource their marketing department. With only 10% of businesses currently outsourcing their marketing function, the findings suggest that outsourced marketing could more than triple in the coming years.

The departments most unlikely to be outsourced are customer service and sales; only 22% of businesses reported that they would consider moving sales, while 24% said the same about customer service.

"Businesses across the UK will need to completely rethink their businesses," said Elliott Jacobs, EMEA commerce consulting director at LiveArea. "As no one can fully understand the implications of COVID-19, businesses must invest in adaptability and resilience. Fundamentally, this means developing the ability to understand market changes and react instantly.

"Although the pandemic is ongoing, we are beginning to see long term business strategies emerge, primarily the widespread shift to agility and digital. Outsourcing now means businesses can scale if needed, but also bring in new capabilities and fresh thinking quickly and efficiently."

Also this week, a survey of business owners by Vestd has found that pay freezes and even pay cuts are being planned by more than half of the UK's small businesses. The Employee Equity Trends 2020 report has found that:

  • 15% of SMEs are planning to cut the pay of their employees;
  • A further 17% are undecided about pay cuts;
  • 48% say there will be no pay rises in the next 12 months.

Ifty Nasir, co-founder and ceo of Vestd, said: "Some employers are in a very difficult position, they either cut their staff numbers and struggle to remain productive, or they have to cut pay, which risks losing the best employees. Pay cuts for this many people is unprecedented and, without their agreement, is illegal. It would seriously deplete spending power and that could trigger an even deeper recession."

Almost half of those polled reported that they are rethinking how they run their business. For some, this includes looking at sharing equity to offset short-term pay issues. One in four small employers already share ownership with at least one person in their team.

However, new findings from the Federation of Small Businesses (FSB) suggest that job losses among small firms are already significant. Its latest poll of 1,000 SMEs has found that 9% have already been forced to make redundancies.

"Although small firms are thankfully able to continue furloughing staff for months to come, many are already having to make tough decisions," said Mike Cherry, FSB national chairman. "The chancellor needs to take a jobs first approach [in his Summer statement]. Bringing down employment costs and increasing opportunities will be central to recovering from this recession.

"After the financial crash, nine in ten people who left unemployment to re-join the workforce did so through a small business or self-employment, so it's clear where support should be targeted."

Written by Rachel Miller.

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