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Global issues not deterring small business expansion

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Global issues not deterring small business expansion

By Marwan Forzley, CEO, Veem 

Tariffs, a weakening world economy, and threats to globalization have cast a gloom over the state of global business. On the bright side, small businesses are providing a refreshingly positive outlook. This is because small businesses aren’t letting volatile foreign policy issues deter them from seizing opportunities to expand.

Marwan Forzley

Marwan Forzley

This is the finding from Veem’s Q2 2019 Small Business Trend Report, which includes data from businesses operating in over 100 countries. The report found that firms spent the second quarter of 2019 building inventory, increasing both the number of orders and the value of individual orders. As a result, small business payments increased by 15% during the second quarter, while the dollar value of each order jumped by 6%.

Veem’s report is based on international payments data from more than 125,000 small businesses.

Foreign issues weigh on decisions

While small businesses aren’t deterred by the current global business landscape, issues fueling the unpredictable climate are influencing their buying decisions.

The impact of Brexit is real: small businesses in the U.S. are doing less business with the United Kingdom, which has started to take a toll on the British economy. In fact, Veem’s report found that the UK dropped out of the top five countries for global transactions. That list now has the U.S., India, Canada, Philippines, and China in the top spots.

With a no-deal Brexit becoming an increasingly possible scenario and predictions that the UK is nearing a full-blown recession, this trend will likely continue. Particularly since projections from the Bank of England suggest that, immediately following a disorderly Brexit, the UK economy could decrease by 8% in a single year and the pound could fall by as much as 25%.

For businesses in the U.S., the fact that the UK cannot formally negotiate new trade deals while still a member of the European Union adds another layer of uncertainty, affecting consumer confidence.

U.S.-China trade dispute

The Veem report, released every quarter, confirms that Brexit isn’t the only issue that is top of mind amongst small businesses.

Many small firms remain apprehensive about the ongoing trade dispute between the U.S. and China. More than three-quarters (77%) of small businesses represented in the report expressed concern about tariffs on Chinese goods, while 61% of respondents indicated that taxes on products from China have already impacted their business.

Additionally, recent remarks by President Donald Trump about the potential for additional tariffs may have contributed to the worries of small businesses. “We have a long way to go as far as tariffs where China is concerned, if we want,” the President noted during a July 16 Cabinet meeting. “We have another $325 billion we can put a tariff on if we want.

Given the unpredictability of the situation, it’s not surprising that the U.S.-China tariff spat has many small businesses setting their sights closer to home to find new suppliers.

In the Veem report, 91% of respondents agreed that if tariffs increased by 25% of the products they import from China, they would likely look for a domestic supplier. While that figure takes into consideration all global respondents, it’s undoubtedly a reflection of the sentiment among American small business owners. After all, importers in the U.S. have been left with two options for dealing with tariffs: pass the costs onto consumers or absorb the increase and take a profit hit.

Like Brexit, the uncertainty surrounding the year-long U.S.-China trade dispute isn’t expected to change any time soon. As that uncertainty drags on, it’s highly probable that more small businesses will look for new suppliers, including those in their own domestic market, to mitigate impacts to both their bottom line and the pockets of their customers.

In spite of the ongoing and volatile foreign policy issues, small businesses are showing their resiliency and adversity for expanding operations, which technology is helping them achieve. Innovative solutions for supply chain management, payment processing, and hiring are not only helping small businesses survive ongoing trade wars; they’re changing the global small business landscape as we know it.

Eastward Expansion

While Britain and China are causing small businesses to hesitate, they are also expanding into other emerging markets. Forced to seek out other partnerships, small businesses have been working with other Asian countries — India, Malaysia, Vietnam, and finding revenue-generating relationships.

When the issues with Britain and China are resolved — and a slowing global economy may certainly compel leaders to develop an amicable solution — small businesses which found alternative countries to expand their operations during the tumultuous period will have already developed new, profitable partnerships to add to their pre-existing Chinese and British relationships.

Business

Euro zone business activity shrank in January as lockdowns hit services

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Euro zone business activity shrank in January as lockdowns hit services 1

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.

With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.

“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.

“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]

A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.

With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.

That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.

Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.

An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.

But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.

As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.

“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)

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Volkswagen’s profit halves, but deliveries recovering

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Volkswagen's profit halves, but deliveries recovering 2

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.

The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.

Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.

“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.

Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.

Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.

Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.

It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.

Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.

The group is expected to release detailed 2020 figures on March 16.

($1 = 0.8215 euros)

(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)

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Global chip shortage hits China’s bitcoin mining sector

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Global chip shortage hits China's bitcoin mining sector 3

By Samuel Shen and Alun John

SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.

The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.

Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.

Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.

“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.

Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.

Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.

The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]

Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.

Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.

“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”

CONSOLIDATION

Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”

“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.

Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.

A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.

“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.

The cryptocurrency surge is affecting who is able to mine.

The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.

“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.

Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.

“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.

Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.

(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)

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