Mid-sized companies seek funds amid inflation and interest rate concerns through stockpiling, private debt, and foreign funding.

Mid-sized companies seek funds amid inflation and interest rate concerns through stockpiling, private debt, and foreign funding.

The Impact of Inflation on Mid-Sized Corporates

Inflation

While inflation is often discussed in terms of its impact on consumers, it is important to recognize that its effects are not limited to individuals alone. Mid-sized corporates, the companies that employ and serve these individuals, also face significant challenges due to inflation.

Small and medium-sized enterprises (SMEs) make up 90% of all companies globally and contribute to nearly 70% of jobs and gross domestic product (GDP), according to the World Economic Forum. However, their smaller scale makes them particularly vulnerable to economic turbulence.

As inflationary pressures arise, national monetary policies undergo changes in an attempt to control inflation. Over the past year, interest rates have increased significantly, signaling the end of the era of cheap access to capital that followed the Great Financial Crisis.

In response to inflation, companies are seeking innovative financing options and reevaluating their capital structures. Mid-sized corporates, which typically lack easy access to public capital markets like large corporates, are diversifying their capital structures by including lower-cost financing options. Private debt issuance, for example, has seen growth as a funding source.

To mitigate the impact of inflation on supply chains, some mid-sized corporates are stockpiling raw materials. This strategy, however, may lead to higher costs and increased liquidity requirements, necessitating additional working capital.

In addition to securing financing, it is crucial for companies to find efficiencies and prioritize investments in their core proposition or product. Letting go of “hobby projects” and focusing on essential areas leads to resilience. Being ruthless and honest with oneself and the team is key to weathering the current headwinds.

Flexibility in the operating model is also crucial for mid-sized corporates. By being able to adapt and invest in alignment with industry trends and revenue segments, companies can thrive in a rapidly changing environment. Nimble and flexible companies that are not tied down by rigid long-term plans tend to survive and even thrive.

Furthermore, mid-sized corporates that are larger or more sophisticated have unique opportunities for inorganic growth amidst economic pressures. They can seek strategic expansion through acquisitions of smaller peers or complementary companies in their industry. With the current buyer’s market, carefully considered expansion can be a fruitful avenue.

While higher inflation poses challenges for mid-sized corporates, it also presents opportunities to optimize operations, drive efficiencies, and reflect on the company’s mission and value proposition to customers.

In conclusion, mid-sized corporates play a significant role in the global economy, employing a vast majority of the workforce. The impact of inflation on these companies cannot be ignored. However, by seeking innovative financing options, optimizing operations, and being flexible, mid-sized corporates can navigate the challenges and capitalize on the opportunities presented by inflation.

Tasnim Ghiawadwala is the global head of Citi Commercial Bank.

The opinions expressed in ANBLE.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of ANBLE.

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