In May 2022, the United States inflation rate skyrocketed to 8.6%, the highest recorded rate since 1981. The rapid increase in inflation is attributed to the disruptive global events that have happened over the past two years. The onslaught of the COVID-19 pandemic was the catalyst of the decline of many economies. At the height of the pandemic, stringent government policies caused a major imbalance in various macroeconomic factors. Subsequent events such as the increase in unemployment rates, interest rate cuts, and the war between Russia and Ukraine have all contributed to the economic downtrend.
Why Is Inflation Rising in the United States?
The driving force of inflation in the United States is the high demand for goods and services. The United States government released pandemic relief packages that gave people the power to buy, however, the demand could not be met due to the lack of resources, manpower, and suppliers. The rise in prices was coined by the Federal Reserve as a “transitory” period until supply chain issues were resolved, but unfortunately, they have remained persistent in the long run.
Inflation matters because it dictates whether the purchasing power of a certain currency decreases or increases. This can affect the overall rise in the cost of goods and services in an economy. Inflation affects everyone; from individuals buying goods, to grocery stores, to governments and central banks.
How Are Businesses Affected by Inflation?
Inflation affects businesses due to the volatile shifts in the demand and supply of products and services. For example, a decrease in demand can be attributed to the unavailability of cash or the low liquidity of customers and clients. Customers would rather hold on to their assets rather than spend them during a recession. On the supply side, an increase in the cost of doing business means that extra costs incurred are passed down for consumers to shoulder. Additionally, the shrinking workforce can contribute to the failure of the business to operate efficiently and meet delivery deadlines. If company leaders cannot provide their employees with a raise in wages to combat the rise in prices, this can result in lower levels of job satisfaction, motivation, and productivity. The inability of a strong workforce to keep up with the demands of the business carries consequences for the business’ sustainability.
Outsourcing to the Philippines To Combat Inflation
Strengthening a business amidst the rise of inflation is no easy feat. However, it is not impossible. Companies that are looking to continuously provide their services effectively and without having to sacrifice quality can consider outsourcing. Outsourcing is the off-shore employment of professionals to manage the non-core functions of the business. Choosing to outsource is a strategy that leaders can undertake to maximize their resources and create cost-effective decisions to continue and even expand the business despite the current economic climate.
The outsourcing industry in the Philippines is robust and well-equipped. It is one of the key drivers of the Philippine economy, contributing almost $26 billion to the economy in 2019 and employing over 1.3 million Filipinos across 1,000 firms. The value that the industry brings has prompted the Philippine government to support the outsourcing industry by creating a government agency dedicated to promoting foreign investments in the Philippines and by providing tax incentives to businesses that want to operate within the country.
The Philippines does not only have good legal foundations for outsourcing, but it is also home to a large, youthful, and well-equipped workforce. Filipinos are hardworking and adaptable individuals that possess technical and soft skills that enable them to collaborate with off-shore teams smoothly. With deep influences from the west, Filipinos are also less prone to culture shock. Additionally, Filipinos are fluent English speakers and can talk without a heavy accent. The dynamics between on-shore and off-shore teams are important to the success of the business. In working with a population already familiar with western culture and the business processing industry, it becomes easier for teams to synergize, find common ground, and get to work.
There is no certainty in the fluctuations of the interest rate, but as business owners, it is best to equip and strengthen your business for the future. With a business landscape that welcomes foreign companies and a strong workforce, outsourcing to the Philippines is a great strategy to consider especially during this particularly difficult period.
Rocky Chan is a lawyer and business consultant who excels in corporate formation, immigration procedures, and client relations. In the last 7 years, he honed his craft in the field of foreign investment consultancy.
