It should be taken into account that companies may have to make unpleasant decisions about reducing costs, because although inflation is no longer rising significantly, the level of costs has not fallen and it is becoming increasingly difficult to compete, LETA was told by EY partner, Head of Strategy and Transaction Consulting in the Baltic States Guntars Krols.
He said that inflation has stabilised and no one expects a multiple increase in energy prices any more, many components do not see a drop in prices and costs.
“This is also the biggest challenge for businesses, because various companies have ended up at a high cost level and it gradually becomes harder and harder to compete with other European and global companies whose cost level had increased as well at some point, but has not remained as high. Mentioning the productivity factor, which has not been particularly good in Latvia in the past, the re is a risk of us becoming less competitive with certain products or services if we remain at this high cost level,” said Krols.
He warns there could be situations when companies are forced to make unpleasant decisions on cutting costs if sales go down.
Emphasis could be put on lowering base costs.
Moreover, if entrepreneurs fail to do this by revising the operational strategy of their company, rearranging the principles and processes of work, or making work more efficient, then many of the existing business models, as time goes on, may become unprofitable or not profitable enough to recoup the invested investments, predicts EY partner.
When asked about the industries that could be affected, Krols said there are already noticeable difficulties in manufacturing industries such as the timber industry. On the other hand, it is easier with the potential to increase final prices, and thus to cover costs, for companies whose products or services have a higher added value, such as the IT sector.