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Economic risk factors are already multiplying much too quickly in 2020

Frédéric Lasnier
Frédéric Lasnier
Chief Executive Officer

Now that we’re a couple of months into the “new” year, we’re starting to get a global view of 2019, as well as firmer ideas of what 2020 holds.

We ended 2019 on a more optimistic note than we started it. A year ago, the word “recession” was on everyone’s lips. At year’s end, it wasn’t. But it hasn’t taken long for those concerns to come back.

I’ve decided here to share data, views, and a few perspectives on what I forecast for the first two quarters of 2020 in the tech and digital sector. My intention is to start a conversation with you – bosses in the tech and digital sector – about the new risks and new opportunities of 2020.

I don’t want to spend too much time discussing the obvious: the coronavirus outbreak, or Brexit, for example. But we do need to at least take a glance at them.

future of work
 

To make sense of all of this, I want to zero in, starting with some observations and some indicators, both inside and outside Pentalog.

More specifically, I have ‘outside’ information available to anyone. For example:

  • Foxconn, Apple’s house manufacturer in Taiwan, is converting factories to make surgical face masks rather than, say, telephones. Yet factories in France, Thailand, South Africa, and the USA are receiving record orders from China for – surgical face masks!

  • With Brexit looming, 275 banking and finance firms have already moved staff, asset base, or operations out of the UK, many to the EU. But nobody in the EU is hiring, yet – they’re waiting to see what France does with its new 5 billion euro investment fund for Fintech startups.

  • Tourism, particularly where it concerns Chinese nationals, is deep in the red –in often surprising locations like Turkmenistan or Vietnam. In 2019, 150 million Chinese went on vacation outside China, but the Chinese government has suspended almost all flights abroad. The rest of the world has reciprocated, with the list of interdicted countries growing longer by the day. This collapse is going to and touch a surprising number of places and take a long time to work through. The tourist island of Bali has 20,000 canceled hotel bookings – without a single confirmed Indonesian coronavirus patient. Italy, favorite European destination for 3.5 million annual Chinese tourists, has watched reservations collapse by 30% – so far. For the first time ever, Macau, the richest gambling market in the world, has closed its casino doors, locking out even the gambling-mad Chinese.

  • Orders to French luxury industries have literally plummeted in the past few weeks, due to the coronavirus, with the last few days approaching catastrophe. As a critical sector in digital marketing, as you know. Intermediaries would like to lower stocks but they can’t. Major brands are helpless witnesses of the cancellation of long-standing secure orders in Asia. Advertisers are clearly looking for budget cuts.

But I also have first-hand, inside information of interest in the tech and digital sector.

  • Since Q4 2019, companies and agencies in the digital outsourcing and consulting sector have been applying the brakes to their recruitment efforts. The numbers I’m providing here may be a nasty surprise… In a secret compartment, I keep a list of the best European companies (head of the class in agile practice –best clients in the portfolio). In those companies, recruitment dropped by 37% between Q4 2018 and Q4 2019 – down 50% between January 2019 and January 2020. And if we only consider the giants, we drop 75%. That does not necessarily mean recession, but it does testify to much more cautious expectations, with stagnant income for some and cuts in growth by at least half for others. Are these companies wrong? I don’t really believe that. If I’m right, the first profit warnings will come in Q2 – or just maybe, Q3 if a resumption in orders does not interrupt the downward slide.

  • From my inside point of view, all of this is visible on our websites… On those sites, as usual at the start of phases where anxiety is going up, the outsourcing pages are showing a sharp increase in consultation. Companies are thinking about how they can meet their requirements without expanding their payroll. But all this is still just curiosity. We’re generating more leads than usual, but confirmations are protracted.

  • Meanwhile, the funds and the analysts are all saying the same thing: end of (business) cycle. Weak global auto sales, continuing trade conflict between the US and China, and the probability of a disorderly Brexit made 2019 a sickly year. The coronavirus outbreak means that the economy won’t start 2020 in better shape. A new study from MIT and State Street finds a 70% chance of recession in the next six months.

When startups are, well, starting up, entrepreneurs need to stay very practical, maintaining precise risk logs and carefully observing payment deadlines. In a new-risk minefield, they need to stay pennywise while still innovating and attracting customers. Their best defenses are a good product and good marketing. The day they fall back on their ‘legacy’, it’s over.

I would appreciate the chance to meet with digital and software entrepreneurs to talk about ways of more closely integrating remote work, freelancing, and outsourcing in the digital production mix.

All of this brings us to the often-mentioned “future of work“, where these various solutions are combined in an agile, end-to-end framework – the only framework capable of attracting the best, internally or externally. I’ve been doing this job for 20 years, with consultants in the US, France and Germany, teams in Mexico, Eastern Europe and Vietnam, and freelancers throughout Europe.

This is the third time that I have experienced the end of the business cycle. Pentalog, which put these frameworks into practice, has known only one negative exercise in its lifespan (the first one). Our customers benefit initially from our technological experience, but also from our ability to anticipate production methods, costs, slowdowns and accelerations, ROI, market and team expectations.

The future of work? It’s the future of your company.

 

 


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