The global economy is currently facing unprecedented rates of inflation. Everyone is scared as they wonder whether their businesses and wallets have what it takes to survive a period of economic uncertainty. This widespread financial anxiety has repercussions that can be felt through several industries, but its effects could be devastating for the technology sector.
Economic conditions like these create a vicious cycle affecting consumers and businesses alike. Inflation means that products and services are more expensive, so companies must raise prices; when businesses increase prices, consumers have less money to spend because everything is more expensive.
As consumers spend less money, businesses begin to struggle. The result is that no one is left unscathed during inflation.
How the tech industry is affected by inflation
Like most industries, the tech industry has faced some difficulties due to current economic conditions. One factor helping to explain why tech companies have been hit so hard is that, in many circumstances, technology is a luxury or convenience. When consumers have to make tough financial decisions, they may decide not to upgrade to the latest and greatest technology and stick with what they have.
"To survive, tech companies must offer products that genuinely impact consumers," explains Dr. Soudip Roy Chowdhury, CEO of sustainability tech company Eugenie.ai. "Making an impact on consumers is the only way to ensure they continue purchasing your products. Tech companies must adjust their model to respond to their consumers' pain points in the economic crisis."
In a time of inflation — such as the one we are experiencing right now — businesses must adjust their model to meet an immediate consumer need. "When trying to make every penny count, consumers can quickly see when a product is superfluous," Dr. Chowdhury asserts. "Don't waste your time and money, or theirs, by entering a bad market with a product destined to fail."
What tech companies must do to prepare for a recession
While the tech industry cannot prepare for certain factors that have contributed to the current economic crisis, including politics, climate change, and war, there are some that they can be proactive about, such as supply chain issues. "Companies, like consumers, must think about how they can be more resourceful," says Dr. Chowdhury. "The goal is to do more with less."
One aspect of the tech industry that has become less viable amidst the economic downturn is the startup. "While the tech industry was built on the backs of innovators who came from humble origins, the market is sadly not rife with opportunities right now," Dr. Chowdhury explains. "Even a sector such as e-commerce, which has relatively high demand, has seen startups struggle due to supply chain issues and decreased profitability due to inflation."
Many consumers might not see the immediate effects of this economic winter for tech, but there will be some noticeable consequences. For example, many working in the tech sector may lose their jobs as tech companies have to make budget cuts. Projects may be shelved or take longer to hit the market because fewer people are working on them. There may also be shortages of products due to supply chain issues compounded by the loss of the workforce.
"Recessions are always followed by inflation, but it's rather unusual to see it the other way around," explains Dr. Chowdhury. "There is about a 70% chance that we will enter a recession, and tech companies must prepare. Many people will estimate how long it will take for the economy to recover, but the truth is that our circumstances are unique and unprecedented. For tech companies, now is the time to rethink your strategy before it is too late."
