According to the International Monetary Fund (IMF), the world is set to experience an economic decline not seen since the 1930s – a “crisis like no other” in our generation. Indeed, Gita Gopinath, chief economist at the IMF, believes the coronavirus crisis could wipe as much as £7.2 trillion from global GDP in the next two years.
In the UK alone, the IMF anticipates the British economy shrinking by as much as 6.5% this year – a stark contrast to the 1.4% growth forecast by the IMF in January. Should these figures come to fruition, the economic slump would be far greater than the 4.2% decline in the UK economy amid the 2008 ‘Great Recession’.
Amid such dark, uncertain times, how can businesses look to the future with any degree of optimism? For starters, they can look to the crisis innovation behaviours of fellow entrepreneurs during previous economic disasters. During the last ‘Great Recession’ sparked in 2008, businesses across a host of sectors had to adopt the ‘evolve or die’ business model.
Where there is uncertainty there is an opportunity
According to a recent working paper by Ioannou I., and Flammer C., titled ‘The Dog that Didn’t Bark: Long-term Strategies in Times of Recession’, it was the most ambitious businesses that discovered growth opportunities in the 2010-11 post-crisis period. In fact, during the recovery period, those companies that crucially maintained their investments into research and development (R&D) experienced a 19% increase in their return on assets.
Of course, we’re not talking about blindly doubling down your business’ efforts on R&D across all fronts. There will be a need for innovators to be more selective with where they invest more time and creative energy.
The key to prevailing with R&D during a global recession is to use it to give your business a relevant competitive advantage when the world returns to its ‘new normal’. For instance, businesses may choose to up their R&D budgets to pinpoint new materials that could provide cheaper products to manufacture and sell to increasingly cost-conscious consumers in the coming months.
Adam Kene, Managing Director, Kene Partners, said: “The research in this paper sends a very clear message: when the going gets tough, innovation is more important than ever. The successful companies of tomorrow will be those that invest in R&D today.”
Financial aid is available to innovators during the coronavirus crisis
The UK government has acknowledged the need to drive innovation and development in the post-coronavirus economy. Chancellor Rishi Sunak recently unveiled a £1.25 billion R&D support package, providing £500 million in R&D loans to high-growth businesses, as well as £750 million of targeted aid to smaller firms seeking to develop more innovative products and solutions in this unprecedented era.
Even during the coronavirus recession, it is also possible for all businesses undertaking qualifying R&D projects to claim for R&D tax relief from HM Revenue and Customs (HMRC).
The SME R&D Relief scheme allows a company to deduct £2.30 from its taxable profits for every £1 of qualifying expenditure that is spent on eligible R&D projects. In real terms, for profit-making companies, this can be worth as much as 18p to 25p on the £1, with loss-making companies being able to recover up to 33p on the £1.