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Why Advertising Companies Remain Steady Investment Assets Amid Global Economic Fluctuations

In the ever-changing global economic landscape, the advertising industry stands as a steadfast investment asset. This resilience is underscored by the consistent growth in advertising expenditure, which is projected to exceed one trillion dollars by 2026. The advent of digital subscription-based technology, particularly Software as a Service (SaaS) models, has transformed business-customer interactions, ensuring a steady revenue stream for companies. With marketers set to increase their spending on digital channels and global ad spend predicted to grow by $33.0 billion in 2024, the potential for growth in the advertising industry is clear. These factors underscore the industry’s stability, positioning it as a reliable investment asset irrespective of global economic conditions.

The Resilience of the Advertising Industry

The advertising industry is known for its dynamism and significant influence on consumer perceptions and behaviours. Despite uncertainties and disruptions triggered by global events, the industry continues to lead in innovation, leveraging cutting-edge technologies such as AI, AR/VR, and big data analytics to create more targeted and personalised advertising campaigns.

In 2024, the global advertising market, valued at $615.2 billion in 2022, is witnessing unprecedented growth. With a projected compound annual growth rate (CAGR) of 52%, the market is expected to reach a staggering $8349 billion by 2028. This growth is driven by several factors, including the proliferation of digital media, increasing expenditure on social media and mobile advertising, and the integration of AI and machine learning in advertising strategies.

Moreover, the advertising industry has demonstrated resilience in the face of economic challenges. Agencies have navigated a complex landscape with adaptability, focusing on harnessing new opportunities, diversifying services, and strategically navigating economic trends to foster sustainable growth.

The Emergence of Digital Subscription-Based Technology

In 2024, Software as a Service (SaaS) models within the realm of digital marketing have revolutionised the interaction between businesses and customers. The SaaS market, already worth about $197 billion in 2023, is forecasted to reach a staggering $232 billion by 2024. This growth is driven by the shift from traditional one-off transactions to a subscription-based model that fosters an ongoing relationship between the company and the consumer.

The advantages of this model are twofold: companies secure a steady revenue stream, while customers gain continuous access to services, often at a lower cost than traditional models. For instance, Recurly merchants acquired 50.0% of subscribers through trials, making it one of the most effective customer acquisition strategies. Additionally, 28.1% of Recurly customers offered add-on options to allow customers to personalise their subscriptions, resulting in $2.2 billion in incremental revenue.

Moreover, the subscription model continues to experience significant shifts in consumer behaviour and expectations, where flexibility is not an option but a necessity. As the global economy profoundly influences subscriber preferences, the key to sustainable growth lies in adapting to the latest trends in consumer behaviour while maintaining proactive readiness. With a wealth of data on customer preferences, behaviours, and feedback, businesses can tailor their offerings and respond more swiftly and personally than ever before.

The Proliferation of Subscription-Based Marketing Companies

The proliferation of subscription-based marketing companies is a testament to the broader shift towards personalisation and customer-centric strategies in the marketing industry. The advantages of this model are twofold: companies secure a steady revenue stream, while customers gain continuous access to services, often at a lower cost than traditional models. For instance, Recurly merchants acquired 50.0% of subscribers through trials, making it one of the most effective customer acquisition strategies. Additionally, 28.1% of Recurly customers offered add-on options to allow customers to personalise their subscriptions, resulting in $2.2 billion in incremental revenue.

Moreover, the subscription model continues to experience significant shifts in consumer behaviour and expectations, where flexibility is not an option but a necessity. As the global economy profoundly influences subscriber preferences, the key to sustainable growth lies in adapting to the latest trends in consumer behaviour while maintaining proactive readiness. With a wealth of data on customer preferences, behaviours, and feedback, businesses can tailor their offerings and respond more swiftly and personally than ever before.

Conclusion

In the face of global economic fluctuations, the advertising industry has proven to be a steady investment asset. The resilience of this sector is evident in its consistent growth and the projected increase in advertising spend, which is expected to surpass one trillion dollars by 2024. The rise of digital, customer-centric technology, particularly Software as a Service (SaaS) models, has revolutionised business interactions, making them more revenue-driven.

The proliferation of subscription-based marketing companies is not just a trend, but a reflection of a more personalised, data-driven approach to customer engagement. These companies are not just surviving, but thriving amidst economic uncertainties, underscoring the industry’s resilience and potential for sustained growth and innovation.

The advertising industry’s inherent resilience and the growing importance of digital advertising make this sector especially well positioned to thrive, offering promising returns for investors. The evolution of subscription-based marketing companies is not just a trend but a reflection of a more personalised, data-driven approach to customer engagement. As businesses adapt to these innovative models, they are not only surviving but thriving amidst economic uncertainties. This adaptability underscores the industry’s resilience and highlights its potential for sustained growth and innovation.

 

The Nuts and Bolts of Sustainable Manufacturing

In recent years at Polestar, we have been observing the evolving landscape of Environmental, Social, and Governance (ESG) within the manufacturing sector. The diversification of operations to incorporate ESG solutions has emerged as a key differentiator, providing a competitive edge to forward-thinking manufacturing companies.

In the face of an increasingly competitive industry, the prioritisation of ESG reporting measures has become a necessity for survival. As we approach the midpoint of the decade, a distinct shift is evident. There is a growing trend of investment flowing into ESG processes, paralleled by an increased commitment to the research and development of innovative sustainable solutions.

ESG Integration

Integrating ESG processes is no longer just about compliance or corporate social responsibility. It’s a strategic move that can fuel growth. ESG initiatives often lead to improved operational efficiency. For instance, environmental efforts can reduce energy consumption and waste, leading to cost savings. These savings can then be reinvested into the business to spur growth.

ESG processes help companies anticipate and mitigate risks, such as regulatory fines or reputational damage due to environmental incidents. For example, a company might identify that its waste disposal methods are not up to regulatory standards. By identifying this risk early, the company can take proactive steps to improve its waste disposal methods and avoid potential fines or sanctions. Once potential risks have been identified, ESG processes can also help in mitigating them. This might involve implementing new policies or procedures, investing in new technologies, or improving training and education for employees. For instance, a company might invest in cleaner technologies to reduce its environmental impact, thereby mitigating the risk of environmental incidents and potential reputational damage. By managing these risks, companies can avoid costly disruptions and ensure stable growth.

Millennials and Gen Z employees actively seek out employees with a strong and diligent ESG track record, particularly when it comes to DEI training and acceptance. Companies that prioritise ESG often have more engaged employees, and those who don’t will begin to find it harder to actively employ new high-quality members of staff. A diverse workforce within a manufacturing company can lead to increased productivity, innovation, and retention, all of which contribute to business growth.

As consumers and businesses become more eco-conscious, there is growing demand for sustainable products. Manufacturers with strong ESG practices are well-positioned to tap into these new market opportunities. Not only consumers but investors are increasingly considering ESG factors in their investment decisions. By demonstrating strong ESG performance, manufacturers can attract more investment, providing capital to fuel growth.

Supply Chain Management

Supply Chain Management One clear way manufacturing companies can begin to assess their ESG credentials is through their supply chain. The supply chain holds a new dimension of significance when viewed through the lens of ESG credibility. According to the 2024 ESG Global Report, the supply chain can be broken down into five key areas for monitoring:

Environmental Stewardship: Manufacturing companies can reduce their environmental impact by working with suppliers who adhere to sustainable practices. This could include sourcing raw materials responsibly, minimising waste, and optimising logistics for lower carbon emissions. In 2024, companies are investing in technology solutions such as blockchain and AI to help them monitor their ESG performance across their entire supply chain network.

Social Responsibility: Companies can ensure fair labour practices across their supply chain, which includes adequate wages, safe working conditions, and no child or forced labour. This not only aligns with the ‘Social’ aspect of ESG but also helps in building a resilient and committed supply chain.

Governance: Transparent and ethical business practices should extend to a company’s supply chain. This includes fair procurement practices, timely payments, and respect for contracts. By fostering strong relationships with suppliers based on mutual respect and fairness, companies can ensure a more reliable and efficient supply chain.

Risk Mitigation: By integrating ESG principles into supply chain management, manufacturers can anticipate and mitigate risks. For instance, reliance on a supplier that does not adhere to environmental regulations can lead to disruptions and reputational damage if they are hit with fines or sanctions.

Competitive Advantage: A supply chain that is managed with ESG principles can be a strong selling point to environmentally and socially conscious customers and investors, leading to increased sales and investment.

Final Notes

As we move further into the decade, the importance of ESG in manufacturing will only continue to grow. Companies that proactively incorporate ESG principles into their operations will be better positioned to navigate the challenges of the future, seize new opportunities, and achieve sustainable growth.

At Polestar, we believe that ESG is not just about doing the right thing—it’s about doing what’s right for business, stakeholders, and our planet. Alongside that will come high valuations and increased market interest.

AI Adoption – A Cautious Approach?


Is this the workplace of the future?

AI is everywhere. You can scarcely visit a blog or news website nowadays without coming into contact with some new story regarding the technology, and silicon valley and governments the world over laud its potential, heralding it simultaneously as both the saviour and potential destroyer of the modern workplace.

Cutting through all this noise can be difficult, but businesses should be cautious not to adopt these technologies too soon. More than this, the term ‘AI’ is increasingly being applied to all manner of solutions which, when you peel back the marketing jargon, have little to do with what most would consider ‘AI’, diluting the value of the term to investors and consumers alike.

So, what are the current issues with AI? What does the future look like? And when is the right time to invest?

Generative AI versus “Normal” AI

Generative AI (“GenAI”), a term little known to the public conscience before the stratospheric launch of Open AI’s Chat GPT in November 2022 is distinct from what we traditionally think of as ‘AI’. While “traditional” AI can analyse large data sets and tell you what it sees, GenAI carries out the same process but creates from it entirely new data, often from a written prompt.

GenAI is typically what most people are referring to when they talk about ‘AI’, but it is important to know the difference as both types have their own pitfalls and advantages; it is still novel technology, and the dust is yet to settle in this field.

For example, GenAI systems like Midjourney can be used to create image like the ones used in this blog (and all our blogs, for that matter) using only a simple, user-generated prompt. The prompt for the image below was: “Photo of the world’s largest cat”


Someone get that cat a saddle!

As you can see, the barrier to entry for using GenAI is incredibly low; the technology has advanced at an incredible pace over just the course of a year, to the point now where anyone can type in a natural-language prompt and get a decent result. While the image is not perfect – note the tree branches seeming to clip in front of the person in the background’s face – these images can be produced with such speed that editing their errors will still take substantially less time than creating an image all by yourself.

‘Traditional’ AI, on the other hand, is used in other situations where new data is not required, but the analysis of existing data is the MO. A great example of this can be found in the health sector, where AI has been successfully implemented into the mammography process. Here, a machine learning algorithm is used to analyse mammography screenings at a speed impossible for us meagre meat sacks to comprehend. The speed and accuracy of these systems has proved successful, allowing doctors – who would usually interpret the data themselves – to focus on the tasks AI isn’t very good at yet, like dealing with patients face to face.

Concerns with GenAI

GenAI, being a novel technology, is still very much in its infancy. Questions surrounding potential copyright infringement, for example, are still largely unanswered. Since GenAI models are trained on extremely large datasets, often taken from the internet, many believe the data used to train the models is used without the expressed consent of the creators, stating that their work is being effectively plagiarised. The New York Times is one of the first major news outlets to sue OpenAI for this, citing that articles published by the paper have been used to train its GPT model and now compete with the outlet as a source of reliable news.

On the other hand, one US judge threw out a similar case from the art world, where artists moved to sue AI-image-generation leaders Stable Diffusion and Midjourney (which produced the images you see in this blog) over their potentially copyright-infringing use of their work as part of their AI training datasets.


Here I used the prompt: “image in the style of the Simpsons” – so what do we think? Copyright infringement? Or fair use?

Misinformation is also a key concern for many regulators and governments the world over. The quality, speed, and accessibility of this tech makes it practically impossible to control, especially now the APIs are out in the open. Already many have been fooled by AI-generated images – notably of the pope in a white puffer jacket – and AI-generated text is already being used to generate misinformation online, something many are worried about given this year will see the largest number of elections in human history. While steps have been taken to mitigate misinformation – Midjourney, for example, no longer lets you create images of political figures (although if you ask for a Boris Johnson “lookalike” running through the streets of St. Petersburg with a Putin lookalike, you get much the same results), but for all intents and purposes, the genie is well and truly out of the bottle.

This uncertainty will not put investors at ease, and also complicates how businesses incorporating GenAI will be valued. We also do not know how quickly advances will play out, and this is why venture capital funds are not eager to fund startups focusing solely on GenAI. Instead, it will be the much larger PE firms and established tech companies who will have the capability to be more leveraged with their GenAI investments and can take on the risk.


While under close inspection the cracks begin to show in this image, your casual internet user might be fooled at a glance, given how quickly social media posts are scrolled through.

When is the right time to invest?

Given the uncertainty, most businesses should be cautious and not too eager to invest too heavily in AI at this early stage of its development. For now, while the industry giants, such as Microsoft, can afford to pour billions into developing large language models (“LLMs”) and then deploy them through their pre-existing infrastructure, it is more important – especially for SMEs – to prioritise investing in their own infrastructure, IT service management, and cybersecurity. This will better position these firms to fully leverage GenAI once it has matured to the point where the business case is more certain, as systems will already be in place to safely onboard the new technology.

The ‘internet of things’ (“IoT”), whilst separate from AI, will aid progression in this field, and is a more proven investment at this stage of AI development. Put simply, IoT is a collective network of connected devices and the technologies that facilitates communication between different nodes and the cloud. These nodes collect data about all areas of the network and can then be used to train AI models, which may prove to be one of its primary sources of value as the technology develops.

At the moment, the data used to train AI models – especially GenAI  – may be a better commodity to invest in than the AI models themselves. This will become even more valuable as AI-generated content continues to proliferate online; GenAI models trained on online content will eventually start using AI-generated content as its training data, leading to what Cornell University researchers have called ‘model collapse’ where GenAI models enter a kind of echo chamber, only able to parrot the same data as each other.

Closing thoughts

Whilst the technology certainly has its caveats, this is not to say that AI has no established use cases – far from it. The proliferation of AI-penned content online is already worrying some regulators due to its potential to spread misinformation, and AI-generated imagery can be found everywhere from low-budget website display adverts to multi-million-dollar game franchises.

Like with any emerging technology, the story is likely to be very different in the next five to ten years. We should, however, adjust our expectations for AI and how it will benefit businesses in the immediate future, and leave the excitement for longer-term advances in the field.



 

Promoting Social Mobility in the UK Business Services Sector: A Path to Greater Innovation and Productivity


Did you know that businesses can play a key role in promoting social mobility? Over the past few years, there has been a renewed public focus on spreading opportunity more evenly across the UK. Despite both major political parties seemingly ignoring mounting public pressure, businesses are beginning to align their practices to play a key role in securing social mobility for future generations.

 

Understanding Social Mobility

Let’s pause for a moment to reflect on Mckinsey & Company’s definition of social mobility, as it is the definition we will carry throughout this post:

“Social mobility is a concept that considers people’s socioeconomic circumstances and the degree to which they change over a lifetime and across generations. This includes a consideration of whether a person’s social and economic future is shaped by where they start in life. In a society with high social mobility, someone could, for example, be born to economically disadvantaged parents but still have the same likelihood of opportunities as someone born into a more prosperous home.”



The Business Case for Social Mobility

We can see a strong case for businesses being proactive in taking steps to facilitate social mobility, not purely as a case of it being “the right thing to do”, but also as it will help to build and develop businesses. Diverse workforces are renowned for their higher levels of innovation, productivity and also future proofing. Businesses that are developing their ESG practices have begun to look at how they are promoting positive change for social mobility and how socioeconomic factors exacerbate the disadvantages experienced by people in certain groups. Better social mobility can support economic growth through a more effective deployment of talent.

Diversity-focused companies have been documented to outperform their competitors. This is mainly down to recruiting from a wider pool of talent; by reaching a larger pool, these companies begin to develop a wider spectrum of opinions, improving customer orientation, employee satisfaction and transforming decision-making practices.

 

The Challenges of Social Mobility

Promoting social mobility is not without its challenges. It is hard to trace socioeconomic diversity, for a few reasons. Analysis around postcodes can be an indicator, along with if a person was entitled to free school meals, other indicators include being the first generation to go to university or what occupation parents or guardians had at a person’s age of 14.

Another issue arises when you begin to pick apart people’s socioeconomic backgrounds as educational achievement can vary. For example, economically disadvantaged children tend to do less well in school and therefore find it harder to get into highly rated institutions than children from more affluent households. Therefore, institutions that recruit for positions primarily based on academic attainment are therefore less likely to be aware of the nuance that comes with socioeconomically diverse backgrounds, and in search for that talent may be missing out on candidates who have high potential across other metrics.



Assumptions about Social Mobility

Social mobility often assumes that individuals from lower socioeconomic backgrounds aspire to change their social status. This perspective, as noted by Nick Basannavar, a former associate director at Deloitte, can be limiting and may not reflect the true aspirations of individuals from diverse backgrounds.

 

Conclusion

In conclusion, promoting social mobility in the UK business services sector is not only a moral imperative but also a strategic necessity. Businesses that embrace diversity and inclusivity, particularly socioeconomic diversity, stand to gain significantly in terms of innovation, productivity, and overall competitiveness. By actively investing in promoting social mobility, businesses can contribute to a more equitable society while also enhancing their own resilience and capacity for growth. The path to greater innovation and productivity in the UK business services sector may very well lie in its ability to foster and harness social mobility. This is a journey that demands commitment, creativity, and courage from all stakeholders involved. But the potential rewards – for businesses, individuals, and society as a whole – make it a journey well worth undertaking.

Is the world looking like a Rocky Horror Show?

2024 is looking like it could be a momentous year for planet earth.

Why? Over four billion people will be voting in national elections, with much of the world appearing to be looking for change after the events of the last few years. While here in the UK, it’s a jump to the left, internationally, it’s a step to the right, as a palpable increase in nationalism across the globe reflects shifting sentiment from the co-operative approach that, at least until Trump’s election in 2016, had seemingly benefitted the majority, to a more selfish assessment of potential outcomes.

So elections, along with the conflicts that fill our screens, will almost certainly add to existing uncertainty on the world economy. The OECD forecasts that global growth will slow to 2.7%. In reality, that growth is driven from India, China and Indonesia. With the exception of the USA at 1.5%, the OECD has the other G7 economies growing by a paltry 1% or lower. Is this time to put your hands on your hips and wait before investing or making big decisions – staring up at the sword of Damocles?

Well, one man who has not done this already in 2024 is Lewis Hamilton. On 8 December he will pull his knees in tight for the last time in a Mercedes as he squeezes in for the Abu Dhabi Grand Prix before crossing the pit lane to Ferrari.

I think Lewis continues to set a fine example here. He could so easily see out his days (at $200k a day) at Mercedes but still strives for greater success. Very few of us have any control over the outcomes of elections, GDP growth or, indeed, F1 races; we can only play the ball that is in front of us and many of you are doing a brilliant job of it. Firms are still excelling, there is plenty of capital for growth, and we still see lots of high-quality buyers, both at home and abroad, for our deals.

Carpe Diem – before we know it, another year will have passed and we will have done the time warp again. So where do you want you, and your business, to “be” by the time Lewis is driving the prancing horse? And what do you need to do to get there without relying on your world being rose tinted?

Manufacturing: What’s Next in 2024?

The past few years have been chaotic for the manufacturing sector. From the pandemic, to Brexit, cost of living, and war in Europe and the Middle East, it seems as though the manufacturing sector cannot catch a break.

There remains a question which all manufacturing executives are asking themselves: will next year be better?

The same question was proposed to manufacturers in a survey to gage what topics are on their minds and their confidence in the sector moving into 2024. Make UK, in collaboration with PwC, released its Executive Survey 2024 report deep diving into what executives think, risks, opportunities and an outlook for this 2024.

On the whole, there is a sense of “cautious optimism” amongst executives. Many are aware of the risks that will be brought forward from 2023 to 2024 but remain confident that a new rise in opportunities will help combat some of the challenges to come.

Summary of 2023

To summarise 2023, the UK sat as the 8th largest manufacturing economy by value of output. The sector accounted for 10% of UK GDP and 49% of the UK’s total exported goods. In terms of labour, the sector provided 2.6m jobs and it paid 9% higher wages than the wider UK average.

In the Autumn Statement, policy announcements such as permanent full expensing, the rollout of the Made Smarter programme and a fund to increase engineering apprenticeships, provided comfort after facing turbulent economic shocks since the pandemic.



Risks for 2024

Moving to 2024, it is a matter of whether manufacturers want to hear the good news or bad news first. We will cover the bad news, or rather risks going into 2024, first. Three of the major risks manufacturers anticipate in 2024 are costs, access to labour and skills, and instability and disruption.

Costs

First, cost is a risk that cannot be ignored. Energy prices remain the biggest risk for growth in this sector, despite falling from their peak in 2022. 68% of companies are expecting energy costs to increase either significantly or moderately. Additionally, input costs, such as parts, equipment, labour, and import/export fees remain another point of concern.

90% of companies are expecting a spike in employment-related costs. The planned increase in National Living Wage of 9.4% in the spring, plus the lowering of the age threshold from 23 to 21, will increase costs for employers throughout the entire workforce. A labour shortage (covered further down) is also driving higher pay, in combination with higher training costs for unskilled workers.

Import and export costs will worsen for more than 60% of manufacturers in the next 12 months. According to the report:

“Manufacturers have been dealing with new administrative costs for trading with the EU and an uncertain trading environment, impacting their competitiveness abroad. Some 90% of manufactures say the Trade Cooperation Agreement (TCA) resulted in challenges to trade when trading with the EU.”

And the UK has done little to reduce barriers to non-EU countries; these barriers increase access to logistics, such as shipping, rail, and air. As manufacturers sit in the middle of the value chain, transport costs will impact these businesses disproportionately, affecting the bottom line of these businesses. According to the report:

“Make UK research indicates that as inflation cools, profit margins have been recovering at a snail’s pace, with the majority of manufacturers reporting declining margins on balance quarter on quarter. In addition, costs associated with the UK’s full exit from the EU remain on the risk register, with more than one in five manufacturers (22%) citing increased costs to meeting EU regulations, such as REACH, as a risk to growth.”

Access to People and Skills

The second major risk facing this sector is access to people and skills. There were 69,000 live vacancies in the sector in November 2023, peaking at around 95,000 in May 2022. According to the report: “While this might look like a significant improvement, pre-pandemic in February 2020 there were just 1.6 unfilled vacancies for every 100, and yet this figure now appears stalled at 2.8.”

There is no easy solution to the labour shortage for this sector. Recruiting job overseas is not much of an option for manufacturers, particularly since recruiting from the EU is now more complex with a points-based system. Additionally, from spring 2024 onwards, the government plans to increase the minimum salary for overseas workers, causing another complication for manufacturers to use overseas labour to fill labour shortages.

Not only is there a labour shortage, but manufacturers are also facing a skills gap. The missing gap for manufactures are IT/digital skills and line management and people skills: “A third of companies cite skills as a barrier to growth in the year ahead. Even if they can get a good number of applicants, the skills don’t always follow. As a result, there are more plans to train domestic employees and ensure they are equipped with the right skills for the future.”

At Polestar, we have seen considerable interest in those companies that have built inhouse development processes and training academies to develop staff and augment specialist expertise to differentiate themselves from the market. We would expect this theme to continue.



Instability and Disruption

Third, instability and disruption, both domestic and abroad, will affect manufacturing this coming year. Domestically, the likelihood of a General Election in 2024 is uneasy for the sector. Lots of policies were passed that enhanced this sector, executives question whether those will be followed through if there is a change in the UK Government.

Abroad, recent instability in the Middle East and Eastern Europe could cause supply chain issues. Trading challenges with the EU continue after Brexit, and competition with the US after the Inflation Reduction Act maybe hamper trading relations across the Atlantic.

These concerns around cost, labour and instability are issues that should be familiar from our sector reports. These challenges are not too different from other sectors that are also facing ramifications for inflation and macroeconomic volatility. The healthcare sector is having challenges with recruiting workers for hospitals and care centres. Additionally, increase in wages and training costs for healthcare workers are also eating into the margins of healthcare companies. The sustainability sector relies on heavy regulation, impacted by instability and disruption from legislation. Business Services also relies on efficient supply chain management and reliable energy prices, particularly for the logistics subsector.

Whilst there is some comfort in knowing that all sectors have been facing issues in one way or another, executives will need to be mindful of these risks while looking to the future for new opportunities.

Opportunities for 2024

Now that the bad news is covered, we move to the good. Manufacturers are keen to turn some of the risks for 2024 into opportunities, such as: product portfolios enhancement, net zero, increasing global competitiveness, and digitiatisation.

Expanding Product Portfolios

The first opportunity manufacturers are excited about is expanding their product portfolios. Innovation and revolutionising products has never been as important as it is today in our modern, technological world. By using new tech, such as AI, machine learning, and IoT, there are many opportunities to enhance efficiency and create new products and services.

Net Zero Goals

The second opportunity is achieving net zero, a solution for many manufacturers arising from the problem of increased energy prices. According to the report:

“Net zero investments, most of which have been energy efficiency investments, have been bolstering the UK manufacturing’s business investment volumes, and will continue to do so. With wider economic metrics for the sector seeing a downturn towards the end of 2023, investment intentions have avoided some of this negativity as the sector accelerates plans to minimise energy use. In the short term, this mobilisation has been driven by heightened energy costs, but the improvements from energy efficient technologies being invested in by the sector will deliver benefits far beyond cost minimisation in the long-run”



Global Expansion and Trade

The third opportunity has been expanding globally. Manufacturers have their eyes set on tapping into new geographies: since leaving the EU, the UK has signed several new trade agreements which can bolster the manufacturing sector. Australia and New Zealand are two landmark post-Brexit free trade agreements, signed on December 2021 and February 2022 respectively. These deals were negotiated from scratch, in theory allowing the UK to tailor them as per its objectives.

Recently, we saw the signing of the UK/Comprehensive and Progressive Agreement for Trans-Pacific Partnerships signed in 2023, an Asia-Pacific trade bloc of 11 countries. A UK-India trade deal has been in talks since early 2022.

The UK is currently renegotiating terms with Canada, Mexico, Israel, and Ukraine, with the ambition of securing agreements that are more aligned with the UK’s priorities.

The UK is also currently negotiating several trade deals from scratch, including with India and the Gulf Cooperation Council (GCC), made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, while also looking to join the CPTPP.

Whilst going global is a goal, the EU remains a top choice for manufacturers, citing geographical proximity and cultural similarities. It is imperative to this sector that trade relations are renewed with the UK’s largest trading partner.

Digitisation

The fourth opportunity is one that ties all the others together: digitisation. Being the birthplace of the Industrial Revolution in the 18th century, the UK is no stranger to industrial changes. With the start of Industry 4.0, the question lies in whether the UK is prepared to lead this modern revolution as well. The UK government has implemented schemes to increase digital capabilities across the UK economy in the modern Industrial Strategy. Artificial Intelligence (AI) is thought by the government to be one area where the UK could lead the world, as demonstrated by its £900m investment into the building of a new supercomputer to handle large language models (“LLMs”), as well as hosting the world’s first global summit on AI and its safety/handling.

Investing in advanced technologies such as robotics, cloud, data analytics, AI and machine learning can improve the competitiveness of manufacturers. With digitisation, “developing new or improved methods of manufacturing; increasing energy efficiency for the business; producing sustainable products; and delivery services. Such improvements can lead to increased efficiency, better quality and reduced costs, which, in turn, can increase productivity and resilience while also reducing their carbon footprint.”

A great way the government can help the UK rise to the top is to invest heavily into smaller manufacturing companies, such as family-owned business. The larger UK manufacturing businesses will reinvest in their own technology to make them more competitive both domestically and internationally; it is the smaller companies that will need the most focus.

Smaller companies need to be more aware of the schemes that are put in place that can help make them improve in the new Industry 4.0 world. If you are a smaller manufacturing company, MAKEUK has a list of schemes available for companies to take advantage of the situation they are in now.

Long-term growth across the sector will be linked to the continuing digital transformation such as smart factories offering the introduction of efficient and predictive processes. The scale-up of in-house production lines, robotics, automation platforms, and AI-enabled services will transform market participants, creating breathing room in the already high levels of demand.



Looking Ahead

To summarise, there are going to be positives and negatives going into 2024. Canny manufacturers will leverage these positive trends to offset the bad ones. Investing in new technology can enhance portfolios and increase efficiency, reducing costs and increase competitiveness not just domestically but also overseas. Additionally, this advancement can also help reduce labour shortages, relying on more machine labour than human labour that we cannot fill gaps for. Manufacturers will have to get creative and take advantage of technology that is in front of them to ease their worries about 2024.

This sector has shown resilience even throughout the most chaotic of times, something investors are keen to take advantage of. If you want to get in touch about anything manufacturing related, don’t hesitate to do so. With the current levels of demand in this space, this could be a good time to explore your options for raising funding or securing a valuable exit.

Like always, if you have any interest, please reach out!

Logistics in the UK: A Look to the Year Ahead


When ordering items online, consumers are not always aware of the amount work that goes on behind bringing the product from a warehouse to their home. From packing the product, to loading into a truck, plane or ship, there is a lot of planning, or “logistics”, that goes behind making this possible. That is exactly what the logistics sector is responsible for, the transportation, storing and delivering of goods. In the UK specifically, the logistics sector is one of the leading sectors contributing to economic growth and jobs.

According to the 2023 Logistics Report Summary from Logistics UK, in 2021, the logistics sector added £163 billion to the UK economy and generated just over £1 trillion in revenues, which is a 19.2% increase on the previous year and the same as 2019.

Although a well-established industries with its revenues up, UK global competitiveness has been decreasing due to recent events. We will summarise the report and highlight key findings below.



Background: A Prominent Industry

Segments

UK logistics is multi-modal, covering different aspects of transport, such as a well-developed road network, extensive rail system, major ports and international airports. These forms of transportation are used extensively and, throughout 2022, the country moved 208 billion tonne-kilometres through warehouses to businesses and consumers by land, air and sea. As an island nation, international trade is particularly important to boost the economy, relying on the logistics industry to keep transport going. In 2022, the UK traded over £1 trillion in goods, consisting of £414 billion exports and £644 billion imports.

Workforce

The logistics sector is prominent in the UK, with 227,000 businesses employing 1.8 million workers across England, Wales, Scotland, and Northern Ireland. A further 890,0000 people are employed in logistic roles in non-logistics businesses, totalling 2.7m people employed in logistics overall, making up 8.2% of the UK workforce.

This sector is particularly important for the South East as it holds the highest proportion of logistics employees in the UK at 12% of the workforce, nearly 50% higher than the UK average.

 

 

We can expect the sector to gain more importance as ecommerce continues to grow throughout the UK. 26.6% of retail sales were made online in 2022, compared to 19.2% before COVID-19, a trend we will continue to see rise.

Performance: A Chaotic Time

2022 was a chaotic year for this sector due to supply chain disruptions, increase in costs, and shortages in the workforce. Whilst the sector has shown resilience post-covid, Brexit, and cost of living crisis, these crucial stress points highlight where areas need to be improved.

According to the report, the second half of 2022 was impacted by high energy costs and inflation. The Logistics UK Industry Survey 2022/23 found the greatest deterioration in business performance was due to high fuel prices. Additionally, logistics businesses found issues with recruitment of skilled staff and a decline in trading arrangements with the EU.

The UK’s global competitiveness declined according to the World Bank’s 2023 Logistics Performance Index. This fall in competitiveness was due to Brexit-related changes that impacted on-time shipments and efficiency of customs processes and shipment tracking.

However, businesses remain optimistic. Overall, business performance was perceived to have improved by January 2023. 77% of survey respondents have the same or better economic expectations for 2023 compared to 2022. 29.3% of respondents expect their business to diversify in 2023 while 23.9% expect to consolidate their businesses to mitigate against difficult economic conditions.



Environmental Impact

Sustainability is becoming an important factor for businesses, consumers, and investors. As a sector focused on the movement of goods, businesses will have to learn to adapt greener practices. Transport remained the highest greenhouse gas (GHG) emitting sector across the UK in 2022, building a case for investment into net zero.

Advancements are being made in the electrification of vehicle fleets and railways, however, gaining adequate power supplies and accessing charge points infrastructure and energy supply remain a challenge. Just 38% of UK rail is electrified, which might sound surprising, yet these trains carry nearly 75% of all passengers, meaning most users may have skewed idea of the country’s progress. In terms of aviation, we saw the first commercially produced Sustainable Aviation Fuel (SAF) available last year, and more and more airlines are trying to foster a sustainable environment, although it is likely that aviation will likely remain one of the UK’s largest emitting sectors in 2050.

Future Outlook

According to the report, trends in the sector we can expect to see in the coming year include autonomous vehicles, vehicle connectivity and electrification – all demanding the development of novel technologies and investment to scale up and commercialise. Automation is growing within the sector, but at different rates. Supply chains are being transformed globally by the development of a more digital environment, with distribution systems becoming autonomous and connected.

Investment is needed across various parts of the sector, including the workforce, infrastructure and innovation.

An ageing workforce, further crippled by a reduction in EU workers, has caused labour gaps across the UK. Additionally, government announcements on delays to major infrastructure projects across road and rail networks is concerning for the sector, particularly as road congestion is an economic and environmental problem, costing the UK economy £9.5b in 2022.

Nonetheless, this sector has shown resilience even throughout the most chaotic of times, something investors are keen to take advantage of. If you want to get in touch about anything logistics related, don’t hesitate to do so. With the rapid demand in this space, this could be a good time to explore your options for raising funding or securing a valuable exit. Like always, if you have any interest, please reach out!

Have we got Christmas views for you?


Christmas starts for the bah-humbug amongst us in October by complaining that shops are full of “Yuletide fare,” but, before you know, it is a week away and maybe a bit of preparation might have been rather useful!

I, like many of us, have had a long stint since the summer and am looking forward to rest and relaxation with my family and catching up with friends, I am pleased to say not before, I nip off with youngest son for a week on the slopes. So, this is my final email sent from office in 2023.

During 2023 we have been looking increasingly at Sustainability as a sector, and last month set about doing a sector review. Getting preprepared Sustainability market/valuation data is difficult as it is far from clear which companies to include.  We have, therefore, pulled together listed metrics and reviewed private company transaction data from a wide range of the more traditional market sectors where we think there is a proper sustainability angle. I hope you find our market overview interesting.



You may remember that, a few months ago, we asked business owners, managers, and investors for their real views on sustainability, and whether they see it becoming integral to their businesses and, ultimately, affecting company valuations.   We had a great response, with all sectors well represented and nearly 25% of these being private equity firms – so you can see what the investors think, too.  Thank you again to all that took part.  The feedback was really interesting, it is clear that not everyone is thinking the same way.



At the conclusion of COP28 on Wednesday, countries from around the world agreed for the first time on the need to “transition away from fossil fuels in energy systems”. As we have seen during the last six months, rhetoric is one thing, but even laws on hitting net zero – or the transition from oil powered cars by, say, 2030  – can be changed by politicians with their eyes on an impending election/acceptance of the reality (you chose the narrative here).  At the end of the day, if we are to leave a planet fit for future generations, we will need to make bold decisions individually, corporately and globally.

The message of Christmas is of hope even in dark days, and there is no doubt we live in dark days. So, let us at Polestar wish you a joyful and relaxing holiday, so we call return in 2024 with hope and energy.

Talent Wins Games, Teamwork and Leadership Win Championships



I am not a great golfer, but I do like a good contest.

Especially one where the “underdog” home team spanks the Americans over the first half, following which the star-studded US team comes back strong – giving us all some jeopardy to worry about – before the European team comes good and wins with apparent ease. Yes, the 2023 Ryder Cup was a corker.

On paper, the US team was stronger with three of the current major winners, whilst the European team was awash with younger talent – there had been a changing of the guard with the old faithful of Garcia, Woodward and Poulter deciding to make a dash for the Saudi cash, leaving Luke Donald to pick four rookies.

What this year’s contest showed, as it often does, is that teamwork, consistent pressure and excellent leadership can win through against big names and signature signings. We need to look no further than the Paris Saint-Germain football team for this. To achieve success in our businesses, we will often do better by bringing in new talent, nurturing it and then giving it space to flourish, rather than seeking to make a magic hire that will transform it as a quick solution.



Buyers and investors love a star performer, but of course are concerned about what might happen if they leave. To make our businesses most attractive, we need deep relationships with customers and suppliers across many in the team. Businesses that achieve the highest valuations typically have little reliance on any one individual. Can you look at your business and say the same about yours?

If you wish to do a deal in the next few years, now is the time to address this. We have worked with many businesses which bore big scars where this had been done badly, as well as those that have done a great job. Worst of all, we have seen those that have pretended there is no issue (or hoped the buyer may present a solution) and have struggled to exit at all.

So, if you are thinking about succession let us know, we are very happy to share experience and introduce you to fellow entrepreneurs who have travelled the same road.

Whilst writing, this is a final call to hear if you have considered any sustainability policies, for example, and do you think they would make an difference to your valuation? We are keen to hear your thoughts on the matter – so why not complete our sustainability survey and give your real opinions? Click here or on the image below to see more.



 

How AI could transform the education system


With technology rapidly changing means that people need to adapt and integrate new software within their life in order to stay up-to-date.  AI opens new opportunities for the education sector, but there are concerns around its proper use.  AI has been used within education for a few years now with universities using it to detect plagiarism as well as it being used for analysing student data, but as there has been further development within the technology with the introduction of new software like ChatGPT being created, has caused an uproar into how the software should be used within education or even used at all.

Recently, all 24 Russel group UK universities have begun drawing up principles to ensure that students and staff are AI literate. At one stage, there were talks of banning software like ChatGPT in order to prevent cheating however, the guidance is now saying that students should be taught how to use the software appropriately within their studies which will help to make them aware of the risks of plagiarism, bias and inaccuracy in generative AI. The universities have reviewed their academic conduct policies and guidance to reflect the emergence of generative AI. The guidance states “These policies make it clear to students and staff where the use of generative AI is inappropriate and are intended to support them in making informed decisions and empower them to use these tools appropriately and acknowledge their use where necessary.”



The Benefits

AI has been found to be beneficial for the education sector with it being used by both students and teachers. One of the benefits of AI being used is that it allows for the students’ education to become more personalised.  AI systems can analyse vast amounts of data which focuses on things like students’ performance, learning styles and preferences which in course of time will allow students to be taught more specifically to their needs and not in one generalised way of teaching. As well as it being beneficial for students, teachers have begun using AI systems for administrative tasks. A recent government survey found that one in five teachers work at least 60 hours a week but on average only spend about half of this time teaching. AI tools can help to streamline the process of these tasks and the teachers are able to spend more time focusing on teaching and supporting students.

The Limitations

Although AI could be beneficial to some extent for the education sector, it does have its limitations. One of the challenges of using AI would be the need for training, teachers would need to be shown how to properly use the technology in order to be able to use the software correctly. As well as teachers being taught how to properly use the software it is important that this is passed on to the students who are interested in using the software themselves. Another significant issue with the software is its lack of accuracy, the information which is provided is not always accurate. There have also been issues brought up around the ethical use of software like ChatGPT. Within a recent survey it was found that more than half of students consider using AI tools within their schoolwork to be a form of cheating with others saying that it is not a form cheating as they already currently use online resources to support their work.



In a recent article done by The Guardian earlier this year, they discuss how AI tools “raise a number of challenges and concerns, particularly in relation to academic honesty and plagiarism”. Software like ChatGPT is at a very high writing level making it harder for lecturers to differentiate between what is written by a human and chatbot. Universities are trying to discourage the use of the software by detecting its use within students work, if found using the software the students will be trained on the appropriate use of AI, any further use the students could then be expelled. Irene Glendinning, head of integrity at Coventry University said, “They’re wasting their money and their time if they aren’t using university to learn.” If the students are choosing to use the software to replace doing work instead of using it as an aid, punishments like these would ensure that the students are deterred from using it incorrectly which would be more beneficial for students to be independent within their work.

To Conclude

With some universities and schools beginning to embrace AI software within their learning system this will allow for a more versatile educational environment for students. Stating how AI software should and should not be used within education lets students and teachers understand to treat it as more of an aid instead of a replacement for doing work. There are clear positives to using the software but challenges which come along with it, it will continuously need to be reviewed and re-evaluated in order to meet the needs of the users but overall could enhance student learning globally. AI gives the opportunity for all students to receive a higher quality education in order to reach their highest potential if it is  used to correctly.

How “Innovation Graph” will change the world


In March 2023 we were eagerly awaiting the UK government’s white paper on AI, when it finally arrived, I went through and read it in its entirety. The key points in the white paper are:

When reading this whitepaper, I felt at the time it lacked data backing and clear structure in legislative reform, and that the strategy might halt innovation along the way. However, in the following months, GitHub, a leading open-source platform in software development tools, developed a technology that allows viewers to monitor innovation development within software development. This platform will be transformational for monitoring in all areas of data analysis, supporting innovation and contributing to global economic growth.



GitHub Innovation Graph

The platform allows users to measure and understand the global impact of developers, to address: previously, in a study commissioned by GitHub, it was found that a global issue was developing due to the lack of reliable and comprehensive data on trends in software and development. GitHub decided to build a platform with a dedicated webpage and raspatory, with data available to download dating back to 2020. The platform is updated quarterly renewing git pushes, developer stats, organisation insights, repository details, language preferences, licencing data, trending topics, and global and global collaborations within the global economy.

This platform will host a diverse audience of researchers, public policymakers, and developers. The platform is aimed at personnel involved in international development, public policy, and economic fields. The platform aims to remove barriers and democratise access to data, benefiting researchers without the need for third-party intervention. This will transform the knowledge of those within the sector to allow them to position themselves tactically to promote growth and development, whilst also helping give financial backers more of an insight into the pros and cons of businesses they invest in. In turn, this will boost productivity, financial backing, and the global economy, supporting the development of second and third-world countries and their income stream.



Open Source’s contribution to economic growth

It has been found that a country’s open-source contributions correlate to international innovation and substantial economic growth. Access to online code and datasets allows advancing communities to establish a ground for learning through free learning tools and accessing more advanced systems has shown that if no country contributed to open-source development, the average GDP of a country would be 2.2% lower overall.

 

Source: Estimating the GDP effect of Open Source Software and its complementarities with R&D and patents: evidence and policy implications

 

These graphs demonstrate the correlation between increased open-source materials and the GDP per employee. The correlation trends towards GDP align with an active increase in open-source material. The new access to data that GitHub’s open-source platform brings will allow further development and understanding in the software space, producing more in-depth and compelling studies than before. These studies can help to develop policy which will help to foster and develop opportunities that can contribute to global economic growth.



Conclusion

At Polestar we are committed to utilising new software and technology to enhance our efficiency and knowledge. New tools such as the Innovation Graph will drive growth within all sectors and encourage innovation and advancement, with this growth new opportunities will arise for business owners that will lead to the need for financial advice. The swift development of platforms brings with it both new opportunities and new challenges. We will be interested to see how policy develops around the space and how tools such as Innovation Graph will supplement our work, I know in March of this year a tool analysing global tech development seemed almost out of sight.

The Future of the Workforce: Insights from a Gen Z and Millennial Survey

 

Deloitte recently released its annual Gen Z and Millennial survey that gives insight on the next generation of workers. The start and end dates for their associated cohorts varies slightly, but it is generally agreed upon that Millennials comprise those born between 1981-1996, and Gen Z those born 1997-2012. The survey connected with 14,483 Gen Z and 8,373 millennials across 44 countries.

There are 3 key issues and trends for Gen Z and Millennials:

Key Issues

  1. Stress and anxiety levels remain high and burnout is on the rise

According to the survey, nearly half of Gen Z (46%) and four in 10 millennials (39%) say they feel stressed or anxious at work all or most of the time. Key factors driving stress levels are longer-term financial futures, day-to-day finances, and the health/welfare of their families. Mental health concerns, heavy workloads, poor work/life balance and unhealthy team cultures were also a consideration.

Whilst both groups agree that employers are starting to take mental health more seriously, support and resources are still under-utilised.

  1. The high cost of living looms large for Gen Z and Millennials

In terms of societal concerns, the high cost of living sits at the top, followed by unemployment and climate change. Half of Gen Z and millennials say they live paycheque to paycheque, and they worry that a potential economic recession has led employers to backtrack on climate action. They also worry that it will hamper their ability to ask for much needed pay increases, continue pushing for flexibility, or find new jobs.

To face financial pressures, Gen Z and Millennials are taking on side jobs, delaying key financial milestones such as buying a house or starting a family, and adopting money-saving behaviours such as buying second-hand clothes or not driving a car.

Whilst financial concerns loom, Gen Z and Millennials have differing outlooks. Gen Z are more likely to expect their personal financial situation to improve in the next year (44% of Gen Zs versus 35% of millennials).

  1. Harassment in the workplace is a significant concern, particularly for Gen Zs

More than six in 10 Gen Z (61%) and around half of millennials (49%) have experienced harassment or microaggressions at work in the past 12 months. These could be in the form of inappropriate emails, physical advances, and physical contact. Microaggressions include exclusion, gender-based undermining and unwanted jokes.

Of those who experienced harassment, around eight in 10 reported it to their employer, however, a third of Gen Zs and a quarter of millennials don’t think the issues were handled effectively. Women, non-binary people, and LGBTQ+ respondents are less likely to report harassment to their employer and less likely to feel their organisation responded well.



Key Trends

  1. High expectations for business among Gen Z and millennials go largely unmet

There are a few key items that are vital for Gen Z and Millennials: work/life balance, DEI, societal impact and environmental sustainability. Whilst companies are now pushing for these initiatives, the two groups have definitely seen an improvement in these aspects. However, whilst respondents acknowledge that their employers have made some progress, the majority remain unimpressed with businesses’ societal impact overall; less than half believe business is having a positive impact on society. Gen Z are slightly more likely to believe business is having a positive impact (48% versus 44% of millennials).

Gen Z and Millennials have high expectations from their employers and feel they have a key role to addressing social and environmental issues.

  1. Gen Zs and Millennials are rethinking the role of work in their lives

There are a few key trends when it comes to the role of work in Gen Z’s and Millennials’ lives. They think work is central to their identity, however a good work/life balance is the top consideration when choosing an employer.

Gen Z and Millennials value remote work and hybrid options. Three-quarters of respondents who are currently working in remote or hybrid roles would consider looking for a new job if their employer asked them to go on-site full-time. Condensed four-day work weeks—giving people more consolidated personal time, while avoiding some of the concerns that respondents have about part-time work, are also in high demand amongst the two groups.

There is also a rise in part-time jobs. Improving career advancement opportunities for part-timers is the highest-ranked solution among respondents for achieving better work/life balance.  However, most don’t feel that reducing their hours would be a realistic option as they can’t afford the pay cut it would require. They also worry that their workload wouldn’t be reduced accordingly, and that they’d be passed over for promotion opportunities, or given less interesting work.

  1. Climate change is a major concern for Gen Z and Millennials, but finances are making it harder for them to prioritise sustainability

Climate change is a concern that colours many decisions that Gen Z and Millennials make, such as family planning, home improvements, what they eat, wear and workplace choices. With seven in 10 respondents saying they actively try to minimise their impact on the environment. Financial concerns may put a damper on these efforts; more than half of respondents think it will become harder or impossible to pay more for sustainable products and services if the economic situation stays the same or worsens.

They also see their employers taking a role to provide the necessary skills and training to prepare the workface for the transition to a low-carbon economy.



Key Takeaways for Business Leaders

Now that Gen Z and Millennials have highlighted the key issues and trends that affect them, it’s the job of business leaders to adapt their way to attract and retain the best talent. At Polestar, 75% of the staff belong to the Millennial and Gen Z category, with almost 63% being just Gen Z. Chances are your staff may also have a large contingent of the same age groups.

To remain competitive in the workforce and retain top talent, business leaders will need to accelerate progress towards aspects like work/life balance, DEI, and environmental issues. They will need to confront the financial concerns that their younger workforce will have, and ensure that organisations have the ability and responsibility to help ensure the financial wellbeing of their employees. An example can be offering market-competitive salaries and benefits. Employers will have to learn to be flexible in where and when people work, and learn to adapt for a hybrid model if possible.

Whilst change may be hard, it will become necessary as more and more of the workforce includes the younger generations.