Top business trends and issues affecting technology companies in 2019
From tariffs to 5G and IPO opportunities, what’s in store for tech?
INSIGHT ARTICLE |
What are the top trends and issues affecting middle market technology businesses in 2019? RSM’s Steve Ingram, national technology industry leader, shares his insights on the important things to watch.
Tariffs and inflation
Inflationary pressures appear to be affecting supply chains at a time when tariffs imposed on steel, aluminum and a host of consumer goods have come into play. According to RSM’s 2018 Q4 Middle Market Business Index, 68 percent of executives across industries report that they paid higher prices for goods and services, excluding labor, and 71 percent expect to pay higher prices in the next six months into 2019. A strong majority of respondents indicated they are experiencing inflationary pressures and expect those concerns to continue over the next year-and-a-half. As operating margins become tighter, nearly 60 percent of middle market businesses are currently passing price increases through to their customers, and that includes those businesses in the technology sector. Middle market tech companies will need to assess current production efforts and gain efficiencies where gaps are identified, review raw materials and production contracts, shore up supply chains, and evaluate margins to counter tariff affects and keep pricing competitive in the marketplace. In addition, companies may need to look at domestic manufacturing alternatives to create their technology products in the United States, as opposed to abroad, as an option to avoid tariffs.
Private equity activity will continue to rise in 2019 in the technology sector as there seems to be a never-ending source of capital for innovative tech companies. In addition, the year will also likely see more technology companies going public than previously as established unicorns reach maturity and are truly ready for becoming next-level enterprises. Lyft, Uber, Pinterest and Airbnb have all indicated likely early 2019 public launches. To prepare for investment or initial public offering (IPO), companies should ready their business operations by completing early due diligence or if going public, consider IPO readiness measures, including assessments of processes, people and risks related to regulatory compliance or tax concerns, to set the organization up for success.
We live in a time when consumers are king and their particular buying preferences are driving change in the marketplace. That’s certainly evident in the technology sector as flexible consumption habits or pay-as-you-go buying behaviors will continue to affect some sector areas, particular concerning software as a service business models, such as Salesforce. Consumers, and businesses, demand flexibility and customization in their usage of technology offerings and refuse to be locked into specific, one-size-fits-all contracts. Technology companies would be wise to continue to monitor the needs of their consumers in 2019 to anticipate current demands and anticipate future wishes.
Technology’s impact on industries
Technology will continue its pervasive presence in our lives in 2019 and we’ll see this play out in an explosion of digital innovation efforts in various industry sectors from education and health care to retail and financial services. For instance, fintech offerings in the financial services space will continue to disrupt that industry to meet online banking and mobility needs, in some cases driving traditional financial institutions to be more innovative in their own services. Likewise, the education sector will see advances via technology through online learning, virtual classrooms and digital books. And healthtech will grow, leveraging artificial intelligence, machine learning and wearables to provide improved wellness and health care to consumers. Opportunities abound across industries for many middle market technology companies.
Data security and increased regulatory challenges
The vast amount of data collection will continue into 2019 and technology companies will have greater opportunities to use and understand their buyers further via this key information. However, with this treasure trove of data comes risk, too, in ensuring information is secured and kept private. Middle market technology companies will need to implement rigorous cybersecurity measures to ward off breaches and cyberattacks. Likewise, companies will need to be mindful of regulations like the General Data Protection Regulation which requires all organizations that hold, transmit or process European Union (EU) resident data to comply with the law—regardless of whether they actually operate in the EU. Failure to comply can result in significant financial penalties. Also, with the increased scrutiny from policymakers on companies like Facebook and others to ward off misinformation and data misuse, the technology industry as a whole must be prepared for further regulatory measures to protect against privacy risks and other nefarious abuses.
5G wireless network technology
While 4G helped fuel the tech companies of today, 5G is the wireless technology opportunity of the upcoming decade, stitching together technologies of the past and enabling new technology uses. It’s expected that 5G will provide download speeds that are 10 to 100 times faster. 5G is already available in some cities across the United States, with broader rollout across other cities in the next year and beyond. Edge computing, autonomous cars, augmented reality, virtual reality and other technologies will greatly benefit from the deployment of 5G. Additionally, middle market entrepreneurs will be focused on new technology use cases that they can bring to market as a result of the faster download speeds and improved battery life afforded by 5G. The United States finds itself in a race with countries like China, South Korea and Japan to deploy 5G on a widespread basis for the benefit of their respective technology ecosystems.
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