AVIXA analyzes the macroeconomic factors affecting the AV industry.
AV is in for a bumpy ride as demand evolves through a series of discrete phases in the coming months and years. As we cover in AVIXA’s annual, just-published Macroeconomics Trends Analysis (META) report for 2020, the simplest and most important pair of phases is the difficult short term and the strong long term. But there’s a lot going on in between those two! As we summarize here, business leaders can anticipate changes in construction and by vertical market as they navigate the choppy waters that separate our current challenges and the favorable conditions beckoning us in the future.
Perhaps the most important macroeconomic factor to understand is the shape of the recovery. AV businesses can expect an inverse-radical-shaped recovery—that is, a recovery that starts out fast but then slows down. Think of it as a cross between the “V-shaped” recovery and the “Nike swoosh” recovery. The economy will be able to grow quickly at first, as sectors that were voluntarily placed on hold reactivate. However, the continued threat of the novel coronavirus (COVID-19), as well as the damage resulting from months of disrupted business, will slow down the initial bounce and turn the recovery process into a slow and lengthy one—something similar to what we saw after the last recession in the late 2000s.
Business leaders should also be aware that a smooth recovery is not guaranteed. Additional waves of COVID-19 will be a continual disruptive threat; moreover, with the weakened economy, a small shock could easily create a significant downturn. Businesses should prepare strategic reduction (and expansion) plans in order to maintain core business functions at lower costs in the event of further revenue issues.
In addition to a changing pace, demand will shift by solution and vertical market in the coming months. It seems obvious that we will continue to experience widespread COVID-19 for months to come. That entails predictable consequences: less money spent on transportation, hospitality, in-person retail and, especially, live events. However, COVID-19 will eventually be behind us, and we’ll be left in a down economy with a very different set of demand effects. History shows three vertical markets stand out as the strongest in a down economy: healthcare, government and military, and education. Developing business in those markets will help you drive revenue in the post-COVID-19/pre-economic-recovery environment.
AV demand will also evolve by project type. Some project types hold steady; for example, renovation/renewal and, in particular, maintenance/repair tend to buck the business cycle because they’re so tied to use. New construction is not so reliable, however. New construction is a luxury investment that comes on the back of profits
and optimism—two inputs that have been scarce this year.
Despite the scarcity of those inputs, the outlook for new construction is solid in the short term. Such projects are multi-year investments, and, after they’ve been started, it almost always makes financial sense to finish them. As a result, providers can count on continuing to generate revenue by outfitting new facilities. However, with project initiations down right now, the medium-term outlook for construction is bearish.
The previous recession saw a 30-percent drop in total US non-residential construction spending. We’re confident that the coming drop will not be so severe, but we do encourage businesses to diversify away from new construction soon so as to prepare for the impending decline. Some good news: Despite the coming drop, new-construction revenue will return to growth in the long term.
Although there are many universal trends, regional and country variations abound. The variation by country defies concise summary, but we can at least offer regional highlights. Chief among them is that, by far, Asia Pacific (APAC) offers the best opportunity for AV in 2021. The spread of COVID-19 is much less pervasive throughout APAC, allowing for near-normal economic activity in many countries. In New Zealand and China, activity even includes large, in-person live events! That’s difficult to imagine for those of us in harder-hit areas like the US and western Europe.
Speaking of the US and western Europe, both the Americas region and the Europe, Middle East and Africa (EMEA) region face weak economic outlooks, unfortunately. Outbreaks of COVID-19 that have been more widespread have led to economic consequences that are more dramatic and, thus, a slower recovery. Both regions are on track for recovery in 2022 in both total gross domestic product (GDP) and total AV revenue, although the regional averages obscure substantial country-to-country variation.
Twenty-twenty has been a challenging year for many things, one of which has been to be a decision-maker at an AV company. Thankfully, the macroeconomic context offers a few helpful clues. Preparing for the decelerating recovery, uneven construction revenue and shifting demand as the pandemic ends, but as economic challenges endure, will help your business stay ahead of the curve. And, what’s more, the macroeconomic context gives us hope.
There’s no sugarcoating the short term—it’ll be hard. But the recovery has started, and growth and strength beckon brightly in the long term.
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