A troubled economy doesn't necessarily mean bad news for your business. Here's how you can survive troubled times and even use them to emerge stronger.

1. When the going gets tough,
the tough get smart
Tough times needn’t always be bad for
your business. Have you spotted the
opportunity in the downturn?
photo from Alaivani on Flickr
Executive Report
September 2011

2. How to downturn-proof your
business
Soaring fiscal deficits and unmanageable
debt make for an economic Molotov
cocktail. That’s precisely why the dreaded
‘R’ word has gone from being mentioned in
hushed tones to loud laments.
The US may have staved off debt
apocalypse, but is it in for a double-dip
recession? More importantly, what lies in
store for India? After all, it’s a truism that
when the US sneezes the world catches a
cold. So, at a time when it seems as if the
US is about to catch pneumonia, the world
can hardly be blamed for shivering away.
photo from sean dreilinger on Flickr
India, which is still growing at 7%, isn’t
looking at a gloom-and-doom scenario but
its boat has been rocked. This is apparent in
the stock market volatility and the cautious
hiring approach that India Inc has adopted.
How would a further downturn in the US
or global economy impact India? And what
should we do to guard against it and ensure
our growth is not impaired?

3. Is India exposed to another but things could get rough anyway. Don’t
forget, the US accounts for 30% of the
global downturn?
world’s GDP.
» Several Indian companies have major
_______________________________________________
outsourcing deals in the US. India’s
exports to the US have also grown
substantially over the years. These
What about India’s job market?
companies would be affected.
» The service industry – BPOs, KPOs, IT,
» If there is a recession, the Indian
ITeS – will be worst hit. Services account
economy could lose 1-2% of GDP
for 52% of India’s GDP growth.
growth.
» Indian companies that deal with the
US could see profit margins shrinking.
IT and IT-enabled services, textiles,
jewellery, handicrafts and leather
industries would face heavy losses.
» The IT sector will be the worst hit as 75%
3 of its revenues come from the US.
photo from vlima.com on Flickr
» There may not be as much of a
threat to skilled people. According to
NASSCOM (National Association of
Software & Service Companies), India
photo from artemuestra on Flickr
has a shortage of about 5 million skilled
people in IT/ITeS. So, there might even
be opportunities.
» The BPO and automotive components
sectors will be hit as US companies cut _______________________________________________
spending.
» Manufacturing and financial institutions What Indian firms should do
would be somewhat vulnerable.
» If the rupee strengthens, exporters » Change your business strategy. Some
would get hit. This may, however, mean IT and BPO firms have started looking
that more foreign money would come to at other markets such as Europe and
Indian markets as markets abroad tank. China, and even the domestic market, to
Some corporations may suffer due to spread risk and reduce the impact of the
volatility in foreign exchange rates. rising rupee. Infosys, for instance, set up
» Domestic and Asian demand would an India-centric team a few years ago.
partly counter the drop in US demand,

4. » Diversify export markets, improve What will work for you?
internal efficiencies to maintain cost
competitiveness, move your product Here are a few best practices that experts
portfolio up the value chain. recommend to help your business navigate a
» Continue investing, but smartly, so that downturn.
you are ahead of the competition when
the US economy recovers. Customer focus
Customers are the reason you are in business.
» You’ll have to spend more on
developing markets and supply chains in
alternative hunting grounds like Asia and
Europe.
» Are you export-dependent? Re-focus on
local demand and income from non-
dollar economies. Europe, West Asia
and Africa could offer viable short-term
alternatives. In West Africa, for instance,
goods at departmental stores are sold photo from David on Flickr
at 5 times the Indian price. Indian goods
4
are not exported to several countries Make him/her the centre of your universe;
in West Africa. This could be a great let every decision be based on some simple
opportunity. questions: How does it affect my customer?
Would it make his/her life better?
These simple yardsticks would help you take
meaningful decisions. It might also help to
talk to customers to understand how you could
help them during tough times.
IT major Satyam helped clients transform
their businesses during the last downturn
by forming innovation ecosystems. Satyam
seeded its ecosystem from the inside-out, by
photo from mskogly on Flickr unleashing the entrepreneurial talent of its
50,000 employees.
» Don’t be afraid to renegotiate and fix
appropriate (read: lower) prices for your Satyam’s ‘intrapreneurship’ was part of a larger
services. corporate experiment to empower its business
units and support functions to operate as
» You’ll find markets within India, but be
independent enterprises. At one stage, Satyam
prepared for smaller deal sizes. boasted of a loosely-coupled federation of
2,000 intrapreneurs – ranging from alliance
_______________________________________________ managers to client engagement teams to HR
execs. These intrapreneurs were trained to
facilitate innovation and adopt best practices
from other business units within Satyam as

5. well as from outside. They were also trained to
drive process innovation, in addition to creating
new products and services.
Having done this, Satyam engaged its
customers into its innovation ecosystem to
drive value co-creation.
80/20 Rule
First, focus on your core business; remain photo from timojazz on Flickr
focused on the products and services that are
making you the most money. This is where After the last downturn, Indian IT firms such
the 80/20 principle has to be strictly applied; as Wipro set up dedicated business units
80% of your income comes from 20% of your to penetrate emerging Indian and Middle
customers. Similarly, 80% of your wastage Eastern markets. Others like Infosys tried to
comes from 20% of your products. lessen their exposure to the financial services
sector by foraying into other sectors, such as
Focus on your customers first and waste manufacturing.
second. Identify the 80% and 20% factors so
that you can plan your cost-cutting strategy. Keep investing, focus on your forte
5 Remember, the downturn will end some day.
A bird in hand… When it does, will your business be more
Your existing customer provides an opportunity competitive or less? The most successful
to sell more without incurring the cost of companies never stop funding their most
finding a new customer. Offer discounts, critical competencies such as product
something more or different than the innovation, customer service, etc.
competition. This helps in maintaining loyalty
and prevents competitors from wresting away
your customers.
Use the downturn to your advantage
Lasting relationships are built in tough times;
the downturn is a good time to strengthen
bonds with customers. Help them in difficult
times, and they will show their appreciation
once the good times return.
Reset priorities
When a company’s world view changes,
everything else does too. And it can be
traumatic. In good times, the priorities may be
getting into new markets, hiring enough and
growing earnings. Suddenly changing direction Also, diversification is not just about adding
may seem drastic, but do what needs to be new products/services. The key is to drop the
done. extras and focus on what you do best.

6. Invest in talent example, increased employee incentives based
Your employees can make or break your on sales by 30% during the last downturn.
business. For virtually all companies, a critical
part of the core is the continuous development Communicate like crazy
of employees. Yet, it’s remarkable how many In bad times, all of a company’s constituencies
businesses cut training and development in a are nervous: employees are worried that
downturn. By training your best employees, you they’ll be fired, suppliers fear they won’t be
make them more effective. This will go a long paid, customers are concerned that quality
way in retaining the best once the downturn will decline and investors wonder if the stock
ends. will tank. Your silence only makes them worry
more.
But re-evaluate people too!
Most employees look like excellent performers
in a booming economy. Now is when you
identify the impostors. If you need to lay
people off, choose wisely.
6
photo from P Shanks on Flickr
Make marketing expenditure work
Every company has customers that cost more
than they add to the bottomline. Identify them,
photo from aflcio on Flickr evaluate how to make them profitable, and if
that’s not possible, politely hand them over to
If salaries or bonuses need to get slashed, your competition.
you may be tempted to reduce them equally
across the board to show that we’re all in this Make sure you’re not spending money selling
together. But think of what this tells your best to folks who aren’t buying. You could do better
performers; they’ll feel they’re being punished than running ads on MySpace when your target
rather than rewarded for their great work. demographic is 34-50 year olds.
Instead of spreading the pain, reward your best New problems, new solutions
workers even during a downturn. Then scout for Customers need change with the business
competitors that are sharing the misery equally climate changes. That might open new doors
and approach their best performers. for you. For instance, in the days following the
dot-com bust of 2001, the founders of online
One way to increase efficiency and cut costs auction site Baazee.com started a reverse
is to link performance to pay. You could offer auction business and took on consulting
chunkier employee stock options in lieu of pay projects for companies that yielded a few
hikes or increase the portion of variable pay million dollars. In 2004, founders Suvir Sujan
based on, say, sales. Bangalore-based mobile and Avnish Bajaj sold the company to eBay for
advertising company, Gingersoft Media, for $50 million.

7. Don’t rush to cut prices Push and pull
Sure, everyone likes to pay less, especially Push marketing consists of direct mail, email
when times are bad. But the dangers of price marketing, etc. Pull marketing is pulling
slashing are greater than you may realise. A visitors in from directories, search engine
McKinsey study found that a price cut of 5% listings and paid advertising. By finding a media
would have to generate increased sales of 19% partner that already has your target audience
in order to pay for itself. That almost never captive, you can piggyback on their success by
happens. Holding prices steady may cause advertising with them.
sales to decline a bit, but it may still be the
wiser course to take.
What you could do is list key operational
expenses and find ways to minimise them.
Retail apparel chain The Loot (India) Pvt
Ltd listed out its top 10 expenses, which
7
photo from Craig Murphy on Flickr
include manpower, rentals, taxes, advertising,
stationery, printing, maintenance and logistics.
“We encourage employees to avoid paper
wastage while printing by giving out a set
number of papers to each department,”
founder Jay Gupta was quoted as saying.
Stay committed to your brand
In an attempt to generate short-term sales,
marketing budgets are often diverted away
from long-term brand building activities. Retain
a portion of the budget for long-term brand
building. If not, once the problems pass, you
may find yourself with an irrelevant brand
abandoned by core customers.

8. FAQs
What is a recession? • In 1937, the US economy unexpectedly
• Negative GDP growth for two or fell, lasting through most of 1938.
more consecutive quarters is called a Production declined sharply, as did
recession. As such, even though GDP profits and employment.
growth slowed, India is not experiencing • The US saw a recession during 1982-83
a recession and continues to grow at due to a tight monetary policy to control
roughly 7%. inflation and sharp correction to the
What causes a recession? overproduction of the previous decade.
• All economies slow as part of the • Black Monday followed in October 1987,
normal economic cycle. Typically, an when a stock market collapse saw the
economy expands for 6-10 years and Dow Jones Industrial Average plunge by
then slows for six months to 2 years. 22.6% affecting millions.
• A recession normally occurs when • The early 1990s saw a collapse of junk
consumers lose confidence in the bonds and a financial crisis.
8 economy and spend less. This leads • The US suffered one of its biggest
to a decreased demand for goods recessions in 2001, ending 10 years of
and services, which in turn leads to a growth, the longest expansion on record.
decrease in production, lay-offs and a The dot-com bust hit the US economy
sharp rise in unemployment. and many developing countries. The
• Investors spend less as they fear stock economy also suffered after the 9/11
values will fall. attacks.
How does it affect stock markets? Have any Indian companies bucked the
• The economy and the stock markets are trend during a US recession?
closely related. Stock markets reflect • TCS, Infosy, Wipro, HCL and Cognizant
the economy’s buoyancy. In bad times, were listed in a Forrester Research report
they reflect its listless nature. said that these IT companies actually
showed signs of profitability during the
What turbulence has the US economy 2008-09 turbulence. Other sectors that
faced in the past? showed positive signs of growth in that
• The US has suffered 10 recessions since period were food and food processing,
World War 2. cell phones, railways, PSU banks,
• The Great Depression was a slowdown education, healthcare, luxury goods and
from 1930 to 1939. It was a time of high mergers and acquisitions.
unemployment, low profits, low prices
and high poverty. This affected global
markets too.

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