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
How to downturn-proof yourbusinessSoaring fiscal deficits and unmanageabledebt make for an economic Molotovcocktail. That’s precisely why the dreaded‘R’ word has gone from being mentioned inhushed tones to loud laments.The US may have staved off debtapocalypse, but is it in for a double-diprecession? More importantly, what lies instore for India? After all, it’s a truism thatwhen the US sneezes the world catches acold. So, at a time when it seems as if theUS is about to catch pneumonia, the worldcan hardly be blamed for shivering away.photo from sean dreilinger on FlickrIndia, which is still growing at 7%, isn’tlooking at a gloom-and-doom scenario butits boat has been rocked. This is apparent inthe stock market volatility and the cautioushiring approach that India Inc has adopted.How would a further downturn in the USor global economy impact India? And whatshould we do to guard against it and ensureour growth is not impaired?
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,
» 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 goods4 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
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 forte5 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.
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.
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, which7 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.
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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