The protests outside the G20 summit in London reminded me that for every action there’s an equal and opposite reaction. Every problem is an opportunity for someone, even in this current recession. There have been four recessions in recent history; this one is different. Consumers are loaded with debt, the return on savings is falling, and, whatever they say, banks are more cautious about cash flow credit – and even sales invoice financing.
The V shaped growth forecasts from our central banks are too optimistic. Buyers are buying less and reducing their stocks. Prices are being pushed down, and there’s huge pressure on margins. The reality is that consumer and businesses will need to devalue, revalue and rebuild their finances before the economy can return to normal. The businesses that will survive are those that are cash rich, and get their money early. Firms with good operating cash flow like retailers, banks, training companies will do well.
Businesses need to accept the problem so they can act quickly. That mean understanding, as the G20 protesters to, the potential opportunities that the economic crisis can create. There are ten key was that businesses as beat the recession.
- Organisations need to reset their priorities. The task isn’t growth, it’s survival.
- Businesses need to invest in their core. Rather than developing into different markets, companies should invest in staff training, innovation, evaluation and other ways to ensure they are more effective when growth returns.
- Communication has to be central to that. Executives need to show that they ca balance realism and optimism. Everyone is nervous. Employees, suppliers and customers feel more at risk than ever. So managers need to listen, explain and create confidence.
- Customers have new problems. Businesses need to find new solutions, and explore more inventive pricing.
- The temptation to cut prices needs to be resisted. British firms have found that falling exchange rates have already cut the costs of their exports. But for most firms a five percent cut in price needs at least a 19% growth in sales to compensate. That won’t happen for most firms.
- The focus has to be on capital. The return on capital has to be greater than the cost of capital, otherwise the business can’t grow or maintain the confidence of customers and investors.
- It’s a great time to think about people. Steal good people from your competitors and keep an eye out for layoffs. In a boom, most employees perform well. But make sure that you identify, reward and retain the ones who can also work well in challenging times.
- Reexamine your compensation and bonus schemes. Cash flow and profitability are now more important than revenue. For example, that means that sales people should be rewarded for the margin on sales and how early the client pays, not just the volume.
- Think twice about offshoring. Foreign exchange changes mean that wages in the developing world are growing faster in western currencies. Import duties, improving conditions and transport costs mean that the choice have to be looked at carefully.
- Be smart about partners. This is a great time to form new alliances, buy into new companies and expand though acquisition.
This article appears in the next issue of Xpatriate Magazine.