Uday Salunkhe -Global Recession
- 1. GLOBAL RECESSION: MANAGEMENT STRATEGIES FOR ECONOMIC AND MARKET RECOVERY Prof. Dr. Uday Salunkhe Prof. Dr. Anil Rao Paila Director Dean Prin. L N Welingkar Institute of Prin. L N Welingkar Institute of Management Development and Research Management Development and Research L Napoo Road, Next to R A Podar College 11, Emen Arcade, Krishnanagar Matunga (CR) , Mumbai - 400019 Industrial Layout , Bengaluru - 560029 Email: director@welingkar.org Email: anil.rao@welingkar.org Abstract The world faced great depression earlier during thirties of 20th Century (1930). Now in the beginning first decade of the 21st century the world is facing the similar situation. The Global financial crisis and economic melt down in U.S.A. had its trickling effects on other interdependence economies like India, China and Japan. Global Liquidity squeeze, hike in inflation rates, slumped demand, job losses across the countries world wide put the entire world into a great dilemma. The US financial and corporate crisis has been affecting Indian economy if not directly at least indirectly, the industrial sector in general and service sector in particular such as Automobile, BPO, Banking, Information Technology etc. Economic activities appear to be leveling out across the world in recent times more particularly in India, China and Japan where it is interesting to note that in India various organizations in different sectors and even government are preparing themselves for the recovery on war footing. Though the effect of melt down in India is less compared to other developed economies but it is still important to maintain balance between growth and inflation with firm steps in the right direction. Indian industry can come out of the crisis very soon. As a matter of fact the current challenge of global melt down can be converted into a great opportunity to Indian manufacturers. An attempt has been made in this paper to suggest some management to position the corporate sector for economic and market recovery in the present recessionary situation. Key words: Global Recession, Management Strategies, Economic and Market Recovery 1
- 2. Introduction The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. For the developing world, the rise in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect. High fuel costs, soaring commodity prices together with fears of global recession are worrying many developing country analysts. Global recession and Asian countries Countries in Asia are increasingly worried about what is happening in the West. A number of nations urged the US to provide meaningful assurances and bailout packages for the US economy, as that would have a knock-on effect of reassuring foreign investors and helping ease concerns in other parts of the world. Many believed Asia was sufficiently decoupled from the western financial systems. Asia has not had a subprime mortgage crisis like many nations in the West have, for example. many Asian nations have witnessed rapid growth and wealth creation in recent years. This lead to enormous investment in Western countries. In addition, there was increased foreign investment in Asia, mostly from the West. India and China are among the world’s fastest growing nations and after Japan, are the largest economies in Asia. From 2007 to 2008 India’s economy grew by a whopping 9%. Much of it is fueled by its domestic market. However, even that has not been enough to shield it from the effect of the global financial crisis, and it is expected that in data will show that by March 2009 that India’s growth will have slowed quickly to 7.1%. Although this is a very impressive growth figure even in good times, the speed at which it has dropped—the sharp slowdown—is what is concerning. 2
- 3. China, similarly has also experienced a sharp slowdown and its growth is expected to slow down to 8% (still a good growth figure in normal conditions). However, China also has a growing crisis of unrest over job losses. Both have poured billions into recovery packages. With China concerned about its economy, it has been trying to encourage its companies to invest more overseas, hoping it will reduce the upward pressure on its currency, the Yuan. China has also raised concerns about the world relying on mostly one foreign currency reserve, and called for the dollar to be replaced by a world reserve currency run by the IMF. Of course, the US has defended the dollar as a global currency reserve, which is to be expected given it is one of its main sources of global economic dominance. Whether a change like this would actually happen remains to be seen, but it is likely the US and its allies will be very resistant to the idea. Japan, which has suffered its own crisis in the 1990s also faces trouble now. While their banks seem more secure compared to their Western counterparts, it is very dependent on exports. Japan is so exposed that in last January alone, Japan’s industrial production fell by 10%, the biggest monthly drop since their records began The Realities Indian Business and industry are no doubt under enormous pressure owing to the impact of liberalization and globalization of the Indian economy. It is just as important to plan for an economic upturn as it is to develop contingency plans for a looming recession. And from some of the leading economic indicators, now is the time to begin planning for a return to recovery. Up until now businesses have been coping, and most have hunkered down. In the last quarter and the first half of the year 2010, a growing economic recovery is expected. Many economists are suggesting an upturn in the economy beginning in the fourth quarter of 2009, and into 2010. Even though there will still be some belt-tightening while earlier contingency plans are executed, firms will need to plan for the beginning of a new business cycle. 3
- 4. Putting growth plans on hold for too long could be a costly strategic mistake. It's not too late to plan for a rebound in the new business cycle. Visionary leaders look for new value propositions, and build a competitive advantage during hard times. Management Strategies for Economic and Market Recovery. Following management challenges and strategies are to prepare every organization to be well- positioned for the economic and market recovery Conduct a SWOT analysis Planning for a brighter future starts with analyzing the company’s strengths, weaknesses, opportunities and threats. Evaluate your firm internally, coupled with an environmental scan of the competitive landscape. Differentiate your firm It's all about creating a unique value proposition. Start with the SWOT analysis. Everything is fair game (e.g. technology, experience, certifications, commendations, price, value, etc.). Invest in technology Examples would include Web software that would allow customers to place and track orders, ERP suites, HR software applications, and other industry-specific technology. Leveraging IT With the advent of IT technology several companies maintain databases on key customers to develop relationships. Companies are integrating and customizing business processes while creating additional values for their customers by applying tools of Information Technology. Identify new markets Typically the more avenues of distribution that the company has, the better off. For Example, the company caters to the commercial market, it should consider the government space or even the aerospace and the aircraft sectors. 4
- 5. Enhance your Website The company’s website should be optimized so that it becomes a powerful Internet marketing platform for generating sales leads contributing to both short and long-term growth of sales. Invest in Training Great companies realize the value of their employees and staff development. Don't wait for the upturn to focus on training. Trained employees are be more confident, productive and resilient. Forge strategic alliances Understand the company’s core competencies, know what customers are looking for, and forge strategic partnerships to shore up the company’s product and service portfolios. Strategic Alliance as a Competitive Tool Strategic Alliance is an inter firm link established through contractual agreements like joint R&D joint product development, long-term sourcing agreements, joint manufacturing / marketing and shared distribution/service (yoshino and Rangan, 1995). It is a double-edged sword that helps business conquer new areas of business if handled properly and if not damages the business interest to an extent that perhaps no other tool or technique can. Trim costs surgically Across the board cost cutting is risky at best. Analyze expenses with the company’s key staff, one line item at a time. This way you can make strategic cuts, one cut at a time. Optimize your advertising effort The company should think of group beyond traditional print advertising in trade journals and other publications. Be creative and don't discount using Web-based technology (e.g. pay-per- click advertising). And be sure to track the ROI for each activity to make money count! 5
- 6. Build a strong sales force The organization should develop a unified sales team focused on customer needs and expectations. Indeed, the sales representatives should become business partners to the company’s customers. Tie-up with MNCs Indian Companies especially start-ups can aim for global standards in their operations by associated themselves with MNCs operating in India or are in India or are in the process of setting up offices here. The tie-up can be as a supplier or a franchisee / licensee. Numerous benefits will accrue provided the Indian firm’s management is versatile. The pressure to perform will indeed be high as MNCs demand exacting quality standards, prompt delivery schedule, state-of-the-art production technology, economies of scale and low transaction costs. Attacking MNCs on their home ground It has been aptly said that offence is the best form of defence. Indian companies must not rest fighting MNC competition in India but must devise ways and means to take it to their domestic markets. This is easier said than done, no doubt . However, to foreclose its possibility would indeed be cowardly or a product of myopic vision. Cushioned International Entry Vs Big Bang Approach That Indian companies must venture into foreign markets to survive and compete in the long run needs no debate. What requires attention is the market/customers that have to be targeted. The strategy of taking on market leaders in foreign markets involves high risks but if successful the pay offs are even higher. When some Indian firms could do it successfully why not others. Take the case of Titan which has decided to take on global competition head on. It neither denied nor focused on Indianess as it could work to its disadvantage due to the image Indian products have abroad. It positioned its watches as a product of a synthesis of global cooperation: technology from India and Japan, design form Switzerland and France, and precision engineering form Germany 6
- 7. A second case in point is Asian paints, a success story of outright entry into foreign markets. The primary factor responsible for it as confidence and success is its Indian experience of having unseated world leaders to occupy the leaders position in the Indian paint industry from the initial position of being a non-entity. Asian paints strategy in foreign markets focuses on total customer satisfaction, adapting products to local needs, and incorporating local symbols of brand recognition, popularity and local identification. Outsourcing Instead of manufacturing all one’s requirements in-house or integrating backward, a company for strategic reasons can depend on suppliers and thereby gain numerous advantages competition has forced even leading companies like IBM, GE and Mercedes to focus on their core strengths and let others do what they cannot be excellent at themselves, (ET, August 1996). In this kind of partnering, perhaps the greatest leverage of all is the full utilization of eternal supplier’s investments, innovations, and specialized professional capabilities that would be prohibitively expensive or even impossible to duplicate internally. In rapidly changing market places and technological situations this joint strategy decreases risks, shorten the cycle time, lowers investments and creates better responsiveness to customer needs Relationship Marketing Developing relationship with employees in customer organization at all levels is of primary importance today. Companies the world over are achieving this by forming cross-functional teams with customer personnel. Many companies send their people from product development, engineering, manufacturing, quality control, etc. from time to time to work at customer’s premises and help customer needs and concerns. Solution Selling What customers are increasingly looking forward to is not just products but custom made total solutions. This requires an understanding of the customers business, their culture, their business practices, etc. to appreciate their needs and help craft such solutions. This complete package is likely to include advisory services, finance, customized product design, installation support, employ training and inventory management relevant to the supplying company’s product. 7
- 8. Leveraging IT With the advent of IT technology several companies maintain databases on key customers to develop relationships. Companies are integrating and customizing business processes while creating additional values for their customers by applying tools of Information Technology. Conclusion Though the way is there for all Indian firms to emulate, it is not so easy. It requires tremendous effort, cultural transformation and change in outlook, the journey from a sellers market to a customers market via free market mechanism implies discipline that many firms in protected economies are able to complete successfully. This is where the challenge lies. The demands as well as the route to accomplish it is known but how many Indian companies will rise up to the occasion remains to be seen. Those who do not succeed in this paradigm shift will indeed not survive in the long run. The ideal for any company is to become, the ‘paradigm shifter’ in its industry-to spring surprises at players and never be taken by surprise. References 1. Ansoff H J , “The New Corporate Strategy” New York John Willy and Sons 1988, P. 95 2. A. D. MAcCormack, L J Newman (III) and D B Rosenfield, “The New Dynamics of Global Manufacturing Site location”, Sloan Management Review, Summer 1994, P 69 3. Bruce D Hunderson, “The origin of Strategy” Harvard Business Review, November – December 1989,P.A. 4. C.K.Prahlad and Gary Hamel. “The Core competency of the Corporation”, Harvard Business Review, May-June 1990,P-81. 5. David J Collis and Cynthia a Montgomery, “Competing for Resources: Strategy in the 1990s” Harvard Business Review, March April 1992 , P-60 6. Debashish Basu, “How business can compare”, Business Today, January 22, 1993 7. Dhawal Mehta and Sunil somanta, “The Nature and significance of Strategic Alliance”, Vikalpa Vol. 21, April-June 1996, P-15. 8. George stalk, Philip Evans and Lawrence E Shuelman, “Competing on Capabilities: The new rules of Corporate Strategy.” Harvard Business Review, March April 1992, P-60 8
- 9. 9. J.B.Quim and F.G.Hilmer, :”Strategic outsourcing,” Solan Management Review, Summer 1994, P-43—44 10. Jeffrey H Dyer and Willam G Ouchi,” Japanese – Style Partnerships : Giving Companies a Competitive Edge”, Solan Management Review, Fall 1993, P- 51 11. Kenichi Ohmae, “The Mind of Strategist”, NewYork Penguine Books Ltd, 1982, Page 38 12. Michael Yoshina and Srinivas Y Rangan, Strategic alliances. An Entrepreneurial approach to globalization (Cambridge, Massachusetts : Harvard Business Review, Press, 1995) 13. “Tata Tea Globalize”, The Economic Times –Corporate Dossier, 8-14 December, 995 P-2 14. “Global in the Indian Fashion”, The Economic times Brand Equity, 13-19 March 1995,P-5 15. “Brand Strategies”, Business today, 7-21 June 1995, PP – 135-139 16. “Titan Wins Bronze Award in Europe” The Economic Times, 25 October 1996, P-9. 17. “A Question of confidence”, The Economic Times – Brand Equity,18-24 Sept. 1996, P-1. Author’s Profile Prof. Dr. Uday Salunke Director - Welingkar Institute of Management is a mechanical engineer with a management degree in 'Operations', and a Doctorate in 'Turnaround Strategies'. He has 12 years of experience in the corporate world including Mahindra & Mahindra, ISPL and other companies before joining Welingkar in 1995 as faculty for Production Management. Subsequently his inherent passion, commitment and dedication toward the institute led to his appointment as Director in 2000. Dr. Salunkhe has been invited as visiting fellow at the Harvard Business School, USA and European University, Germany. He has also delivered seminars at the Asian Institute of Management, Manila and has been awarded "The Young Achievers Award- 2003" in the field of Academics by the Indo American Society recently. 9