Braving the Economic Slowdown - Essay Example

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[Insert Case] Braving the Economic Slowdown: Analysis and Strategy Development [Insert Texas A&M Commerce In partial fulfillment of the requirements for [Insert Subject] [Name of Professor] [Date of Submission] Table of Contents Abstract………………………………………………………………………………………...3 Introduction…………………………………………………………………………………….4 The 2008-2012 Global Recession…………………………………………………………….5 The Global Impact……………………………………………………………………...5 Industries that were Most Affected…………………………………………………….6 Major Challenges………………………………………………………………………………7 Earning the Trust of Investors…………………………………………………………7 Monitoring Cash Flow and Avoiding Bankruptcy…………………………………….7 Maintaining the Quality of Goods and Services……………………………………….8 Strategy for the Next Year……………………………………………………………………..8 Pricing and Product Strategies to Maintain Quality…………………………………..9 Monitor Cash Flow…………………………………………………………………....9 Strengthen and Secure Customer Loyalty……………………………………………10 Manpower Development……………………………………………………………...10 Conclusion……………………………………………………………………………………12 References……………………………………………………………………………………13 Appendix A…………………………………………………………………………………..14 Appendix B…………………………………………………………………………………..15 Abstract Being faced with the recession and the drastic economic slowdown is not an easy challenge. This impacts not only the national sector but rather encompasses the whole world market. By understanding the nature of the recession and how it came to be, the most affected business sectors and industries, the company can better situate itself in order to survive and come out as an even better organization after the recession will pass. Threats to the company must be identified and the major challenges must be addressed in order to secure the future and continual operation of the company. The cash flows of the company must be properly monitored and strategies must be formulated in order to avoid long maturing investments as these are the ones which carry very large risks for failure. The top management and leadership of the company must be quick and decisive in order to allow the implementation of changes to be successful. This paper presents what strategies needs to be implemented for the year in order for the company to achieve better competency and survival while also maintaining and ensuring the future of the company Braving the Economic Slowdown: Analysis and Strategy Development Introduction In light with the global business crisis and the reduced economic activities, the company needs to tread carefully on the ventures and strategies for its operational aspects. Times like these call for more precise decision making and planning so as not to waste even more precious resources and advantages, lest the company fail like many others in this recession. But in order to have a better grasp of the situation, we must first delve into understanding the nature of such crisis in order to determine and identify the threats and major challenges that the company is and will be facing. Therefore, the background of the crisis and the global entities and sectors that are most vulnerable should also be recognized. Limiting factors and hindrances should also be put into consideration in order to come up with a sound plan in order to weather the storm while still achieving company growth and profit objectives. While the business and financial plans that were previously approved still hold true for the current operations, the company needs to be maneuvered to avoid the trappings of the crisis and meet the projections. This paper will focus on confronting the economic slowdown in the global market for the year’s business operations. What is important to focus on is that the company should work on strict and lean implementation and use of its assets. The key factor for survivability is stability, therefore, the company must focus on factors that are controllable in nature and must do away with risky ventures as much as possible. The 2008-2012 Global Recession The most recent recession in the financial economy was started near the end of 2007 and its effects were instantly felt on the upcoming year. It is widely labeled as the worst economic recession that has struck the world (Verick & Islam, 2010). It started on the US housing market when the mortgages and interests collapsed and by mid of 2008 the whole world felt the repercussions of the deteriorating American economy. This came as a very unwelcome surprise to many sectors and institutions since it was generally believed that the economy has achieved a very stable and secure footing on the world trade. The recession came to be because of the blindness and lack of foresight of the business leaders (Verick & Islam, 2010). This was also due to a major lack of understanding of several banks and institutions of the risks and of the cash flows, loans, and investments that they undertook. Stocks and investments were free falling since everyone wanted out of the banking system and were quickly withdrawing all their assets, and with the banks unable to settle to their investors the whole system crashed resulting to many foreclosures and bankruptcies. Everybody knows that the blood of banking is the power of its credit loans and investments, and without this suck power What must be taken from this and highlighted is that business entities must not be lulled to a false sense of security and must always constantly be on guard for these types of fluctuations and threats on the economy. The Global Impact There is a saying which goes that when America catches a cold, the whole world sneezes. Such is the influence and scope of the economic activities of America, wherein every world market will be affected by crises that befall them. Appendix A showcases the statistics of the recession that has impacted the United States. It depicts the downfall of the stocks and cash flows of companies in the stock market. The banking industry was gravely affected because of the faulty credit loans and investments. As a direct result to this failure, developing and emerging economies with heavy reliance on financial backing from such banks also crashed and dematerialized. This then trickles down to the whole economic picture of a nation and its people. The financial crisis increased the poverty levels in the Asian region by “3.1 percent (Thailand) and 7.6 per cent (Indonesia) and a decline in real wages ranging between -8.9 per cent (Korea) to about -40 per cent (Indonesia) 3.1 per cent (Thailand) and 7.6 per cent (Indonesia) and a decline in real wages ranging between -8.9 per cent (Korea) to about -40 per cent (Indonesia)” (Verick & Islam). With the decreased economic activities, job security and employment issues were quick to surface and became prominent problems worldwide. The household income deteriorated drastically and therefore resulted to a decreased purchasing power, completing a full circle of distributing the negative impacts back to the industries who now will not only suffer investments and financial losses but also problems regarding their sales and services. This is crucially noteworthy because then the consumers will be more cautious and wary in their purchasing decisions and considering the company’s global market operations, this should not be taken for granted. Industries that were Most Affected Not surprisingly, the industry that was most affected was what caused the recession: the real estate, renting and business industry (“Casualties of Recession”, 2010). Adjacent to this industry would be the construction operations, which also came to a drastic downfall since real estate ventures were on hold and failing. And since the loans were implicated with the banking investments, the bank industries also suffered the fatal blows in the recession. With viable loans to be granted for businesses, the manufacturing industry also suffered because it didn’t have capital sources that would have enabled them to finance expansions and operations for development. The wholesale and retail industries follow suit because of the drop of the purchasing power of the household and thus resulted to very little revolving fund for its sustained operations. This furthered into the suffering of the employment sector wherein lay-offs became very rampant and aggressive. In totality, every economic venture was extremely slowed down and many industries had uphill struggles even by only trying to maintain its operations. Major Challenges What should be realized is that in this time of economic crisis, survival is the most crucial concern. Even by just maintaining previous operational levels can already be remarkable achievement on their own. Earning the Trust of Investors A major obstacle in the recessions is securing enough capital to continue the company’s operations to ensure that there will be no disruptions despite the crisis. And with investors withdrawing much needed funding in fear of the very grave risks that are present in the declining economy, it becomes a heavy burden to make them feel secure in retaining their stocks in the company. Monitoring Cash Flow and Avoiding Bankruptcy Another challenge that the company will face is about its cash flows. With the recession where everyone is in dire shortage of credit and money, accounts receivables will also be potentially impacted (Davis, 2008). The customers might not be able to honor previous credit agreements which will then result to slow maturing loans and receivables. This impacts the ability of the company to perpetuate its funds in order to secure its operational financial requirements and could impair the whole organization if not remedied. This could easily also affect the company’s debt and loaning options and damage the company’s credit rating which would be detrimental for future borrowing transactions (Davis). Maintaining the Quality of Goods and Services With so much hindrance to having a stable operation, the company could also face issues regarding the quality of its offered goods and services. Because of the financial constraints, trade-offs between quality and costs might be inevitable. The ability to maintain a stable and good workforce would also be potentially put in jeopardy, which can also result to the deterioration of quality. But the much bigger impact of this is losing customer loyalty because, as highlighted earlier in the paper, consumers would be then very choosy on their purchases and offering them lower quality goods and services would certainly run against their favor. Strategy for the Next Year What the company must put into perspective is that the recession is not forever. Therefore, aside from aiming for survivability, the company must also strive in making decisions that will ensure sustained development after weathering the economic crisis. A strong and decisive leadership is something of very valuable commodity in such hard and trying economic times as this will ensure smooth transition of the company into the strategic changes that are necessary for coping up (Fulmer, 2001). Pricing and Product Strategies to Maintain Quality The recession is not the time to allow for quality standards to falter. With limited purchasing power, customers have very high expectations and their demands would be only for good and quality products that are affordable and inside their budget constraints. With the recession, it should be in no scenario that quality standards should be sacrificed and traded-off for this will surely result in the eventual drop and failure of the company. The company could focus on limiting its product offerings to the market, focusing only on the goods with higher turnover rates wherein return on investments are very quick. By doing so, it avoids the trappings on long maturing credits wherein its customers might have a longer time to settle and even violate previous set trade agreements. Focusing on a limited number of products would also allow the company to maintain quality standards while not incurring additional cost for the maintenance of several products that would be phased out or put into hold in preference over the better performing products. Profit margins could also be tweaked in order to acquire a better market favorability and secure customers. Discount strategies could be employed to entice high quantity purchases. Although in the short term this may cause a drop in the company profit, this can be augmented by the trade-off with the rising number of the company’s share in market purchasing. This will also put the company in good favor for a better hold of the market in preparation for the post-recession era. Monitor Cash Flow As stated earlier, accounts receivable could prove to be a potential danger for the continual operations and loaning options of the company. This should be countered by only engaging in fast maturing deals with customers. This is also in parallel with the first strategy of only engaging in products with high turnover and return of investment. As long as the flow of cash is stable in the company, the chances of surviving the crisis would significantly improve. The recession is also the opportune time to implement lean manufacturing and operational strategies in the overall supply chain management of the company. This will help the company avoid large risks by only taking on resources for its eventual needs, thus allowing more options for the use of the capital for other aspects of the company that could be affected by the recession. Unnecessary inventory should never be tolerated and production levels should be properly monitored so that there will be no excess and additional overhead costs. It is only logical to produce what is only necessary, and it must be highly noted that profit security should be the first priority rather than creating production allowances for shortages. The strategy can then be adopted if the customer demands increase, but otherwise, the company should only stick to producing and delivering nearly the exact amount that is demanded and forecasted. Strengthen and Secure Customer Loyal What is also crucial in this venture is to maintain the loyal customers of the company. It cannot lose favor over them in these very trying times. The company must carefully situate its offerings to the needs of its customers and pay special attention as to how to better serve them. Significant effort should be exerted in understanding the market. The company should not resort to cut-throat strategies just for the sake of survivability in the expense of its customers for once this crisis will soon come to pass; the customers will remember and remain loyal. Manpower Development Although most often unavoidable, laying-off workers should be implemented only as a last resort. In times like this, it is important to increase the workforce productivity. America’s greatest economic resource lies within the skills of its workers (Atman et al., 2010). By uplifting and empowering workers, we not only improve the quality of the company but also better the chances of survival since this will also ensure the future stability and dominance of the company. By empowering them, they are given a more hands-on role for the changes that will happen to the company and they would then respond better to the challenges that they will be faced (Fulmer, 2001). Problems and obstacles in their level will not be unnecessarily escalated to the top management if they can already remedy them and provide innovative solutions and make decisive actions to counter foreseeable threats. Conclusion Yes, the recession will really have inevitable large implications and drawback to the company. With the slow economic activities, the operational options of the company will be limited. But this should not be altogether be deemed in a negative light. Instead, this can be viewed as a phase to better the structure and operational strategies of the company. Because of the recession, flaws that would be have unforeseen on better conditions would not have been realized and remedied. Also, with the threat of failure stronger now than ever before, the company’s mettle is tested and further strengthened. As it was always stressed in this paper, the recession will not last forever. By employing the aforementioned strategies will not only guarantee the survival of the company but also put it in a better position for the future of its operations and expansions. With the passing of the recession, the company will then have gained a better grasp and understanding of the potential threats and would be in the future better equipped to foresee such signs of these threats. In conclusion, the company must maintain to ascertain and strengthen its assets and not lose its focus on the things that can be controllable. References Atman, Roger C. et al. (2010). From Recession to Recovery to Renewal: An Economic Strategy to Achieve Broadly Shared Growth. “Casualties of the recession: insolvencies by industry”. (2010). Association of Business Recovery Professionals. R3: Rescue, Recovery, Renewal. Davis, Mark. (2008). The Impact of Recession on Businesses. Investor’s Business Daily, 13 October 2008. Fulmer, R.M. (2001). Johnson and Johnson: Frameworks for leadership. Organizational Dynamics, 29(3), 211-220. Paradis, Tim. (2009). The Statistics of the Great Recession. Retrieved from http://www.huffingtonpost.com/2009/10/10/the-statistics-of-the-gre_n_316548.html. Verick, Sher & Islam. Iyanatul. (2010). The Great Recession of 2008-2009: Causes, Consequences and Policy Responses. International Labour Office. Discussion Paper No. 4934. Appendix A $11.2 trillion: Total losses in the stock market from the Dow's peak in October 2007 to the March 2009 bottom. Top of Form Bottom of Form $4.6 trillion: Total gains in the stock market since March 9. 6: The number of the 10 worst point drops in the 113-year history of the Dow that occurred in 2008. The 777-point drop on Sept. 29, 2008, ranks No. 1. 3: The number of the 10 worst percentage drops that occurred in 2008. The Sept. 29 decline of 9 percent is the third-biggest behind 22.6 percent on Oct. 19, 1987, and 10 percent on April 14, 2000. 92 percent: Decrease in Citigroup Inc.'s share price from Oct. 10, 2008, ($13.90) to March 9 ($1.05). 341 percent: Increase in Citigroup's share price from March 9 to Friday's close of $4.63. 18-20: The historical average for the Volatility Index of the Chicago Board Options Exchange, also known as the VIX, or "Fear Index." 89: Where the VIX peaked last October. 23: Where the VIX was on Friday. 16 percent: The amount by which the Dow's closing level on Friday was higher than its average close the previous 200 days. Earlier this month the number hit 20 percent, the highest since the early 1980s. $6.5 trillion: Value of assets in stock mutual funds at end of 2007. $3.7 trillion: Value at the end of 2008. $4.5 trillion: Value at the end of August. $72 billion: Net cash flow (money put in minus money taken out) for stock mutual funds in October 2008. $25 billion: Net cash flow in March. $4 billion: Net cash flow in August. $9: The amount, out of every $10 investors put into mutual funds in August, that went into bond funds. $855.40: The price of an ounce of gold on Oct. 10, 2008. $1,048.60: The price of an ounce of gold on Friday. 6.2 percent: Unemployment rate a year ago. 9.8 percent: Unemployment rate today. 95.2: Consumer confidence two years ago. Reading above 90 means the economy is on solid footing; above 100 signals strong growth. 25.3: Consumer confidence in February – record low. 53.1: Consumer confidence today. 2.8 percent: Decline in retail sales in October and December 2008. 2.7 percent: Increase in retail sales in August. 4.75 percent: Federal funds rate two years ago. 1 percent: Fed funds rate last October. 0 - 0.25 percent: Fed funds rate today. 4.81 percent: London interbank offered rate (LIBOR), the amount banks charge each other to borrow money for three months, at its peak, on Oct. 10, 2008. 0.28 percent: Three-month LIBOR rate Friday. 0.5 percent: Personal savings rate in 2005 as home prices were soaring. 6.9 percent: Personal savings rate in May. $975 billion: Credit card debt held by Americans last September. $899 billion: Credit card debt held at the end of August, down 8 percent. 7 million: Home resales in 2005, a record year. 4.5 million: Home resales in January at annual rate. 5.1 million: Home resales in August at annual rate. $245,000: Median price of homes sold in 2006 – record high. $213,000: Median price of homes sold last October. $195,000: Median price of homes sold in August. Source (Paradis, 2010) Appendix B Number of insolvencies experienced by main industries during recession Source: Association of Business Recovery Professionals (2010) Read More