Global Recession And Its Impact On Organizations - Essay Example

Global Recession And Its Impact On Organizations Introduction Global recession is one of the key challenges facing industries in the world. The most affected organizations are those in the west. All these have been attributed to poor political leadership. Economists have always provided conflicting information about the situation. The duration for which the crisis should be expected has never been made clear by economists. Governments all over the world are making efforts towards correcting the situation but the impacts of the corrective measure have not been felt so far leaving blames on poor leadership. Economic recession simply refers to an extended duration of international downturn economy-wise. Its effects on organizations and attachment to poor leadership skills as will be looked into in the subsequent sections. Effects of Global Economic Crisis on Organizations Motor vehicle industry was one of the worst hit by the crisis. Some firms such as the General Motors in the US had to shut down some of its branches. According to Dullien, Herr and Kellermann (2009), Organizations have been affected heavily by the world economic crisis. This has seen the organizations lose key players in the industry. Some firms have been forced to close down due to reduced sales. Epstein, Grabel and Jomo (2004) gives an example is the motor industry sector that recorded a decrease in sales compelling some firms to minimize branches. This other than low profit margins result from economic crisis which boils down to individuals rather than organizations alone. The effects of economic recession extended all over the world with the most vulnerable being the gas exporters to the United States. According to Flassbeck and Spiecker (2007), this owes to reduced trade levels such as real estate and gas and banking sector. The banks in the US decided to reduce loans available for individuals due to lack of confidence in the assets that the y own. According to Ratha, and Xu (2007), what followed was panic and mistrust development in organizations. G-20 (2009) argues that the governments of affected states have made effort in making sure that corrective mechanisms are implemented with mitigation measures put in place KEA (2006) has details of organizations worst hit by the recession includes the large incorporate houses in the united Arabs emirates where real estate sector became a victim of the circumstances. Construction and value chain were sectors that were no exemption from the crisis. ECA and APF (2008) demonstrate that tourism and hospitality recorded a significant level of reduced customers as compared to the previous years. According to Kaplan (2001), other sectors such as the transport industry were negatively affected as a result of increase in fuel prices as well as insufficient funds to raise the required amounts. What features was a case of loss recorded in every sector of the economy. Hawkes (2001) argues that most people in the US lost jobs as industries could not hire more workers than they could manage to pay. Most people could not be capable of paying their bills hence abandoned their homes to pitch up camps in other states. Investors had a tempting period since the losses recorded within a short duration were unbearable. An example is the real estate investment which was initially perceived to be lucrative. According to ECA (2008), most clients were abandoning the houses due to inability to pay bills. This negatively affected the sector. The resultant resolution became regulation of customers where customers with low margins were eliminated. Lack of leadership as a cause of the crisis Poor leadership was the cause f the crisis. According to Helleiner (2009), the root of global financial crisis to an extent has been associated with mortgage markets sales to a large number of consumers. The consumers apparently had no sufficient incomes to service the mortgages. It has been implied securities were offered to obtain the loans which were later sold to globalized institutions hence a situation similar to taking resources to other regions at a lower price compared to the real value, which could be realized by the original holder (Özgür & Ertürk 2008). BIS (2004) states that when the mortgages ceased to be dependable, the situation became toxic and spread to the rest of the world. Poor leadership causes of this situation have been directed towards sub-prime crisis in the United States. Financial Time (2008) provides that this came about as a result of borrowing loan with no return. Reinhart and Rogoff (2008) argue that the preceding situation was one where jobs and assets reduced significantly. This does not necessarily mean that it happened under the ignorance of experts, it did happen under the watch of the most talented economists for m the best business institutions in the world. It has been implied that risk management models were available as well as preventive tools and systems (Rodrik 2009). South Centre (2008) demonstrates the situation is an aspect of greed that looms within the government and people in power who cause things to be the way they have been for selfish gain. IMF (2009) acknowledges, what followed was lack of trust hence most depositors withdrew their money, banks controlled issuance of loans, cooperation's no longer enjoy normal flow of credit. The impact torched on other developing and developed countries hence unemployment and price deflation of numerous pivotal assets. The treasury in the United States was forced to inject liquidity in the credit markets as a corrective measure as well as mobilizing interventions from other developing economies. The expected results may take a while before coming to pass just like most economists elucidate on the issue. Schich (2008) emphasizes that, at some point, the crisis was associated with the wars held by America on various operations. It forced the US to go for credits from developing countries such as china so as to sustain most of its operations this caused an imbalance in the flow and direction of currency. Measures had to be taken to tackle the situation which included sales of mortgages. It has been argued that those who became holders of the mortgages never kept their side of the deal making it a compelling situation for the government to sell securities to external investors (LLOYD R.D. 2010). Leadership as a Solution to Global Economic Crisis In an effort to curb the situation, a lot may be required so as to be on the better side of the scale. Leadership dictates how everything appears. It has been implied that the whole problem torches on leadership skills and ignorance of prospective impacts of actions taken by various leaders (Blundell-Wignall, Atkinson, and Lee 2008). One way of ensuring that corrections are made in the world economic systems is by choosing the best skills for running the economy at local and international level. Bibow (2010) argues these calls for collective responsibility spear headed by leaders in various positions as seen in participative leadership theories. This would see unto it that any selfish motives are kept at bay as the interest of the nation and the whole world will be at stake. Applying managerial theories, organizations should sought to firing underperforming workers and apply cost effective marketing protocols as a leadership measure of facing the situation. Performers should not be fired but employee benefits maintained to bust morale. Technical expenditures must be reduced remarkably. UNCTAD (2005) has compiled the situation that the organizations remain placed in as a compromising one which makes them take measures to ensure survival even with narrow profit margins. Acquisition of a sound investment at the peak of global economic recession should see into it that encouraging returns are realized. Schich and Kikuchi (2004) maintain that economic skills must be applied rather than blindly making decisions which may deteriorate the economy father in this situation as required by contingency theories. Ignorance on decision making should never be evident in any leadership both at national and international levels. According to Boughton (2009), investors should also be keen on decision making processes so that any untrustworthy plans of actions may not be executed so as to avoid losses and compromising situations. It is through proper application of leadership skills that this may come to pass. Failure of the leaders to take stern actions may lead to a more serious situation where governmental institutions will also be victimized hence more job losses and financial looms. Conclusion Most industries have been impacted on negatively taking an example to be the General Motors industry which was forced to shut down some of its firms. The only way to go about the situation is through proper leadership skill according to the leadership theories and better governance of all states. Making blind moves in economic matters should be avoided at all cost with each individual making contribution at personal level. The situation require that, the government should avoid excessive borrowing and unnecessary wars which lead to strain in the economy. Corrective measures have since been taken by various governments so as to ensure that the situation is contained by transformative leadership skill application. References Bibow, J 2010, Global Imbalances, the U.S. Dollar, and how the crisis at the core of global Finance spread to “self-insuring” emerging market economies. Levy Economics Institute Working Paper, no. 591. BIS, (Bank for International Settlements) 2004, Annual Report, Basel. Boughton, J 2009, a New Bretton Woods? Finance and Development, vol. 46, no. 1, Pp. 44–46. Dullien, S, Herr, H & Kellermann, C 2009, Der gute Kapitalismus, Transcript Verlag, Bielefeld. Epstein, G, Grabel, I, & Jomo, K 2004, Capital management techniques in developing Countries: an assessment of experiences from the 1990s and lessons for the future. UNCTAD/G-24 Discussion Paper Series, no.27. 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