2009 Economic Recession in the UK - Essay Example

UKs 2009 Economic Recession The current economic crisis has affected most of the developing and developed countries also along with the under developed countries. In fact U.S. and U.K. are some of the worse affected countries while China and India like countries escaped from much severe problems. The G-20 summit held in London early this month has mainly discussed the global economic crisis and the possible solutions because of its importance. “Whilst late last year the mainstream institutions such as the OECD, IMF, and Treasury played safe producing forecasts for 2008 UK growth of 2% to 2.5% all pretty much in line with marginally below trend growth. Whilst at the time the Market Oracle forecast was for growth for 2008 of between 1% and 1.3%. Now some 7 months into the year, and a series of adjustments later the mainstream forecasters are starting to come around to our forecast for 2008.” (Walayat, 2008) The above statistics clearly shows that the current crisis is more serious than anticipated. Even most of the expert economists were failed to predict the current crisis and hence most of the organizations could not take any precautionary measures to tackle it. ‘As per British chamber of commerce unemployment may cross more than 3 million as Britains manufacturers, retailers and service industries feel the full effects of the downturn. Most of the economists now think that the current recess may be worse than that happened in 1990s. The UK economy may be lessened by as much as 2.9%, which may result in the risk of deflation this year. (Inman, 2009) Real estate sector is one of the most affected areas in Britain also like most of the other countries because of the current crisis. The house prices have almost reached an all time low in the recent past. Archer predicted house prices would fall another 15%, while Capital Economics said it could be as much as 20% as the cost of the average home headed for a 50% fall from its peak in the summer of 2007. (Inman, 2009) Most of the organizations are now searching for organizational strategies and change management theories to survive during these dipping economic period. They are now studying the external environment, analyzing their organization’s competitive advantages, implementing new strategies, changing the existing management styles, studying organizational culture and efficiency to counter the problems caused by the current recession. The famous British economist, Herbert Spencer, who first coined the phrase ‘survival of the fittest’ to summarize Darwin’s revolutionary thesis, says that only the companies that were most adept at competing for and garnering the limited resources in a given environment would survive. (Andrew Bartolini, 2009) External environment “A business converts inputs into outputs in order to make a profit. However, the business does not exist in a vacuum; it exists within an external environment consisting of the actions of other players who are outside the business. The external environment consists of: competitors, the economic system, the social system, the monetary system, the political/legal system, the environmental system.” (The external environment, 2009) Competitors are one of the main areas of concerns for most of the organizations. It is unwise to setup a business in the neighborhood of an MNC which operates on similar lines. MNCs will have definite financial advantage which will increase their competitive advantages. Moreover their immense resources will help them in formulating custom made strategies which will again improve their monopoly. The society where the business operates also plays a role in deciding the success. Some of the Indian states like Kerala have a bad reputation among investors though it is blessed with immense resources and man power, because of the excessive trade unionism and lack of will from the part of the left government which rules Kerala. For every new business start ups in Kerala there will be more and more protests and legal problems along with the problems in the already established organizations. The proposed “Smart City” project (IT business project) at Cochin, Kerala, by the Dubai Internet City (DIC) is one of the best examples for the influence of political will in determining the success of a business. This project is getting delayed for years because of the lack of political will and hence the progress of the state Kerala is been retarded. In short, external environment plays a vital role in deciding the success of a business and hence in order to tackle the current recession organizations must consider these factors as well while preparing their strategies. External environment does not mean that the environment just outside the business domestically. Even the business environment outside the country can affect the success of a business in UK. Globalization, Liberalization and Privatization policies have changed the whole concept of business and organizational strategies. It has opened up the doors wide for foreign investments and trade opportunities by many countries and hence most of the MNCs are now exploring possibilities in other countries rather than their country of origin. Collective growth is the motto of globalization and hence the economy of most of the countries engaged in mutual business participations and trade are interlinked. Organizations are investing in the capitals of other better performing MNCs in order to make more profit. For example, some of the Indian private banks like ICICI have been reportedly invested in the shares of many of the American business tycoon like the AIG and Lehman Brothers. They have suffered major setback once these AIG and Lehman Brothers started to collapse. External environment thus plays a major role in developing many of the organizational strategies. Organization’s competitive advantage and recession It is evident that an organization’s competitive advantage will considerably be reduced during the recession period because of the reduced economic activities in the market. The spending on advertising like promotional activities will be reduced by organizations in order to reduce their spending and hence their competitive advantages will be lessened due to recession. Advertising, marketing campaigns and sales promotions are some of the strategies mostly used by organizations to reach out customers. But during recession period they have not many options left other than cutting the expenses on non essential activities of the organization like advertising and promotions. For example most of the automobile manufacturers organize many trade shows and other expensive marketing activities to attract customers. But since the consumer people don’t have enough money in their hands because of the recession and hence they will be forced to cut their unnecessary spending and hence such trade shows will result in wastage of money and human effort. Organizations will concentrate in developing new strategies tailor made for recession periods to compete with the dull market.”The most obvious trend is an increase in personalization, intimacy, and relevancy. Best-in-Class organizations are more likely than their peers to increase spending in social media, email marketing, email personalization, direct mail, search engine marketing, and online interactive mediums.” (Michiels, 2009)  These channels are mostly cheaper compared to other marketing strategies and moreover it is personalized. These channels are useful in predicting customer behavior, current and future trends also. Change needed to be done in an organization “Vodafone made the UKs first mobile call at a few minutes past midnight on 1 January 1985. Within fifteen years, the network was the largest company in Europe and the largest of its kind anywhere in the world. By the turn of the century, almost every second UK citizen had a mobile – and a third of them were connected to Vodafone” (Vodafone – History, 2009) Vodafone is one of the leading British companies which have significant global presence in mobile communication industry. They have recently spread their activities to India by acquiring another Indian mobile company “Hutch” and thereby increased their competitive advantages in India. As everybody knows India is one of the best markets in the world for mobile companies because of the immense population and also the bigger size of the company. Vodafone has started to spend millions of pounds in India in order to spread their mobile coverage throughout India by establishing mobile communication towers on each corners of India. On the other hand India has so many other service providers in mobile communications like the public sector companies BSNL, MTNL and other private companies like AirTel, Idea, Reliance, AirCel, etc. Vodafone needs to limit their spending on spreading of mobile coverage in India because of the global recession. The reduced usage of land phones and mobile phones is considered as one option for the people to cut down their spending because of recession. Whatever the strategies employed it is difficult for Vodafone to make profit during these recession period and hence it is better for them to revise their strategies. Vodafone was the sponsor of the famous British football club Manchester United and they spend millions of pounds for bringing valuable foreign players to Manchester United with the intension that their profit will be increased due to increased brand awareness among the public. On the other hand because of the recession people were forced to cut down their spending on entertainment activities like watching football matches and hence even the big fights between famous clubs failed to attract people into the stadium. So Vodafone like companies must rethink about their marketing or advertising strategies to counter the negative impacts of dip in economy. Change management and recession “Signs of a recessionary US economy are being seen thousands of miles away in India. India’s apparel exporters are facing canceled orders and dried up pipelines, a result of a weakening US economy and a strengthening Indian Rupee against the US Dollar” (Mukerji, 2008) As discussed in the earlier parts of this paper, the current recession has global impacts. Economic changes occurred in one country can affect another country as well because of the globalization and interlinked economy. Moreover the worst affected countries like United States and U.K will enforce tight rules on imports and exports. For example, outsourcing of jobs and offshoring of businesses were some of the earlier strategies most of the American and British companies employed to exploit the cheaper labor markets in India like countries. The political administrations in these countries are now thinking in terms of putting restrictions on outsourcing and offshoring like business activities to stabilize their economies. Change management is inevitable in every segment of business because of the recession. As mentioned earlier, the organizations need to cut down their expenses as much as possible and also they have to think in terms of new marketing strategies to bring the consumers back in the market. In a recession the expectations from customers are higher. This puts a lot of stress on the Managers, to perform. Changes have to be made to improve the efficiency and effectiveness of the management team. (Lau & Yau, n.d) The customers will be more focused about the quality and prices of the product they purchase during recession period because of the increased value of money they are spending compared to other prosperous periods. The bargaining tendency will also be increased during recession period. It is difficult for the managers to convince customers during these periods because of the changing consumer psychology during recession. Employees of an organization often raise protests when they were forced to work on long shifts with reduced salary. It is difficult to convince the employees that the change is inevitable in the organization because of the recession. “It is necessary to make staff become supporters and followers to implement change. However, pruning is required when there is apathy and inertia from those staff who cannot change.” (Lau & Yau, n.d) In some cases, even after the management’s repeated efforts, some employees may not be willing to change their established working culture. Under such circumstances, the management may force to take disciplinary actions against them which may result in trade union strike like unhealthy activities. In any case the management needs to implement the strategies carefully to tackle the recession. Blind enforcement of new customs in an organization may result in negative results rather than the intended positive outcomes. Some of the suggested strategies during recession can be summarized as; review cost operations, focus on core fundamentals, communicate with internal and external customers and employees and be forthright or take strong actions against those who hesitate to accept the organizational change (Neeta B, 2009) Organizational culture and recession “The companies with the high performance culture have the advantage in the recession. As the employees in the high performance culture organization are used to compete among them, they can compete with the recession and it is much easier to make them motivated for such a fight.” (High Performance Culture and Recession, n.d) The high performing organizations will be benefitted from such healthy competition among employees because the recession will increase the productivity and common sense of the employees in such organizations. The abilities of the employees to face tough situations will increase the overall strength of the organization. On the other hand for underperforming organizations the recession will be another curse. Their performance will be worsened by the recession because of the employee’s inability in tackling the stiff challenges resulted from recession. The organization’s efficiency will be severely tested during recession periods. Organizations need to learn how to tackle a fluctuating economic period also rather than expecting always a stable economic condition. Organizations which survive the recession period will get more benefits after the recession is ended because of the lessened competition in the market. Most of the small scale units will be closed down during recession period and hence those who overcome the recession period can expect a good future once the recession is ended. “When the organization wants to implement a new corporate culture, it takes a long time and the employees have to trust. The high performance corporate culture organization can be better in the recession, but when they fail, they do take it as another opportunity in the row.” (Neeta B, 2009) Any organizational changes must be accompanied with the consultation with the employees also. Democratic approaches always ensure the success of a changed organizational strategy. The employees must be fully aware of the need of change before implementing it. This will help the manager’s duty more easy. An employee with better understanding of the changed strategy will function more efficiently than an employee who doesn’t understand the strategy well. Conclusions Global recession in economy has created waves of anxiety among so many countries irrespective of developed, developing or underdeveloped. Britain is also not an exception. Most of the organizations are devising strategies for countering the unexpected recession by changing their existing strategies based on work culture, organizational structure, marketing strategies and spending on promotional activities like things. The spending on non productive or less productive sectors has already stopped by many organizations. Many British organizations are using these recession period as a learning period for preparing themselves for future challenges. High performing organizations are making profit even out of recession by encouraging the healthy competition among employees to improve productivity. References 1. Walayat Nadeem, (2008), UK Economy Heading for Recession 2009, All Gloom and Doom? Retrieved on April 17, 2009 from http://www.marketoracle.co.uk/Article5544.html 2. Inman Phillip, (2009) Unemployment will soar above 3 million in 2009, say chambers of Commerce, Retrieved on April 17, 2009 from http://www.guardian.co.uk/business/2009/jan/01/unhappy-new-year 3. The external environment, (2009), Retrieved on April 17, 2009 from http://www.thetimes100.co.uk/theory/theory--the-external-environment--236.php 4. Michiels Ian, (2009), How Best-in-Class Organizations Maintain a Competitive Advantage in This Recession, Retrieved on April 17, 2009 from http://research.aberdeen.com/index.php/customer-management/83-customer-management-insights/445-how-best-in-class-organizations-maintain-a-competitive-advantage-in-this-recession 5. Bartolini Andrew, (2009), Global Supply Management Insights, Retrieved on April 17, 2009 from http://research.aberdeen.com/index.php/global-supply-management 6. Vodafone – History, (2009) Retrieved on April 17, 2009 from http://online.vodafone.co.uk/dispatch/Portal/appmanager/vodafone/wrp?_nfpb=true&_pageLabel=template09&pageID=PAV_0015 7. Mukerji Anupam, (2008), Change Management: US Recession Impacting India, Retrieved on April 17, 2009 from http://www.fastcompany.com/blog/anupam-mukerji/change-management-us-recession-impacting-india 8. Lau C K and Yau David, (n.d) Management of Change in a Recession Retrieved on April 17, 2009 from http://www.bre.polyu.edu.hk/rccree/events/pm_symposium/CKLau.pdf 9. Neeta B, (2009) Managing Change in the Times of Recession, Retrieved on April 17, 2009 from http://ezinearticles.com/?Managing-Change-in-the-Times-of-Recession&id=1717583 10. High Performance Culture and Recession,(n.d), Retrieved on April 17, 2009 from http://hrmadvice.com/blog/2009/01/21/high-performance-culture-recession/ Read More