Recession is ending! Here's what to do

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Writuparna Kakati | 26 Jun, 2009
Recently, there is a significant jump in confidence that our economy is no longer in freefall. Growth figures at 6.7 per cent in the financial year 2008-09, combined with encouraging performance by some of the core industrial sectors like infrastructure, cement, steel and coal, have further catapulted the feel-good factor among domestic businesses.

These signs are still very tentative to say that the financial crisis has come to an end but it is sure that the world of business would look different in the coming months. It's the right time, therefore, for businesses to prepare strategies for the aftermath of the crisis. Decisions taken at this crucial moment will largely determine the future of a business. SMEs, more importantly, need to get ready to materialize the growth opportunities at the aftermath of the crisis.

Change the focus: During the economic slowdown, you might have probably turned your focus inward to reorganize your business and organizational resources. As a result, you might have lost sight of the marketplace for some time and missed some important changes in market trends as well as in consumer behavior. As the recession is nearing its end, it is now the right time to shift your focus and analyze carefully what should be your marketing strategy keeping in mind the gradually changing market scenario.

Get ready with cash: During a recession, sales decline which typically results in cash reserve shortfall. As the balance sheet turns negative, it becomes very difficult for businesses (particularly for SMEs with limited resources) to get bank loans. Adding salt to injury, recession-hit vendors and suppliers start to ask for stricter payment terms or additional deposits. It is therefore important to save for the 'good' times. When the climate for business will improve, only those business with adequate cash in hand will be able to materialize the opportunities.

Research the market: As an economic crisis buffets the market, new trends, coupled with changing consumer behavior, give rise to new market conditions. In such a scenario, it is very important for every business to focus on market research activities. Businesses at this moment need to consider modifications to their business models and strategies. Should you target some new markets? Do you need any change in your product offering to attract more customers? What are your competitors doing in the changing marketing scenario? This type of questions need to be answered to understand the complimentary and substitute changes in consumer behavior and market conditions.

Be ready to address a different set of consumers: What new learning should businesses take with them after the recession? To understand it better, they need to look at what customers have learned in recession time. According to a Harvard Business Review 'Value for Money Strategies' by P.J. Williamson and Ming Zeng, this is what customers, consumers and clients have learned in recession time:

1. Be more effective: Do more but spend no more

2. Be more efficient: Do the same and spend less.

3. Economise: Do less and spend less.

So, businesses are to face a different set of consumers after the recession. The key to promoting, acquiring and maintaining sales, in such a scenario, would be to impart value to your customers.

Rebuild relationship with employees: During the difficult times, you might have taken some employee decisions including layoffs, salary cut, elimination of bonuses, etc. Needless to say, these are difficult decisions to take and your employees understand it as well. But as the situation is improving now, it is the right time to rethink about your employees. Elimination of employee benefits impacts employee motivation and productivity, and if you ignore their interest even after the storm is over, they are more likely to feel cheated and look for better job opportunities. You, as a business owner, need to develop good relationships with employees. Unless, it will be futile to seek to reestablish growth.

What will recessions leave behind? In the past, there have been several recessions in world economy and none of them lasted longer than 16 months. Analysis shows that a recession is followed by a 'recovery period' which is usually characterized by:

(i) Asset market collapse for a prolonged period.

(ii) Profound declines in output and employment, particularly in case of a banking crisis;

(iii) The real value of government debt tends to explode.

Historically, consumer confidence hits the lowest at the end of recessions while unemployment rises because companies continue laying people off thinking that tomorrow will look like yesterday. As far the third point is concerned, three of the world's top developed nations - USA, UK and Japan - have already accumulated massive debts which are set to exceed or equal the size of their economies.

Assuming that history will repeat itself, it can be expected that we are going to face some new challenges at the aftermath of the current economic crisis. But the positive part of the story is that the the recession is ending. During this recessionary phase of economy, most businesses have already trimmed their fat and now it is the time to gear up for an improving economy. Careful planning at this point of time will be a crucial success factor for businesses in the coming days.