Ed C
Chief Learning Officer & Author, Leadership Without Borders, http:leadershipwithoutborders.com
If the recession does go full swing across the U.S. how will global leaders prepare and avoid the potential damages?
Answers (22)
Ray M
Energy expert, educator, award winning sculptor
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I do not think global leaders have the leverage to insulate themselves from a serious US recession.
Pierre D
MBA, BSME, Marketing and Financial Strategist, Founder, Zimana, LLC -- Reach your best insights!
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I think the leaders who have products in global markets will balance their resources to serve the markets that have the best "moat" around their growth opportunities. For example, in the auto industry there has been recent announcement to produce a small inexpensive car (Tata, Nissan-Renaut). These vehicles are being offered in global regions where economic growth is organic and should be recession-resistant.
Great question. Have fun.
Pierre
Louis R
Helping Entrepreneurs Succeed
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I believe that global managers will take advantage of a recession to greatly increase market share. They will have prepared for this by building a solid brand and becoming the low cost producer. (see the anouncement by walmart today of major price cuts). This will enable them to drive down prices, capture market share from weaker competitors and potentially to drive competitors out of business or substantially weaken them.
While profit margins may suffer in the short term, these profits will be recovered as the economy recovers and the competition does not.
Just my opinion - Louis Ray
Michael B
Nearshore IT Services - President US Operations
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Peace time leaders (those who lead companies through a bull economy) will struggle, downsize, and make rash decisions that serve short term gains and shareholders. War time leaders (those with a track record of innovation during difficult times) will use the recession to their advantage, using their cash resources to acquire new markets and develop new products. These times are always good for shaking out the poor leaders and allowing the great leaders to rise. Personally, I am excited to see who is who in each context in the coming years.
1. First of all I think the US may avoid a full blown recession due to aggressive Fed interest rate cuts and the the active intervention of the Congress.
2. Secondly recession and downturns are a necessary part of an economic cycle and ensure that everyone takes stock, innovates, transforms and businesses get an opportunity to invest/divest without very high premiums/multiples and thus sanity prevails instead of just runaway growth - we are seeing that in the US housing market. Adjustments are painful but necessary.
3. Thirdly global corporations and their leaders would adjust their strategies and goals from their perspective i.e. for an Oil & Gas company recession may be bad if demand cools and prices come down. Same applies to companies dependent on the US as their primary export markets - specially ones who depend just on cost arbitrage. But for companies who have a global footprint and cater to multiple markets and have top quartile costs, innovate rapidly and take advantage of the changing environment it would matter little e.g. Microsoft, IBM, SAP, Google - see their numbers.
4. Finally companies cannot for ever just play the cost game and hope to win. They need to have a compelling value proposition, be alive and active in globalization, innovate constantly, be environmentally conscious, cater to all stakeholders thus be less impacted in a downturn.
Jageshwar T
Senior Solution Architect ( open4connection@gmail.com )
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As said by others:-
Innovators will survive.
Those who know how to use this opportunity to create value will survive.
This may be an opportunity to those who are intelligent, visionary and take the risk.
Global leaders need to study and understand the problems that could arise out of a recession. Then they need to develop solutions to address the problems what they could resolve. Organizations who have a strong process in which employees across functions co-ordinate to develop a solution will thrive and and settle the potential damages.
Matthew G. S
Director of Mktg & Biz Dev at Husch Blackwell Sanders Welsh & Katz
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I don't think anyone said the U.S. was the leader in the world, but as markets have once again shown the past few days, if the U.S. consumer gets a cold, the world economy sneezes.
I think government leaders will have a hard time reacting. Just about anything they do takes several months before the impact is felt.
Business leaders can do something, but it's still a challenge. Most companies get fat, lazy and rich during economic booms. Tightening your operational belt is always a given in a recession. The decision is how you want to tighten the belt. Do you run leaner production cycles, leaner inventory cycles or do you simply cut heads? Are business leaders going to march to the drum beat of Wall Street analysts and a few shareholders or are they going to run the company in a manner that's best for the company, its customers and its workforce? Innovation and creativity are sparked by doing the latter, but many CEOs do the former because it's the easiest. One positive factor going into the next several months is that many corporations are in much better financial shape than when they entered the last recession. That should allow them to weather a downturn for awhile.
That said, I think there still is a lot of debt in hedge funds that still needs to be acccounted for. More write offs loom. I'm hopeful by mid 2008 we know the extent so we can get on with life.
Hope this is helpful.
Let me take the liberty to paste my condensed paper addressing this opportunity back in 2002 recession time - this paper & subsequent presentation led me to PMI Memphis Chapter VP Finance position and other opportunities. I still believe this article from the PMBOK percpective is still valid:
PART 1:
It is the realization that action taken in tough times will make the difference between merely surviving the down turn (by destabilizing and damaging the organization) or by changing the gear and emerging out of the turbulent waves to become a leader. This article condenses the key points from paper entitled, “The Mystery of Irrational Exuberance to Fast & Furious: Project Portfolio Management and Business System Investment Strategy in a Recession Driven Economy” The decade-long economic boom and the resulting overflowing coffers brought Irrational Exuberance to the investing pattern of many organizations. Those organizations managed by a group of autonomous feudal managers created redundant projects, disparate data, inefficient systems and have become a bottleneck as organizations race to grow and survive. But when that economic boom bubble burst, these organizations “Fast & Furiously” started scrapping strategic projects, selling off their core business units, laying off their most significant knowledge assets (core employees), engaging in budget cuts in strategic areas like R&D and IT. The paper argues there is no time like the present to invest in project portfolio management and embrace Organization-wide Re-Engineered Process (ORP) with project portfolio management, one global flexible business system, global infrastructure and global knowledge project team. Conceptually, ORP looks, acts, and feels a lot like something we project managers are becoming more familiar with—Portfolio Management.
Clarification added 8 months ago:
PART 2:
Expose Business Inefficiencies (Project Portfolio Management)
If you imagine your company or organization or project portfolio as a ship, the importance of this point becomes clear (see illustration). During boom times, your business floats in a tide of general prosperity; your customers/clients pay the price for any inefficiency in your business systems or project portfolio without any analysis including ROI. When the boom goes bust, it’s not a seller’s market anymore. Now, your organization must accept the cost of inefficiencies, reducing or even eliminating profit. What to do? The conventional, reactive approach to a recession is to employ “dump the weight” tactics—and the ax is often wielded ruthlessly on the organizational achievements so far. Employee layoffs, business unit sell offs, budget cuts, and strategic project cancellations are all well-known earmarks of this approach. These quick fixes may restore profitability temporarily, but inefficiencies in the system aren’t touched and this can often back fire, leading to destabilization, leakage and perhaps even to sinking the ship itself. Worse, the effects of such tactics can be destabilizing to the business itself and are invariably demoralizing and carve a permanent scar on employees and other stake holders (financial institutions, share holders, customers, suppliers etc.). Most executives don’t realize that if they resort to such tactics, in this information driven economy, the organization loses its most crucial knowledge assets - their talented most capable and creative employees once the economic tide turns. Just as damaging is the opportunity loss for progress toward the company’s long-term strategic goals.
The Buckman approach to recession is different. It is proactive, not reactive. Rather than engage in dumping techniques, Buckman has carefully implemented a plan to take advantage of the unique internal investment opportunities that are provided by our current economic downturn, maintaining a steady focus on long-range business strategy and with the help of investments like global business system. The guiding principle is to expose and eliminate inefficiencies. This approach requires more focus and creativity, but the payoff is enormous. In the short term, the ship remains afloat—not by dumping resources, but by dredging the rocks of poor integration, flawed policy, inflexibility, and diseconomy of scale with the help of ORP and Portfolio Management. In the long term, the organization emerges from the downturn stronger and positioned to lead.
Mr. Madapat’s paper says there is no time like present recession to invest in portfolio management and ORP and breaks down the approach into sixteen points. But for the purposes of this condensation, they are summarized as two core strategies: 1) Take advantage of positive risk; and 2) Manage stakeholder expectations.
Gaurav W
Business Analyst
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The leaders in different industries will have to react in different ways. Like someone mentioned about auto industry and introduction of Nano. Similarly, for IT industry, geogrophical risk mitigation and address markets (vertical * industry) in non US regions will be a key. Indian IT Services has drastically reduced the revenue share of US in the last three to four years.
Politically, the leaders of the developing countries to talk about, will have to very carefully manage the economic impact of the recession on their countries. Recent down surge in the global markets was panicking but lot of intervention from leaders helped rescue the markets. In India, the prime minister himself announced that there is no need of panicking and that India is free from impact of US recession. Although, the upcoming Budget release will be something that should be look forward to in India atleast to get a better picture of any impact of US recession.
I understand that the question was for global leaders but my apologies in restricting the answer to India in specific.
Gaurav S
Group MD & CEO, DeGroup, DeConseil Pte. Ltd.
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Hi Ed,
Recession is US can cause serious troubles in several ways.
1. Global leaders press the panic button. In that case, most decisions that they make will go wrong. Then the time is to find a new job. Lay offs, Margin stress, Resource unavailability, unemployment, etc. will hit the economies big time.
2. The valuation of several companies may go down due to fears and heavy selling of stocks. This may lead to a lot of M&A. In that case, depending on each destiny will be defined.
3. Global leaders have to enable more commitment from their own people relationships. If all the people go an extra mile to bridge the deficit gap, then there is no deficit. This will be a key.
4. Interest rates will go further down, leading to more lending in difficult times on indecisive projects. This can cause pressure on the economy to a great extent like what we saw in case of the sub prime mortgage loans.
5. Desperate measure will taken. This is inevitable. But if they are wisely taken, then US can counter the recession well. Else, other emerging economies will develop (only those are self reliant). I see this a benefit to a lot of other economies who have a balanced trade with all continents. A stronger Asia is in the making...
Global leaders must do what is necessary, get more out of their own people. If their own people add value, business will not suffer as much as they would do otherwise. The call is to get their own resources in place and combat recession as a coherent team.
Bad times and good times are a matter of fact. Everything is temporary. But how soon you can see the daylight again, remains to be seen.
Hope this is useful. Gaurav.
Hi Ed,
I would like to draw your attention to some trends. May be it will some perspective to your question, not answering it directly.
- The economic recession cycles have become short-lived but sharper i.e. duration of a slump is shorter but the total economic impact is higher and higher
- central banks, political leaders, policy makers and even investors are reacting, or should I say preempting, to economic booms and recession cycles pretty agressively. That has caused unprecedented volatility in the golabl financial markets, recession or no recession.
- the world is now almost one giant economy. Nobody is insulated from it. So we are talking about a possibility of a global recession here. Not a US housing market meltdown alone.
Global Leaders need to build upon on what already exist. Concentrate more on the Products and Services that drives their business and makes them "stand out from the crowd" and try a little less on being everything to everyone, just to increase market share. For some leaders it will be back to the drawing board ensuring strong processes (efficient and flexible), better aligned governance and risk models, reduce wastage. There has been a lot of activity and M&A in the renewable energy sector most of the large deals in (wind, solar, and marine) have been done, so now this sector is expected to hit a slowdown in 2008, although there will be more M&A activity in gas & oil following the recent annoucements of Shell profits.
To survive the storm, will mean three things:
(1) Technology - more joint ventures between those who have it, and those who want to acquire it, and move it to the next phase
(2) Industrializing Processes - quality improvement (Lean Six Sigma) eg. looking at what car manufacturers have done and trying to learn from them about how they standardise their platforms and shrink their margins
(2) Way forward for the big utilities firms, financial services and other industry sector is "improve efficiency to reduce cost"
Clarification added 8 months ago:
Following on from Santanu Dey, global recession is likely, its the domino effect
Perhaps I'm a global leader.
All I can tell you is that our company did 'disaster planning' in January this year and have an 'emergency plan' of what to do at different points of alarm to extend our time as much as possible.
What I want to avoid is that in the past, we waited until their was an emergency and then reacted to it, sometimes making good decisions, but sometimes making bad decisions under time pressure.
I want to make sure we are structured in a way to minimize overhead and extend cash as much as possible as well as knowing when to cut something in advance so it won't be a painful decision when the time comes.
I think this basic strategy is the same on a personal level as well for preparing for 'disasters' and it blows me away how many companies and people do NOT have these types of plans in place.
"An ounce of prevention..."
Links:
Ups and Downs in the economy is just a part of the economic cycle. When real output falls or the growth of output is below its long run trend rate, then economic recession occurs.
When recession occurs, following things happen.
- Declining aggregate demand for output.
- rising unemployment
- sharp fall in business profits.
To prepare for the recession, global companies should start developing a loyal customer base ( locking the clients in long term contracts will be a good idea ) and start offering the products with tranparent pricing and best possible customer service. They should lower their capital expenses and develop an ability to shift cost to lower wage areas and an ability to reach the global market with lower distribution cost. This will lower their profits but help them to weather the storm.
If? You mean "When".
US Recession --- Fall in Dollar Rates --- Fall in $ Profits ---- Period of uncertainity --- New Ideas/Products --- Start of the "next big thing".... and the story continues
Haven't we seen this a number of times..
I work with few clients who are Global leaders and though they are skeptical about the US Slow down, they are optimistic that this would not be for a very long period. Price cuts are a must to avoid slipping into Red, but this can also been seen as opportunity for consolidation.
Profit = Income - Expenditure
As Income reduces, to maintain similar levels of profit, one must reduce their expenses. Expensive resources for the Organisation are Human Resources. Few organisations tend to believe that Reducing the number of employees (Employee Layoffs) will help them tide over this period, without slipping into Red. But this is a wrong notion, as we have seen many times in the past, the Organisations that maintains its strength during the slack times are the ones that are resurgent and lead the race when the period of consolidation begins.
Options like Employee Layoffs, Scrapping of Key projects (which would invariably have a huge price tag associated), Selling off Stakes are the mistakes that need to be avoided during these tough times.
Organisations should start looking at a various other options to reduce their expenses and should also look at other avenues for increase in income.
Way to minimize the operational inefficiencies, optimize profits should be looked into. There is a need to form a SWAT team to look into these aspects on a round-the-clock basis and not only during the Slow down. My personal experience with a Oil & Gas major made me realize importance of having a SWAT team
New Avenues should be looked into. Organisations should focus on other geographical locations, like Russia, China, Malaysia, to spread their business.
Remember, the more diversified and well managed you are, the less are the chances of being hit by a Recession Hurrican.
Just my opinion.
Thanks for reading ..
Nagesh
With advancing economies in Asia ( Japan, China, India) the markets in the developing markets are quite insulated. For example India is witnessing 9% growth rate despite situation in USA or UK in the past couple of years. The same is true with China too.
Dan L
Strategic Leadership & Executive Development Advisor to Growing Organizations
While I agree that the US is not the be all and end all, most will concede that the world economy is impacted by the emotional up's and down's of the US economy.
I appreicate the insights offerred by many of my colleagues that the economy operates systemically and through consistent cycles. So many different components influence the economy and it does seem to follow cyclical patterns that relate to many of these issues.
While many of my clients are corporate or middle market organizations who are aiming to be market leaders, I do have a few that operate in a global economy via their operations and sourcing. Interestingly enough, this has nothing to do with their size.
I find that many organizational leaders are either too naive or too traditional in their approaches to fight the economy proactively, and come out of the recession in a better place than when it began. They hope that their cash position is strong enough to wait it out.
Saying that, I prefer to partner with leaders who are courageous and bold enough to monitor and manage their competitive position through the up's and down's of the economic cycle. PUt another way, many are in the vast umbrella of the bell curve, with very few in the tail, or close to it.
Knowing that, the question I often ask myself is what factors will best qualify these types of leaders and organizations and how do I best attract their attention.
Very thought provoking inquiry. Many thanks.
Dan Loichinger, CMC
LoichingerAdvantage.com
Lee S
Microsoft Support Engineer
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By giving back to the country that has given so much and helped others so much.
Robert D
Consultancy Microsoft Dynamics NAV (Navision), IT management,interim management, problem diagnosis, freelance
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It would seem logical to invest in countries outside the US that have a decent and more stable growth pattern linked to a stronger currency than the dollar. A few suggestions: the EUR countries, emerging markets,...
In the mean time, countries like India that have taken care of major outsourcing contracts will have little alternatives to reinvesting their money in the US.
It is clear that the next president will have a few economic challenges ahead.
The recession is largely due to bad management of credits by some major financial institutions in the US. It has a limited impact on the rest of the world economy. And there is the ever lasting trade deficit of the US...
I do not think that there is one single Global leader in IT in India. Almost all big (in terms of turn over only) players are essentially sub-contractors who are not planning to take Business risks to expand and become a global players. On the very first sign of a shrinking income they get panicky and either down size or announce a salary cut. The small and tiny companies ( in terms of turnover) are not affected as mostly they have some IPR or operate on niche markets and technologies.
The big players who had enjoyed the boom period between 2002 to 2007, and have a big kitty should use this opportunity to create an IPRs that are Indian..
The biggest myth that India is an IT Power gets exposed by such dependency on Dollar rates. India is nothing but a labour contractor. Time every one starts thinking of creating an IPR. They have the resources- both financial and manpower. They need the will to succeed.