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POST RECESSION STRATEGIES OF INDIAN IN MULTI NATIONAL COMPANY
Submitted By- Amit Variya 61
To- Neha Mathur
Impact of Recession on India
Recessions are the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Recession in the West, especially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January have declined by 22 per cent. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. And they are working on existing projects only. Projections indicate that up to one core persons could lose their jobs in the correct fiscal ending March. The one core figure has been compiled by Federation of Indian Export Organizations (FIEO), which says that it has carried out an intensive survey. The textile, garment and handicraft industry are worse affected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jeweler had cut production by 10 per cent to 50 per cent.
How to tackle the global slump?
“Our economy is shrinking, unemployment rolls are growing, businesses and families can’t get credit and small businesses can’t secure the loans they need to create jobs and get their products to market,” Obama said. “With the stakes this high, we cannot afford to get trapped in the same old partisan gridlock.” The following measures can be adopted to tackle the recession:
• • • •
Tax cuts are generally the first step any government takes during slump. Government should hike its spending to create more jobs and boost the manufacturing sectors in the country. Government should try to increase the export against the initial export. The way out for builders is to reduce the unrealistic prices of property to bring back the buyers into the market. And thus raise finances for the incomplete projects that they are developing. The falling rupees against the dollar will bring a boost in the export industry. Though the buyers in the west might become scarce. The oil prices decline will also have a positive impact on the importers
POST RECESSION STRATEGIES OF MULTINATIONAL COMPANIES
The global financial system literally went into a cardiac arrest after the Lehman Brothers Holdings Inc. collapse and a meltdown was barely avoided through very aggressive policy responses. Unfortunately, the worst is ahead of us. The entire global economy will contract in a severe and protracted Ushaped global recession that started a year ago. The recession in the US market and the global meltdown termed as Global recession have engulfed complete world economy with a varying degree of recessional impact. World over the impact has diversified and can be observed from the very fact of falling Stock market, recession in jobs availability and companies following downsizing in the existing available staff and cutting down of the perks and salary corrections. India could also not escape from this turmoil. Part and partially it turned out to be a victim to this crisis. It suffered less of losses because of its strict economic policies. The BFSI (Banking, financial sector, Insurance) sector has taken a hit with the financial sector getting affected in US. The textile sector has also been hit with the export of textiles coming down in the recent months. Several jobs are in danger of being lost. There has been decline in the automobile sector as well. The months of November & December saw bike & Car sales down. This paper puts an attempt to understand the effects of global recession faced by India and highlights those sectors which will come to the rescue at times to go. It will also put a light on the Marketing strategies employed by these sectors to overcome the fever of recession. It will also focus on the opportunities and strategies that the marketers can adopt to sustain themselves. The rise and fall conditions in the market have to go on. But with this the economy has to follow. Business has to come out with answers. Solutions have to be digged out from the problem itself. The need of the day for the global recession is to employ robust marketing strategies for promising sectors.
Global meltdown, aviation, strategies, crises, turmoil.
Introduction – GLOBAL RECESSION.
In today's arena the most common word we come across are recession and downturn. Recession or crisis is the part of the normal cycle of business. It is certain that they will sooner or later occur. Recessions are the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west. Recession has been defined in the marketing literature as a "process of decreasing demand for raw materials, products and services, including labor" (Shama 1978) or as a "state in which the demand for a product is less than its former level" (Kotler 1973). Recession is a phenomenon of decreasing demand for raw materials, products, and services. Technically, its beginning, progress, and ending depends on the operational measures used by different researchers and federal agencies. The worst ever financial crisis to have ravaged the United States since the Great Depression of 1930s, has taken a heavy toll on the world's largest economy. There is rise in the number of job layoffs and cost cutting. In fact, all the economies of the world are facing crisis to tackle this global meltdown. The meltdown has led to shock waves across the world, with economy after economy gasping for breath to survive this financial tsunami.
How the matter got complicated
It all started in the US; the boom in the housing sector was taking the economy to a new level. A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fueled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan
conditions. As a result, many people with low income & bad credit were given housing loans in disregard to all principles of financial prudence. These types of loans were known as sub-prime loans as those were are not part of prime loan market .With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw sub prime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios from the original lenders. Major (American and European) investment banks and institutions heavily bought these loans (known as Mortgage Backed Securities, MBS) to diversify their investment portfolios. Owing to heavy buying of Mortgage Backed Securities (MBS) of sub prime loans by major American and European Banks, the problem, which was to remain within the confines of US propagated into the word's financial markets. As the home prices started declining in the US, sub-prime borrowers found themselves in a messy situation. Their house prices were decreasing and the loan interest on these houses was soaring. As they could not manage a second mortgage on their home, it became very difficult for them to pay the higher interest rate. As a result many of them opted to default on their home loans and vacated the house. However, as the home prices were falling rapidly, the lending companies, which were hoping to sell them and recover the loan amount, found them in a situation where loan amount exceeded the total cost of the house. Eventually, there remained no option but to write off losses on these loans. The problem got worsened as the Mortgage Backed Securities (MBS), which by that time had become parts of CDOs of giant investments banks of US & Europe, lost their value. Falling prices of CDOs dented banks' investment portfolios and these losses destroyed banks' capital. Despite efforts by the US Federal Reserve to offer some financial assistance to the beleaguered financial sector, it has led to the collapse of Bear Sterns, one of the world's largest investment banks and securities trading firm. Bear Sterns was bought out by JP Morgan Chase with some help from the US Federal Bank. The crisis has also seen Lehman Brothers - the fourth largest investment bank in the US and the one which had survived every major upheaval for the past 158 years - file for bankruptcy. And slowly this recession started to creep into other countries like a contagious disease.
The Economic Downturn and India
India is not de-linked from the world and the financial meltdown has certainly impacted us. In the age of globalization, no country can remains isolated from the fluctuations of world economy. Heavy losses suffered by major International Banks is going to affect all countries of the world as these financial institutes have their investment interest in almost all countries. As of now India is facing heat on three grounds: (1) Our Share Markets are falling everyday, (2) Rupee is weakening against dollars and (3) Our banks are facing severe cash crunch resulting in shortage of liquidity in the market. Actually all the above three problems are interconnected and have their roots in the above-mentioned global crisis. For the last two years, our stock market was creating new summits which were mainly due to heavy investments by Foreign Institutional Investors (FIIs). However, when the parent companies of these investors (based mainly in US and Europe) found themselves in a severe credit tumult as a result of sub-prime mess, the only option left with these investors was to withdraw their money from Indian Stock Markets to meet liabilities at home. FIIs were the main buyers of Indian Stocks and their exit from the market is certain to wreak havoc in the market. FIIs that were on a buying spree last year, are now in the mood of selling their stocks in India. As a result our Share Markets were touching new lows everyday. Since, the money, which FIIs get after selling their stocks, needs to be converted into dollars before they can sent it home, the demand for dollars suddenly increased. As more and more FIIs are buying dollars, the rupee is loosing its strength against dollar. As long as demands for dollars remain high, the rupee will keep loosing its strength against dollar. The current financial crisis has also started directly affecting Indian Industries. For the past few years, the two most preferred method of raising money by the companies were Stock Markets and external borrowings on low interest rates. Stock Markets were falling everyday and it was not possible to raise money there. Regarding external borrowing from world markets, this option has also become difficult. In the last fiscal year alone, India borrowed $29 billion from foreign lenders and got $34 billion of foreign direct investment. A global recession has hurt external demand. International lenders who have become extremely risk aversive can limit access to international capital. If that happens, both India's
financial markets and the real economy will be hurt in the process. Suddenly, the 9% growth target does not seem that 'doable' any more; we should be happy to clock 7% this fiscal year and the next. However, one positive point in favor of India is the fact that Indian Banks are more or less secured from the ill-effects of sub-prime mess. A glance at Indian banks' balance sheets would show that their exposure to complex instruments like CDOs is almost nil. In India, still the major banking operations are in the hands of Public Sector Banks who exercise extreme cautions in disbursing loans to needy people/companies. As a result, we are not likely to see a repeat of sub-prime crisis in India. Though there have been a presence of big US/European Banks in India and even some Indian banks (like ICICI) have some foreign subsidiary with stake in the sub-prime losses, there presence is much small as compare to the overall size of Indian banking industry. So at least on this major front we need not worry much. However, a global depression is likely to result in a fall in demand of all types of consumer goods. In 2007-08, India sold 13.5% of its goods to foreign buyers. A fall in demand is likely to affect the growth rate this year. Our export may get affected badly. A negative atmosphere, shortage of cash, fall in demands, reducing growth rate and uncertainties in the market are some of the most visible aspects of an economic depression. What started as a small matter of sub-prime loan defaulters has now become a subject of global discussion and has engulfed the global economy scenario. And again, there is certainly a deep recession as far as jobs for the highly educated are concerned. Ironically, this may be the first time in India's history when it is more difficult for the professional graduates to find employment or appropriate employment, compared to the less educated millions. The present job recession has also hit the aspiration level of the Indian youth. The myth of IT and the glamour if private jobs are all history now. Now in an age of pink slips and mounting recession, the Indian Youth is once again looking in public sectors for jobs.
An Opportunity in Disguise
With every dark cloud comes a silver lining. This recession as a huge opportunity for India to rebuild itself in the eyes of the world: Some of the Opportunities are * Dropping commodity prices, like steel and cement, ensure that construction costs are sure to go down. This should definitely help in making infrastructure and construction more viable * Crude prices are falling, and this means that if the prices of petrol and diesel are cut in India, we could see a drop in inflation as well * There is a distinct Indian middle class which is growing to be a powerful spending force. Indian companies who have focused on the west can now focus inwards, hence contributing to productivity and prosperity. * Recession is a great time to undo the mistakes of the past. The costs of land will fall, and industries can acquire large chunks for industrialization. Costs of imported coal will stabilize, and Indian power companies can generate much more. The supply crunch in various commodities is likely to get eased over the next few months. * Elections were on the way. So the Approvals for power plants and infra projects are likely to be speeded up. This influx of money into the economy is likely to have a multiplier effect on the economy * Global M&A: Indian companies can acquire companies worldwide very cheap, and turn them around using Indian marwari and bania management philosophies. By the time the cycle turns, India can be at the head of the pack * New avenues: Green is a new $50 billion opportunity. Recession always makes industries look for new ways to make money. Green will definitely get on top of the priority list for several companies, and that will help the country (likely to be the third biggest polluter by the end of this year) * Repatriation: Indians across the world will sense the building of a new story. Talent will come back to India. They will grow in hundreds of our new futuristic communities and SEZs. New and cultured India will bloom The 3 N's: Nuclear power, Narendra Modi and the Nano - All three will bloom over the next two years, changing the face of India along with them. Despite all this, growth might slow down. India should cash on these
opportunities for better growth and development. However, we should view this as an opportunity to build our base, such that when the economy turns, we would be in a position to really be then next China
Marketing Strategies to Battle the Recession
The fear of a recession looms over the United States. And as the obvious remark goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. With new uncertainties raised by the attacks and many economists forecasting a deep and prolonged recession, businesses will have to do everything within their power to brace for the coming storm and survive the bad times
* Focus on core business
All companies should focus on their core competencies during turbulent economic times. Companies who did diversify and split focus away from their core competencies often struggled to manage their unrelated businesses whereas companies that remained focused, or re-focused on their core created opportunities to gain market share more easily from their competitors.
* Improved process and efficiency
A common theme among the companies is the process by which they implemented their strategy during recessions. It is logical that process efficiencies will be sought to trim costs from budgets during a recession. All the companies should have the flexibility and must be fast action oriented as these are the key to surviving and prospering during recession. Flexibility will allow the business to implement their recession strategies quicker than competitors. In some cases horizontal management structures will also directly attribute to the speed with which companies were able to integrate acquired businesses successfully.
Most companies should divest parts of their business during recessionary periods. At face value these divestments will be a part of a strategy of cutting costs and/or generating short term liquidity, particularly where less profitable divisions were divested. For the companies, divestment is primarily used to raise cash to service debt and fund further investment. However it is important to note that most divestitures to be made must be of divisions that are not in-line with the company's long term strategic view, or differed from the company's core-business. * Contingency
Companies should actively plan alternative strategies for adverse times well in advance of them occurring. This is important as it demonstrates it is never too late to act, as these companies will survive turbulent times despite having no specific plan for the recession. However, in all cases when the downturn hit, the companies quickly assembled a plan and put in place a strategy for dealing with adverse conditions. * Acquisitions
and strategic alliances
There are several reasons why acquisition of competing or allied businesses is seen as a good strategy by some companies in a period of economic downturn. The 'entry price' is likely to be lower than at other times as businesses are sold under stress or to liquidate assets. This means that companies can purchase targets that may otherwise have been out of their reach. There may also be less competition for acquisition targets because few companies make available the resources to make acquisitions during periods of economic stress. Sometimes businesses become available for acquisition that has previously been unattainable, as they struggle to deal with a downturn. * Increased
advertising and marketing
One of the biggest mistakes business owners make during periods of economic slowdown is to cut back on marketing and advertising, doing this could be most detrimental to their business .Advertising was used effectively by these companies to help weather downturns and strengthen demand for their core products. Instead, the marketing needs to be more aggressive and more comprehensive than ever. One should start by contacting past clients and simply touching base. Chances are a good number of them will have projects or assignments for which the company's services may be required.
The companies should use R&D to meet the increasingly diverse needs of their recessionary customers who seek greater value from their spending. Most companies should also try to increase their speed to market with new products to gain advantage over their competition. They must do this by prioritizing development of the most promising products that met the immediate needs of their customers. * Human
Finally, make sure that one has the right folks for the job. As much as possible, the company should get everybody in the team to think lean. Extravagance becomes a luxury, and one can't simply splash advertisements ad infinitum like there is no tomorrow. One should be constantly re-evaluating not just the marketing plan, but all of the business strategies including policies, pricing, and employee performance. The idea is to eventually be as efficient and effective as possible so the company runs smoothly and profitably. Companies should look closely at the competitors. Talking to business leaders will also help. Experiment. Solicit feedback from the workers and customers. By doing several of these things one will accumulate a wealth of knowledge and experience crucial to the survival of your business.
In the globalize market scenario, the impact of recession at one place/ industry/ sector percolate down to all the linked industry and this can be truly interpreted from the current market situation which is faced by the world. Whether a global recession occurs or not, there will be people whose businesses go under simply because of the speculation about a recession. It's incredibly sad but it's a fact and it's happened all throughout history whenever the economy has faltered. These recession strategies won't turn the business around when used independently, but if we combine several of them, they can help to transform one's outlook for the future. This recession have turned down the growth process and have set the minds of many for finding out the real solution to sustain the economic growth and stability of the market which is desired for the smooth running of the economy.
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