Surviving the Recession

As the US Recession Looms..

Like a dark cloud over our business plans…. it would be well to pause and consider how to make it go away. Wherever I talk to Indian CEOs, I get the impression they are just crossing their fingers and hoping it goes away by itself. Which it won’t. Even if does this time, it will come and hover over us again, sooner or later..Of course, there is a silver lining even in this cloud - the recession will most likely reduce US consumption, close the current account deficit, and stabilize the dollar.. at a cost.

Will the $700 Billion bailout do the trick? Very unlikely..banks are using the money to make acquisitions, pay bonuses, not make loans. Which was completely predictable.

Cutting interest rates isn’t going to help, either. When financial institutions are afraid to lend and people are afraid to borrow, in what Paul Krugman calls a ‘Crisis of Faith’, fiddling with the Federal Funds rate will be about as effective as Nero’s fiddling was. The engine oil has gotten contaminated this time (for that is what the financial markets really are), and only a complete cleaning out of the engine will help. Which will take time.

Europe is not the answer

One common ploy, not even easy to adopt, really, is to shift focus to European markets rather than the US. Which provides zero diversification, since the European economy runs on pretty much the same engine as the US.

So let us dismiss these easy answers and bend our minds to what an Indian company, acting on its own, can do.

Tighten the Belt?

Always a good thing to do, any company can shed 10% of its cost without any real pain, anyway. This is as good an opportunity as any to remind IT’s so-called ‘knowledge workers’ that 20% raises year after year, for doing the exact same work they did last year, is not the natural order of things. But not everyone has been so lucky, especially in the manufacturing and agricultural sectors, so belt tightening can only go so far.

Risk-Sharing

When our US client is nervous and unwilling to invest, and so puts his own expansion plans on hold, the one thing we can do is propose something different than the tried and tested ‘time and materials’ or even ‘price for guaranteed volumes’ proposition. It may not be enough to point out that outsourcing will save him money – when he is contemplating 100% saving by not launching that expansion or change initiative at all!
We must realize that the client is really not sure, either, whether the recession is for real, and, even if it is, whether it will affect his business, or not. Hedging his bets is what he is contemplating. How can we help him move forward?

Can we offer him a business proposition where we share risk - share in the upside (and downside) rather than simply get a fixed revenue and manage costs (which is all most Indian companies do, even the best of them)?. For instance, IT services company need to start offering customers a fee per user (customer’s customer) or royalty models rather than ’60 man-months to build this system’. If the client does well, we do well. Needless to say, it also means we have to
- learn how to assess the client’s prospects in his market
- learn how to actually help him sell better in his markets
Which means we will have to think like venture capitalists and investors rather than suppliers! Quite a change, but well within our capabilities. We just need to use them.

Build Brands

One great business value of brands is that they are relatively immune to economy-wide downturns. The emotional hold they have on customers is such that they can make the customer forget their hard times when they buy them.

Indian companies have stayed away from building brands abroad because it is enormously expensive to do so. But increasingly, it is within the reach of Indian companies today. If Tata can buy Corus for several billion dollars, surely we can invest in some brand building too. Spending a couple of million dollars on a brand building effort was unthinkable ten years ago, today it is not. It does not take months of negotiation with the RBI to get the funds for such an effort, and access to advertising and marketing companies abroad is not even difficult any more. .So what excuse do we have now? Indeed, companies like Suzlon, Infosys and TVS already have good brands in their markets, without really investing millions in marketing efforts.

In a a way, both solutions really rest on the same principle – partners do better in a downturn than mere suppliers do. It is time to pay more than lip-service to the notion of being ‘preferred partner’.. move it from the corporate ppt to reality!