What Should Corporates and Business Leaders do in Low Growth and Recessionary Times
The World Economy is in a Perfect Storm of Economic Events
The world economy is stagnating and while the stock market is booming, the real economy that consists of manufacturing and agriculture is in dire straits.
While the United States is being nudged towards recession due to the effects of the US-China Trade War, Europe, and Germany in particular are suffering due to fall in exports and loss of competitiveness.
Even China, which for long has been the Bellwether for the Global Economy appears to be slowing down.
And, who can leave out India, the Elephant in the Room that is in the throes of a serious and severe recession with growth barely above 5%.
Indeed, one can go as far as to say that what the world economy is now going through is the culmination of several trends resulting in a Perfect Storm of events that threaten to derail the recovery in the aftermath of the Great Recession.
Thus, corporates and businesses have to contend with not only falling demand but also extreme levels of Debt and too much inventory which is leading to plant closures and bankruptcies.
In this context, one can very well ask what business leaders should do in the face of such extreme macro and micro economic conditions.
What Should Corporates do During Low Growth and Recessionary Times
To start with, it is the practice in Free Market and Capitalist Economies for corporates to downsize and layoff the workers in bad times.
Indeed, one of the cornerstones of capitalism is that businesses can hire when the times are good and fire workers when the times are bad.
This is what is happening in India where from the mighty Automotive firms to the Biscuit makers are all laying off workers by the thousands.
While India cannot yet be classified as a completely Free Market Economy, nonetheless, there are indications that India Inc. is now aping the West when it comes to business strategies during recessions.
In addition, corporates are also cutting down on costs in the form of perks and bonuses for their employees.
For instance, many Indian and Multinational firms are withdrawing the transport facilities for their employees as well as giving minimal salary hikes.
Indeed, across the board, the pay hikes this year have been mostly single digit if at all they have been given.
Moreover, many firms are also withholding bonuses to their employees so that they save on such costs.
There are Other Ways to Ride the Recession
Having said that, it must also be mentioned that downsizing and cutting slack by targeting the employees and the workers is not the only way out for corporates during recessionary times. There are other ways as well and these include spending some of the cash hoards that many corporates have.
For instance, Infosys is sitting on a huge cash pile and it can very well use some of those reserves to pump it into the business without laying off or downsizing.
In addition, corporates can also reduce their debt burdens so that debt servicing costs come down.
For instance, Reliance led by Mukesh Ambani is aiming to be a Zero Net Debt company in two years times.
Apart from this, business leaders can also lobby the government for tax breaks and supply side stimuli to ensure that they remain in business.
This is already happening in India and elsewhere where the Governments are stepping in and providing corporates with generous incentives to lower prices as well as trying to stimulate demand by cutting interest rates. The point here is that it is always not the case that employees should bear the brunt of the recession and that there are other ways and strategies that can be pursued.
Managing Internal Dynamics by People Centric HRM Policies and Tough Messages
On the other hand, turning to the Internal Dynamics within the firms, it is necessary for Business Leaders to take their employees into confidence and ensure that they work together to Ride the Recession.
Indeed, in this context, even the Human Resources Managers have to get involved in communicating the message that Shape Up or Ship Out or get your act together or face the consequences.
In other words, there needs to be a message sent to the entire workforce that if they have to retain their jobs, they must work beyond their normal and moreover, they must work with the interests of the company in mind.
In addition, business leaders can adopt technology in a big way to ensure that efficiencies from economies of scale and synergies from integration make up for loss of revenues by lowering the costs associated with doing business.
Therefore, there are many strategies that businesses can adopt that are both People Friendly and at the same time, tough enough to make them work harder and in a more efficient manner.
Already some business leaders such as Anand Mahindra are employing these strategies in their firms now.
Conclusion
Last, recessions and downturns are part and parcel of the game and hence, there is no need for corporates and business leaders to panic over them.
At the same time, there is also no reason for them to be complacent either. Thus, a mix of strong medicine and some sugar to sweeten the bitter pill are needed if corporates and businesses have to survive the bad economic conditions.
To conclude, tough times don’t last and only tough people do and hence, it is better for everyone, whether leaders or employees to pull up their socks and tighten their belts now.
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