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Using the slowdown to succeed

By Arvind Singhal
March 12, 2009 17:40 IST
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There is no doubt anymore that the world economy has never seen the kind of turbulence and the all-around collapse of stability, not to mention the collapse of prospects of growth in the near future, as we are seeing today. All the G-7 nations, and then many more of the other developed nations, are simultaneously poised to register a negative growth of GDP. In fact, of all the major economies, China and India are the two that are still likely to post 5 per cent or higher growth in 2009 and 2010.

Internationally, the collateral damage from this contagion is no longer confined to the financial services institutions and the real estate sector only. The manufacturing sector has been the next to be impacted with shrinking or even a virtual collapse of user demand.

This impact on the manufacturing sector is even pronounced on those countries that have a very high dependence on exports including China, Korea, Taiwan, and even Japan. As we also now know, the world economy is much more interlinked than what mere trade and capital flow movements may have indicated till some time ago, and hence it is a matter time before every other sector of economic activity across the world starts feeling the impact of these crises.

Having said this, while most of the developed world is fully occupied with fighting current and new fires, India and Indian businesses still have the luxury of thinking about building for the future. The Indian financial services system has been tested hard but still seems to be in relatively good health and seems to be functional. There is adequate liquidity available in the market for day-to-day running of most businesses, and there is some availability still of risk capital and equity capital to fund new businesses too.

There may be some uncertainty on the political front but it must be also kept in mind that India has now seen coalition governments both at the Centre as well as in states for many years now, and there is no reason to despair too much on account of which coalition comes to power in May this year. The country will still be governed if not optimally, and the economy will certainly occupy the highest attention of the ruling coalition irrespective of its ideology.

Indian businesses should see this global meltdown and its collateral damage in India on their own businesses in a pragmatic way. It starts with the acceptance of the reality that their businesses have suffered or are suffering damage already and some more damage may yet be in store.

Once this reality has been accepted, and whatever measures that can still be taken to minimise this damage are still being taken, the business leadership must urgently get down to the task of thinking about the future. If they believe in India's future, then the task of building (or rebuilding) a business for that future should be an encouraging and exciting one.

This encouragement comes from many oft-stated but still fundamentally valid reasons including the overall composition of the Indian economy, its demographic dividend potential, the pent-up internal demand for extraordinary levels of economic activity be it relate to physical or social infrastructure, housing, agriculture and agro businesses and a complete array of consumer goods and services.

Building from scratch, or rebuilding extensively damaged structures, allows the luxury of building businesses for the future. This should be seen as India's more alluring opportunity. With the end user demand potential within India for just about every category of goods and services still very enticing, businesses and new entrepreneurs should take the current pause in an otherwise frenetic business life to reflect on what the current and emerging needs of Indian consumers and customers are. Many Indian businesses expound the virtue of being customer-driven but very few have built customer-centric businesses. This would be as good a time as anytime in the future to do so.

With customer acquisition becoming increasingly harder for companies across the world, and collaboration and strategic alliances no longer anathema to anyone, Indian businesses should give a completely new look as to which link or links of the value chain they would like to directly get involved in and which they would like to outsource or manage through strategic alliances. Many Indian businesses are too vertically integrated -- this would be a good opportunity to reflect hard and objectively to then decide where they should compete in the future, eg marketing (including branding), distribution, manufacturing or product design. 

Lastly, this rebuilding effort must be undertaken after a very hard look has been given on the fundamental cost structures of that business. Many Indian companies had become very profligate in recent years on account of easy availability of capital and a rapidly growing market. Relocating factories and administrative offices beyond the top-12 or top-20 cities, investing in hiring fresh recruits and then training on the job, energy-efficient buildings and operations, and allocating higher research budgets for manufacturing efficiencies are some areas of opportunity that must be explored vigorously.

In short, the business strategy should no longer just be to preserve but to rebuild or build from scratch.

The writer can be contacted at arvind.singhal@technopak.com
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