Managing businesses during industry and economic downturns
Market Analyst Food Products
Economic downturns in many parts of the world would be the worst
nightmare of business managers and this situation is no different in Sri
Lanka as well.
In all our business progressions in today’s context, attention to
economic elements such as inflation, interest rates and business-cycle
evolution lie at the heart of all of us in the businesses either
manufacturing, exporting or any other business strategy.
There is an universally accepted truth that, today’s a well thought
and successfully executed business strategy can easily become tomorrow’s
lethal poison if we fail to understand the changing conditions locally
as well as internationally.
This, incidentally is the worry of most businesses today and the
majority of us still fail to see through the basic problems involved,
like lack of understanding the market changes during the last couple of
years or so and looking at the life cycle of the products and services
they sell, checking for their suitability with the changing environment,
trading practices for generations and resort to short-term profit
maximising steps which are mostly operational in nature.
When businesses experience a slower growth, one is a witness to total
output, income, employment, and trade exhibiting chronic slow growth for
a year or more.
The strongest symptom looked at by businesses is a stagnation or even
a decline of turnovers over a series of quarters across diverse sectors.
The existing industry downturn and economic recession can be the
worst nightmare, more so in these times of globalisation when markets
Marketing of products and services during the economic slowdown
During an economic downturn, several companies have difficulty
identifying future growth opportunities because of uncertainties about
business environment, macro-environmental variables and future trends in
other businesses, especially those with which they have linkages.
Since the available opportunities and changing factors show extreme
volatility, businesses adopt a “wait and watch” policy rather than
making any efforts to convert the present situation to an absolute
opportunity which no doubt might have long-term implications.
As a result of this, most strategic decisions are put on hold.
Consequently, when the situation improves, the company might not quite
have the flexibility or agility to make speedy moves.
Strategic planning for downturns
The problems faced by companies during a downturn can be classified
as either strategic or operational.
Most decision makers and businesses (entrepreneurs) mistakenly view
the downturn as a short-term event and prefer to address operational
issues rather than strategic ones. What we might ideally emphasize is
that a business can continue to reap profits during slowdowns if its
strategy is formulated to account for the possibility of a future
For example, currently we are facing a severe shortage of coconuts as
a raw material for manufacturing in this country and this crisis is not
new to our manufacturers as every other five years Sri Lanka goes
through this situation but unfortunately how many of our Companies or
the governing institutions in the coconut industry have realised the
gravity of the current situation and introduced and implemented any
It’s all evident that most of our businesses refuse to see beyond the
current task-oriented environment. They should instead stop to evaluate
economic elements such as inflation, interest rates and business cycle
progressions and formulate a strategy that prepares the business for any
tough times ahead.
While the existing strategy may work fine at that point of time, its
effectiveness under adverse circumstances should also be examined before
deciding on whether to alter it. A prescription for today’s success can
easily become tomorrow’s poison if the changing conditions are not
What happens to those businesses that had not earlier formulated a
strategy for handling industry or economic downturns and find themselves
in the middle of one such disastrous situation? What can the management
do knowing that once a major decision is taken, there may not be a
Move into the new environment
If a firm finds its core products losing their markets during a
downturn, then it can try to identify new markets or segments into which
it can move.
Since building a business from scratch is a painstaking process,
mergers, strategic partnerships with established players is a quicker
method of achieving this target. Intelligent managements, in fact, use
downturns as opportunities to expand into other sectors where core
competencies can be built.
Well focused businesses and their core managerial teams should build
the ability to anticipate the beginning of an economic and industry
downturn by keeping an eye on the indicators by way of understanding the
simple basics such as raw material supply, demand and supply situation
in the industry, new opportunities and marketing of their products and
National economic indicators are important, but by the time they
point to a recession, it has already begun.
The more important signs are found at the business level. Have
collections slowed? Are lenders becoming more interested in the firms
financial standing? Are customers ordering less than usual?
To be continued