In a strong economy, it is easy for a businesses to enjoy greater
productivity. Disposable income is high, unemployment is low and consumer
confidence prompts people to pump their money back into the economy through the
purchase of essential and nonessential goods and services. Everyone spends
more. People tend to buy more luxury items. They buy more what they want than
what they need. United States recovery from the last recession has been very
slow.
In United States, over the year, average
hourly earnings rose only 2.1 percent, in line with the same slow growth it’ve
seen for the last six years. And wages for production/non supervisory workers
rose even more slowly, at 1.8 percent over the year. The current median
household income for the United States is $53,657. Real median household income
peaked in 2007 at $57,936 and is now $4,279 (7.39%) lower.
The average American family makes less money
than it did in 2007. That means that after expenses there is less discretionary
money for spending. So there will be less money spent and less money to
disperser among the companies out there. That means there will be more
corporate failures and bankruptcies.
Now, according to experts there are two ways
to handle this. One is short site and is a prevention mode management. You cut
down on cost and expenses, you stop R & D cost and invest nothing more into
the company. Sounds like a good idea during an economic slowdown. However it
has proven to seldom work.
In December 2008 Sony cut cost by 2.6 billion
dollars. It was part of their prevention focused approach to a slower economy.
It closed plants, eliminated 16,000 jobs and delayed any investment in its
electronic division. It got its payroll cost down by 11% and its R & D
cost by 12% and it cut its capital investments by 23%. Now for the good
news, its profit margin went up from 8% to 11%. But if you look carefully,
growth in sales went down from 11% per year to 1%. It has been struggling to
regain its market. Even by adding in R & D it can not rebuild its
momentum.
The recession is not the time to drop out of
the competition. It actually means that it takes more to stay competitive. If
you are looking for the long term benefit of the company, you need to do more
to keep your customers and keep the momentum going during those hard times.
Globovisión, Raúl Gorrín, Raúl Antonio Gorrín,
Seguros La Vitalicia Raúl Gorrín, Medios de comunicación, Venezuela, Gobierno,
Empresarios, Emprendedor,
However, people must also remember that there
is less money to go around. So it is best not to be too aggressive with the
investments during this time period.
Hewlett-Packard during the recession made
large capital investments despite not bringing in the money to cover it and
hard a hard time to recover afterwards. This has been debated as to whether it
was a long term wise decision.
There is no simple answer, but it is best for
each company to find the right mix between some cost cutting and some
investments during the slow times. One has to look forward to the long term
health of the company and stay competitive but it also has to financially
survive those hard days.
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