RECESSION A WAY AHEAD

Presented by: Tania Mengi Assistant Professor RIMT-IMCT Mandi Gobindgarh

ABSTRACT
A slow down in the economy is what we call recession. The economy witnessed the same by the end of 2008. Its root cause was the subprime loans given to the people. It started from USA and soon almost whole of the world was hit by the same. But since the business of the business is to do business, they need to find the ways to work effectively and efficiently even in the tough times of recession. This research paper tries to find out the strategies followed by various companies during the time of recession which helped them to move ahead.

INTRODUCTION
Fall in Gross Domestic Product (GDP), employment rate, investment spending, household incomes, business profits, crash in stock markets, and rise in bankruptcies. If these things are prevailing in the economy then say hello to recession, or an economic slow down, or a depression depending on which part of the world you are and how badly you have been hit. End of 2008 also saw the same which had impact on the whole world.

REASON FOR RECESSION 2008

When we enquire the background of this recession, it can be seen that the roots grew first in U S A. It all began with the one and all American dream, that every American should have a home. Regardless of whom you are and what you do, if you are an American, you should have something called a home. Real Estate business was in a boom. A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fueled the home

prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions. Since almost everybody was driving by the greed factor during that housing boom period, the common practice of checking the customers repaying capacity was ignored in many cases. As a result, many people with low income & bad credit history were given housing loans. These types of loans were known as sub-prime loans as those were are not part of prime loan market (as the repaying capacity of the borrowers was doubtful). With stock markets booming and the system flush with liquidity, many big fund investors like hedge funds and mutual funds saw subprime loan portfolios as attractive investment opportunities. Hence, they bought such portfolios and the subprime loan market thus became a fast growing segment. However, as the saying goes, No boom lasts forever, the housing bubble was to burst eventually. Overbuilding of houses during the boom period finally led to a surplus inventory of homes, causing home prices to decline. The properties which were mortgaged by the clients werent even covering the principal amount of the loan. The borrowers were now unable to pay the interest and principal amount and thus began to default on loans. The credit offered to the people in indiscriminate fashion, achieving short term goals and ignoring warnings from leading economists about long term sustainability of the policy, backfired completely and companies like Lehmann Brothers, Merill Lynch, Freddie Mac and Fannie Maes bad assets reached magnanimous proportions. The heat due to the burst of the above housing bubble was felt throughout the world. This is so because due to increased Globalization the world has become like a village and no market can remain isolated. If there is a systematic problem in one or the other markets, then no matter how strong your fundamentals are, the whole world would be affected. Thus India was also impacted by the recession that started in U.S.A. The debate, therefore, can only be on the extent of impact and how resilient India is to withstand the storm with minimal damage.

IMPACT OF RECESSION ON INDIA

The recession was a matter of concern for India because companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. But due to the recession a slip of 28% in exports was recorded in June, 2009. Indian textile industry suffered huge losses due to decline in the exports. This is so because approximately, 60% of the total garments manufactured in India are exported to foreign markets like EU, US, and Japan, generating revenue of up to US$ 52 billion. Due to economic downturn there was decline in the garment sales in US and Indian suppliers felt the pinch of the same. This led to an increase in unemployment also because the textile industry is the second largest employer in India. The employment rate in other sectors also decreased because there was a significant drop in the new hiring. Some companies even laid off their employees and there was cut in promotions, compensation and perks of the employees. A decline in the tourist inflow was also noticed due to recession. The real estate had problem of tight liquidity situations, where the developers were finding it hard to raise finances. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries suffered heavy loss due to the fall down of global economy.

STRATEGIES FOLLOWED TO DEAL WITH RECESSION 2008

Talking about the losses alone would not work. The matter that needs to be focused is that what strategies the companies need to follow to recover from the recession. The ones those who are in business need not to sit idle and wait for the rough time to pass. Instead they need to see what is happening, analyze the situation and frame the strategies that fit into that particular situation. The same was done during recession by various top companies in India. The research paper tries to find out those strategies and they are listed below:

(i) Reduction in Cost

The main factor that needs to be taken into consideration during recession is the reduction in cost. The companies need to revisit all their costs and try to find out ways for reducing the same. For example Pantaloon Retail tried to reduce its fixed cost of rent by collaborating with mall owners and moving from a fixed cost rental to a revenue sharing model resulting in a saving of 0.6% of sales. Also they divided their employees into four categories. The categories were: RAMA, KRISHNA, DURYODHNA and RAVANA. In the Rama category were the employees who follow the company rules, Krishnas were the ones who do not follow all the rules, but work in the interest of the company. Ravanas were those who have their own rules and follow them whereas, Duryodhanas have no rules and follow none. The objective of the company was to turn all the employees into first two kinds. The company was able to do lots of cost saving due to this exercise. The same opinion regarding the reduction in cost was shared by Mr. Azim Premji, Chairman Wipro Limited. He emphasized that the downturn is the time to refocus on innovation and improving cost & process efficiencies. According to him in the time of downturn a company needs to optimize the resources and be the best cost partner.

(ii) Reorient the strategy as per the Economic Reality

People at Maruti Suzuki tried to read the shifting wind. They focused on what they can do in the changing environment and take advantage of it. Another example which can be taken into consideration is of ICICI Bank. Among all the banks in India, ICICI was the bank which suffered maximum losses. So the need of the hour was to reorient the strategies. Thus the bank tried to bring down their retail exposure, particularly of unsecured loans. Earlier the exposure was 9% of their total advances and it was reduced to 7%. Also there was change in the approach to branches. Branches were made the focal point for customer relationships, both retail as well as corporate.

(iii) Managing Employee Expectations

Another factor that needs to be focused during the time of downturn is managing employee expectations. Employees are the main assets of the organization and during the recession period it becomes tougher to keep the employee morale high as they are grappling with uncertainty regarding their job. It is therefore important to take steps that would help to motivate the employees. If the companies are able to do so then their battle is half won. At Marico, the management tried to create a sense of ownership among their employees. They were not treated as hired soldiers, but Generals. Thus they were not fighting the tough times for someone else, but for themselves and their organization. During the tough times, Samsung priority was also to keep their employees morale high. They wanted the employees to feel secure, confident and involved. For this they decided to let their each business head share with all the employees their units performance during employee meet. This kept the employees engaged and they had a sense of belongingness towards the organization. Vineet Nayar, CEO, HCL Technologies believes that in any industry, the core is made of employees and the fabric of trust between the employees and the management is what makes good companies great. Thus during the time of recession he met all his employees which demonstrated his commitment of fair behavior and employee centricity. This acted as a competitive advantage for the company.

(iv) Be Innovative
Recession is also accompanied by lower consumer sentiments. But in difficult times it is even more critical to be customer centric. Slowdown should be used to sharpen the understanding of customers and accordingly invest in new projects and do new innovations. Larsen & Toubro in the times of recession expanded their international footprint. Investments worth $1.5 billion in areas like shipyards, heavy engineering and power equipment were made. Similarly Samsung launched LED TVs in the times of recession

with a lot of fanfare. They advertised heavily, held dealer meets because they wanted the customers to feel the excitement of LED TVs launch and they succeeded in doing so. It compelled the customers to come and buy their product. The same strategy was opted by Nokia during the recession. Spending more on marketing and doing more innovation helped Nokia through the downturn. They regrouped all their investments behind the brand and did not cut down their marketing efforts even in the times of recession.

CONCLUSION
Thus it depends on the individual and companies whether to let the downturn break their pace or just knock them off and keep running. In tough times it is easy to follow the majority and be conservative, but the ones who take calculated risk and take the downturn as an opportunity become the leaders. The companies should look at the constraints as the framework in which they can do new innovations. The ones who realize that the situation of recession is not going to last forever and keep on going even in bad times reach the new heights of success.

REFERENCES
Business Today, Volume 19. No.1, January 10, 2010
http://www.moneyweek.com/news-and-charts/economics/three-reasons-whythe-us-faces-recession-in-2008 http://theeconomicrecession.blogspot.com/2009/01/economic-recession-in2008-causes.html http://www.fibre2fashion.com/industry-article/17/1658/recessioncannibalizes-more-indian-textile-jobs1.asp http://www.imd.org/research/challenges/upload/TC101_how_to_deal_with_rec ession.pdf http://www.authorstream.com/Presentation/anantkrazzy-152775-economicrecession-education-ppt-powerpoint/