Dipul Ray | 12 Dec, 2008
With the wrecking ball of recession battering the world economy, Indian small and medium businesses (SMEs) have started cowering in bunkers. They have stopped talking about growth; its mention now seems to generate a cynical smirk.
Yeah, businesses are facing great difficulties everywhere. The world's strongest economies like the US, Japan and Germany have already sunk into recession while many others are just on the verge of an economic doom. Some of the world's biggest business lions are lying on deathbeds while thousands of SMEs from all over the world have already taken rest in their coffins!
In India too, the situation seems not to so well as everyone is harping on the fear of a would-be recession and our policy makers are warning that the impact of a global slowdown could be more severe in coming days. Already, some industrial sectors like real estate, IT and textiles have started feeling the heat of a slowdown.
Then, why shouldn't our SMEs panic?
Firstly, it is because recessions kill fewer dreams than depression does. Businesses, especially SMEs which are usually the first to be caught by the horripilation of getting killed even when a plastic bullet of recession hits their ear, need to react to the current recession in positive and well planned manner. They need to fight back but it should not be a crazy war.
Secondly, the problem about recession is that it's not so easy to tell if you are really in one. Of course, a business need not to be an expert to notice that everything seems to cost more these days, sales are decreasing and export orders are shrinking and the government is talking about stimulus packages and other band-aid support measures like never before. But these are nothing but some immature symptoms of a 'coming recession' and sending out warning signals too early can harm consumer psychology to a dangerous extent which will turn the fears of recession into a reality.
Now how SMEs react after persuading themselves to think that a recession is looming?
SYMPTOM ONE - all go crazy
First of all, they start behaving like they are going to loss everything that they have accumulated over the last so many years. Depression starts killing their confidence slowly and they stop looking for growth opportunities, advertising and promotion, R&D and new markets.
Cost cutting becomes the prime importance and they start counting how many air conditioners are there in the office, what the employees are doing. The top management becomes very active all of a sudden to advice stop recruiting and cancel legitimate benefits while the HR team starts behaving like a spoiled Sherlock Holmes to find out 'under-performing' and 'cannot-be-trusted' employees.
And when all such measures fails as they are always to be, finally it is to embrace the darling baby of every recession hit (or 'would-be-recession-hit') company - layoff - cutting cost by striking out employees from the payroll.
SYMPTOM TWO - confusion in the air
Let's see how a famous marketing expert opines about the effects of recession on most of our businesses. When fear of a non-existing recession starts engulfing them, most companies try to exude confidence that their company will be okay (so as not to frighten employees).
Employees start making a fuss over the situation and the crisis starts to negatively impact the employees because of the feeling of job insecurity. And they start to look for alternatives. Therefore, at this stage the employer has to make sure employees feel secure by making them feel wanted and maintaining transparency.
An organization must facilitate meeting with employees as bridging together seniors and juniors is always very reassuring. It is the top management that should batter down the hatches by letting stuff know their contingency plan and treating them like partners.
SYMPTOM THREE - hasty layoff
Sometimes, layoff seems to be a good option to cut cost, but it is certainly not the best option while the world is closely looking at you, and at least not before you establish a proper monitoring system to identify who and which are the real non-performing assets in your company. Laying off even the best idiot in your company right at this moment will frighten other employees and kill their confidence on the employer.
Keep in mind that recessions typically last less than a year and therefore any short term wage saving obtained from a hasty layoff can never be a wise option to fight back. Winners will be those who now double their efforts to get people on the street and pick up some abandoned gems. If you dare not do that, doing the opposite can still be avoided. Don't blindly follow the big brothers who can cut jobs in thousands and still can manage to smile with pride.
Nobody can tell what awaits your business just yet. Go through any article talking about the possibility of a recession and do not be surprised to find that it ends with a Shakespearean 'to be or not be' note. So how should SMEs react at this moment of sheer uncertainty?
It is better to be safe than sorry later. So take measured steps - organize your records so that it becomes easier to forecast future growth, prepare a cash flow projection for the next 12 months, boost your advertising campaigns, dare to invest in R&D activities.... but STOP OVERREACTING.
(The author is a freelance writer. The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.)