New Zealand Trade and Enterprise study reveals rules for riding out recession
A recent study by New Zealand Trade and Enterprise (NZTE) has emphasised seven principles for riding out the recession based on research into the actions of 13 successful and globally competitive companies, all of which have been Global Fortune 500 companies during at least three recessions.
The NZTE study identified seven key strategies to survive through a recession including focus on core business; trimming costs through process efficiencies; strategic divestment; contingency planning; acquisitions and strategic alliances; increased advertising and marketing; and strong focus on research and development.
The study was conducted with well-known multi-national companies including 3M Corporation; Arrow Electronics; Cisco Systems Inc; The Coca-Cola Company; Emerson Electric Company; General Electric; IBM; Johnson and Johnson; Procter and Gamble; Toyota; Shell; Xerox and Wal-Mart.
Wayne Mikkelsen, New Zealand Trade and Enterprise’s Trade Commissioner to the Middle East, said: “The research findings are relevant to New Zealand companies operating in the Middle East, and will naturally be relevant to many local companies who are facing up to the challenging economic environment.
"With a population of 4.5 million and GDP of USD116 billion, New Zealand reacts quickly to economic change and its businesses are typically very flexible in adopting new approaches in order to address situations such as the current downturn,” he said. “This experience brings valuable insight to other economies such as those in the GCC, with whom we share an innovative, entrepreneurial, and creative spirit.
“As a national economic development agency, NZTE is committed to the growth of New Zealand businesses globally and the promotion of international trade. This research study was conducted for the benefit of all markets and provides invaluable free and independent advice, wherever a company operates.”
The study highlighted that while a decline in the economy increases risks for companies it also provides opportunities to increase competitive advantage, profitability and growth, using the right strategies and approaches.
Tim Gibson, CEO of NZTE, commented that the current recession is a game changing event for businesses worldwide. “The certainties of the last few years easy credit, rising asset values and strong global demand for products and services – have gone. All businesses need to adjust to this reality, but the clever and courageous ones are also spotting new gaps in their opponents’ defenses and making a break for it. The companies we looked at, all increased growth and profitability during recessions or the following recovery periods because of the choices they made when times were toughest.”
According to the research findings, companies should focus on core business to create opportunities to gain market share from competitors who diversify and split focus. They must be flexible and take fast action when executing recession strategies such as trimming costs through process efficiencies or correcting bad past decisions. Companies should shred non-core operations to improve liquidity and/or focus on the core strategy. Operating non-core business splits both focus and resources.
It is never too late to prepare for a downturn; companies should assemble a plan and put in place a strategy for dealing with adverse conditions well in advance. This could include formal scenario planning or careful structuring of the business to maximise resiliency.
Acquisitions and strategic alliances help strengthen, re-focus and position the company for increased growth and profitability. Prices are likely to be lower and there may be less competition for acquisition targets. Acquisitions can also help accelerate access to new markets, products, technologies, customers and talent.
The research pointed out the benefits of increased advertising and marketing to increase market share and take advantage of greater advertising reach, possibly at more competitive rates. It is also important to invest in research and development activities to create new value in core products and services to sway recessionary customers. New product releases can have greater impact in a downturn as competitors are slower to counter with a ‘me-too’ offering.
Gibson added: “Businesses should think cautiously in the short term but be ambitious and plan for the long term. There is no doubt that times are increasingly tough, but to survive, businesses have to look to the future.”
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