September 22, 2010

Strategic alternatives for Slowdown period

The slowdown in the advanced economies of the world led by USA has had ripple effect in the global
integrated world.The US seems to be struggling to shrug off the impact of poor economic performance.This scenario directly has a bearing on the global trade hurting the economies of the countries & companies dependent upon the US market. China’s manufacturing engine has corrected  its course to serve the internal consumption but same does not hold true for Japan who has been bitten sharply by fall in exports.

Indian IT sector has been hit too as the Americans have begun talking in terms of protecting their labor market & so on. So what are the strategic choices available to Indian IT players?  Let’s understand that strategic alternatives are a product of resource base of an organization. A cash strapped company would have no wait & watch choice in these turbulent times. Lets us examine what an organization can do to tide off the crisis successfully. Before we enlist the choice lets understand that selection of alternatives depends on two major factors; the size of the company and the state of the slow down period.

Size (resourses) of the company would determine the availability of strategic choices in front of the company. Generally conventional wisdom would suggest that you must keep on the established course whatever the state of the demand is. It could hold true for already factored in & expected fluctuations in the demand curve but a skewed number must get the special attention it deserves. The market share of the company must be taken into consideration before chartering a new path.

Second important factor is the state of the slowdown itself. You need to figure out if the slow down period of economy is at the beginning phase, middle or in the ultimate stage. By any stretch of imagination the present crisis do not seem to have reached the final stage though Ben & Barack would want it to be so. US economic data & consumer confidence do not allay our worst fears. Let’s hope President Obama injects the economy a second time with much needed funds.

Therefore if your business has been hit by slowdown, you have following three choices:
1.    Focus on domestic market & lower the revenue projections
2.    Vigorously look for new international orders at lower margins
3.    Invest more in marketing and retain margins
4.    Wait for the good tide & reposition the company

Most traditional companies would go for the first alternative as this looks appealing on the face of it. Others led by dreamer CEOs would go for the second alternative. Third alternative would appeal to those organizations that have a strong need to keep the order books flowing over. And the alternative number four would suit to large corporate that have high liquidity. What’s your choice? Future is always uncertain and most things in the universe are spherical, therefore the chances of recurrence of a phenomenon are always positive. 

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