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A few facts

A few facts. Worst downturn in UK since 1921 Worst downturn in most western countries since 1929 Worst downturn in world trade since 1945 (-12.3%!!) Most decisive counter-cyclical government action ever (which is why unemployment in the West isn’t sky-high). A few themes.

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A few facts

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  1. A few facts • Worst downturn in UK since 1921 • Worst downturn in most western countries since 1929 • Worst downturn in world trade since 1945 (-12.3%!!) • Most decisive counter-cyclical government action ever (which is why unemployment in the West isn’t sky-high)

  2. A few themes • UK recession or world recession? • Prepare for the recession or prepare for a recession? • Evaluating the unpredictability of the events (expectations changed so quickly) • The special characteristics of this recession – govt intervention & the aftermath; and the banking crisis/’Crunch’

  3. 1929-1930 v Jan-Apr 08-09

  4. 1929-1930 v Jan-Apr 08-09

  5. Total world output 2009: -22.7% +0.1% -40.1% -28.8%

  6. 135 years of UK boom & slump

  7. Time Line: • Aug 07 Money Markets seize up • Sept 07 Northern Rock collapse • March 08 Bear Stearns collapse • Aug 08 Darling mocked for ‘60 yrs’; BoE rate: 5% • Sept 08 Lehman Bros collapse • Oct 08 BoE rate: 4.5% • Nov 08 BoE rate: 3% • Dec 2%; Jan 09 1.5%; Feb 1%; Mar 0.5%

  8. House prices spark the Crunch Credit Crunch starts

  9. Crunch impact on UK economy

  10. Crunch impact on UK economy

  11. Crunch impact on UK economy

  12. Crunch impact on UK economy

  13. What next? • ‘Easing’ leads to inflation? ... • ... Or will low capacity utilisation keep prices under control? • Will the recession be V-shaped? U-shaped? W-shaped or L-shaped?! • More importantly, is this the end of UK and US indulgence, as power and wealth moves East?

  14. Quick Test on the U4 Exam • How many minutes? • How many marks? • What % of marks for evaluation? • How many is that per essay? • Outline one conclusion you can draw from the above.

  15. Quick Test on the U4 Exam • How many minutes? 105 • How many marks? 80 • What % of marks for evaluation? 35% • How many is that per essay? 14 ! • Outline one conclusion you can draw from the above. A) Need–and have time–to plan B) Pause for thought before conclusions

  16. Recession, Business & Strategy

  17. The most common business response to recession – cut stocks 1980-82 recession 1990-92 recession 2009 recession

  18. Next most common – cut investment spending

  19. Downturn in Business Investment spending Q2 1989 Q2 2007 Q3 2009

  20. World Economic downturn is a key factor in ‘Britain’s recession’

  21. Waitrose struggles at the start

  22. Waitrose struggles at the start

  23. Waitrose triumphs in recession Essentials launched 09 Online free delivery 09

  24. Key Points • Short-term recession plans focus on stocks and discretionary investment • The short-term plans may go too far (because they are reactions to a downturn with no known bottom) • New long-term strategies may take 9-12 months to emerge, leaving an opportunity for small, nimble companies

  25. Recovery and the Future The Underpinnings of Strategy

  26. The V The U The L or the W The Mountain Sharp recovery; soon back to business as usual Long recession, but full recovery Very long recession, or the dreaded ‘double dip’ The recovery possibilities

  27. Recovery in the East • China looks set to return to +11% in 2010; India to +8% • In 2009 China overtook the US to become the No 1 export market for Japan; in Dec 09, Japan exports to the US were -7%, to EU +1% and to China +43% • ‘Chindia’ is sucking the East out of recession

  28. China – world’s biggest car market

  29. China – world’s biggest car market March 2010 China car sales +67% US: 1.07m China: 1.7m

  30. Growth Potential in the East

  31. Tougher in the West • U.S. growth perhaps 2.5% • EU growth perhaps 1.5% • IMF forecast: 2010 2011 • Advanced economies 2.1% 2.4% • Emerging/developing 6.0% 6.3% • United Kingdom 1.3% 2.7%

  32. Strategic Options for UK firms • Focus on Britain, to rebuild a strong core in existing sectors • Focus on Britain, but rethink the new future (what will be the new trends?) • Focus on the growth markets: • either the existing ones (China and India) • or the next wave, e.g. Vietnam, Cambodia and sub-Saharan Africa

  33. Focus on the core • In tough times and with an uncertain future, it may seem sensible to ‘stick to the knitting’ … • … Asda could focus even more on price; Paul Smith become more British than ever; and Harrods remain a shop to aspire to, rather than visit regularly • It worked before, so it’ll work again

  34. Rethink the new future • If recovery sets in fully, will all spending revert to 2006/2007 patterns? Or will there be new faves? • Vertu? M&S Food? Stella McCartney? – lost impetus and lost competitiveness? • So should Apple launch a range of £5,000-£10,000 iPhones? And should Tesco relaunch its ‘Finest’ range?

  35. Diversify towards growth • Burberry will increase outlets in China from 44 to 100 in 2010; its Jan 2010 accounts reported AsiaPacific to have sales +18%, with China ‘performing strongly’. • JCB is pushing to increase its presence in China; it has a 50% share of the construction equipment market in India, but only 0.5% in China!

  36. Another Mini-Test • Give two reasons why this recession is ‘special’ • What happened to UK interest rates between August 2008 and December 08? • Identify two short-term plans for businesses at times of recession • Identify one cautious & one bold long-term corporate strategy during this recession

  37. Another Mini-Test • Two reasons why this recession is ‘special’ • Biggest since 1921; big fall in world trade • Interest rates August 2008: 5% Dec: 2% • Two short-term plans: cut stocks; cut discretionary investment, eg co. cars • Cautious strategy: - focus on the core • Bold strategy: go where growth is: Chindia

  38. 1. How the recent recession can create opportunities and threats for businesses and industries • Opportunities: property availability/price, e.g. ShakeAway from 16 – 42 branches; closed competitors, HMV re Woolworths; flexibility (small firms) • Threats: to finances of growing firms, new small firms and firms with high gearing, eg Debenhams; to the survival of marginal businesses, eg Woolworths and many shops/restaurants

  39. 2. The long-term strategies and short-term plans adopted by businesses in the recession • Short-term plans may be drastic, eg. Honda closing all production for 3 months; they may also prove over-reactions, e.g. Tesco’s treatment of suppliers; most common plans: cut stocks and investment • Strategies: a re-think about the future, possibly dramatic, e.g. close down a division or shut down marginal outlets; rethink the purpose and direction of investment spending

  40. 3. Factors influencing the strategies businesses adopt in the recession • Circumstances, e.g. Tesco v Carpetright • Resources (3Ms) • Time horizons: 18 months? 5 years? • Leadership: entrepreneurial or cautious? • Pressures, e.g. Google pulling out of China (external pressure); or the internal pressures on B.A. due to mistrust

  41. 4. Strategies that business could have adopted to prepare for the recession • Contingency planning • It can be argued that ‘the’ recession was not predictable; ‘a’ recession was • All businesses should consider: their dependence on one product or market – and the nature of that product/market; their financial circumstances; the flexibilities they have planned for

  42. 5. The possible impact of the recession on stakeholders and relationships between businesses and their stakeholders • Each stakeholder is affected differently, both in general and specific circumstances; worst off are small/weak suppliers when dealing with big customers, but NB Fairtrade KitKat • Relationships can be strained, eg BA management/staff and Tesco/Boots: business/suppliers; but stakeholder-friendly businesses (Coop/J Lewis) have done OK

  43. 6. The case for and against different businesses/industries receiving govt. financial support during a recession. • For support: to protect the weak/limit the strength of the downside; to protect industries with a good long-term future, but a very tough short-term outlook • Against: better to let the weak die so that stronger firms can thrive; this is what a free market is about; future generations should not be burdened with today’s debts

  44. Final Advice 1. • For all essays: i. plan by brainstorming and then prioritising; ii. develop 3 points on either side of the argument, ie 6 in all • DO NOT fuse together the 4 strategy bullet points, i.e. keep asking yourself: ‘Am I really focusing on bullet 2, not 1-4’ • Whichever bullet points come up, focus on the question rather than the examples

  45. Final Advice 2. • For section B essays, focus on the business in the title to develop your main application marks • For all essays: i. at the end of each para re-read the title; ii. pause for thought before writing your conclusions

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