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How to survive a recession

How to survive a recession. Banishing Bad Thoughts (1958) In Kankakee, Illinois, USA, members of the Chamber of Commerce staged a mock execution of "Old Man Gloom", as part of an effort to rally local spirits. Dig the well before you are thirsty. Chinese proverb.

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How to survive a recession

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  1. How to survive a recession Banishing Bad Thoughts (1958)In Kankakee, Illinois, USA, members of the Chamber of Commerce staged a mock execution of "Old Man Gloom", as part of an effort to rally local spirits.

  2. Dig the well before you are thirsty. Chinese proverb Dig the well before you are thirsty. Chinese proverb Dig the well before you are thirsty. Chinese proverb Dig the well before you are thirsty. Chinese proverb Dig the well before you are thirsty Chinese proverb

  3. Workshop Objective What it is: • Provide key learning on Recessions, case studies, research, examples and practical tips • How to survive difficult economic climate while optimizing the business • USA focused because of historical data • Walk out with few ideas • Interactive • Optimistic What it’s not: • Economist view • Bankers view (BNR) • Not recent as of yesterday • Recession expert’s view • Predictive

  4. Table of Contents Step 1: Stop talking about it ! Recession 101 Historical data Trends to consider Romania survey and findings Recession 101: Key Learning Step 2: Businesses that do well Industries in high demand through a recession Jobs in high demand through a recession Step 3: Cut costs with a scalpel, not a chainsaw Other cost cutting strategies Step 4: Perfect time to plan Segment Management Ideas and trends for your customers Step 5: Over communicate End in sight - Significant events, milestones Outlook

  5. Bank institutions searching for return on investments World liquidity excess Relaxation of loan terms Outburst of debt assignment by banks Abundant credit Quick development of ‘subprime’ credit Accumulation of financial market risks Resale with profit possible in case of loan default Real estate market turns around for the worst More and more subprime loans default Market recognizes presence of loans being assigned Confidence void Liquidity crisis, banks are no longer giving loans between them

  6. Quick development of ‘subprime’ credit Accumulation of financial market risks Real estate market turns around for the worst More and more subprime loans default Market recognizes presence of loans being assigned Confidence void Liquidity crisis, banks are no longer giving loans between them Banks ailing Assets depreciation Bank losses Financial Crisis

  7. Financial Crisis Economy slowing down Increasing of liquidity problems Households having payment difficulties United States stimulus Interest rate fall Refining problems Expansionist budget policy Household payments guarantee Liquidities injection More flexible monetary policy Improved (attractive) fiscal policy Increasing losses for banks

  8. Increasing losses for banks Interbank loan guarantees, Paulson Plan Confidence being further eroded Stock market collapse Households are more and more worried Bankruptcy or near- bankruptcy of financial institutions Speculation Stopping stock market collapse Capital injection, nationalizations Deposit guarantee Coordinated monetary policy State intervention Recession

  9. Step 1: Stop talking about it !Recession 101 Definition USA Vs. Romania Q. Is USA in a recession? A. Yes Q. Is Romania in a recession? Not yet technically, but discussion of ‘Criza’ has stifled everything since: BNR reduced debt /income ratio from 70% to 30% Purchase of homes added VAT Banks changing policies on loans Sub Prime effect in USA affecting global banks and world markets Recession is loosely defined as two consecutive quarters of decline in GDP output. National Bureau of Economic Research(NBER, USA) extensive definition: four main factors as the most important for determining the state of the economy: • Employment • Personal income • Sales volume in manufacturing and retail sectors • Industrial production

  10. Recession 101 Business cycle is made up of four different periods of activity extended over several years. These phases can differ substantially in duration, but are all closely intertwined in the overall economy Peak At its peak, the economy is running at full steam. Employment is at or near maximum levels, gross domestic product (GDP) at its upper limit, income levels are increasing. prices tend to increase due to inflation; Businesses investors are enjoying prosperous time Recession “What goes up must come down" applies. After experiencing great deal of growth success, income and employment begin to decline. As wages, prices of goods in the economy are inflexible to change, they likely remain near the same level as in the peak period unless the recession is prolonged. The result is negative growth in the economy.

  11. Recession 101 Expansion/Recovery- In a recovery, economy is growing once again, moving away from bottoms experienced at the trough. Employment, production and income all undergo a period of growth, overall climate is good. Trough - sometimes referred to as a depression, depending upon the duration of the trough, this is the section of the business cycle when output and employment bottom out and remain in waiting for the next phase of the cycle to begin So where are we? Romania USA

  12. Historicaldata Current recession is one of longest downturns since the Great Depression of 1930's. Last two recessions (1990-1991 and 2001) lasted eight months.

  13. Trends to consider U.S. Recession As chart indicates, the U.S. budget deficit is expanding at its fastest rate in the post-war era. Obama’s proposed fiscal stimulus will add to this deficit. This aggressive fiscal response is meant to offset a sharp contraction in GDP.

  14. Trends to consider Source: 2009 Outlook – Council on Foreign Relations, November 2008 • The unemployment rate initially increased at a rate consistent with past recessions. • However the latest data suggest a worse than typical environment for employment. • 2009 will start to reveal how much worse the employment situation will be. • Unemployment, now at 4.9%, is just 0.9% higher than the 4% level that economists consider "full employment" (meaning that everyone who wants a job has one).

  15. Auto sales typically fall by 20% in a recession • This time around they have fallen 30%. Source: 2009 Outlook – Council on Foreign Relations, November 2008 • Consumer sentiment starts falling before the recession begins, but turns around soon after. • However, pessimism seems particularly strong this time around. Source: 2009 Outlook – Council on Foreign Relations, November 2008

  16. B2B payments Payment delays lasted between 18 and 24 months Second oil crisis USA Recession Subprime crisis First oil crisis Internet bubbleand 9/11 % 8 200 180 7 160 6 140 5 120 4 100 80 3 60 2 40 1 20 0 0 1971 1974 1975 1979 1980 1982 1983 1986 1988 1989 1991 1994 1995 1997 1998 2001 2003 2004 2006 1970 1972 1973 1976 1977 1978 1981 1984 1985 1987 1990 1992 1993 1996 1999 2000 2002 2005 2007 2009 (p) 2008 (e) World economic growth Payment incidences index (base100= world average 1995-2000) Source: Loan Risk Administration, Coface Romania

  17. Textile Automotive Ind. Automotive Ind / Construction Textile Paper / IT Constructions / Air transportation Electronic parts / Air transportation IT Retail / Equipment Ind / Telecommunication (equipment) Retail Steel / Pharma / Chemical Telecommunication (equipment) / Equipment Ind. / Electronic parts Telecommunication(suppliers) Telecommunication (suppliers) / Steel / Paper / Pharma /Chemical MAJOR RISK MAJOR RISK D D C- C- C C C+ C+ B- B- B B B+ B+ A- A- A A A+ A+ 2008 rating fall 2008 rating fall MINIMUM RISK MINIMUM RISK Payment difficulty index 2008 evolution First 11 months. yoy United States 66% 64% Great Britain Spain 131% 70% Ireland World level 47% 0% 50% 100% 150% Western Europe North America Source: Loan Risk Administration, Coface Romania

  18. Financial crisis in Romania High ticket consumer goods sales fell 10-30% in Nov/Dec 2008 vs 2007 Dacia sales fell 16,7% in 2008 and 55% in Dec 2008 compared with Dec 2007 Real estate transactions fell 70% in 2008 vs 2007 Exports fell 17% in December 2008 Vs. Dec 2007 Large dismissals forecast for H109. Dismissed employees at end of 2008 will lead to a possible 8% unemployment rate in 2009 Most affected industries: construction, metallurgie, automobile,, petrochimie Detail (Electronique et biens durables) Source: Loan Risk Administration, Coface Romania 18

  19. Loan risk new vision • Client credit can no longer be overlooked • Vital to have most recent information about each client • Accounts receivables becomes priority over sales growth • Any negative information about a client must be analyzed carefully • Quick reactions imperative regarding any payment delays or negative information • Company’s financial health no longer enough to grant commercial credit • Traditional business relationship no longer a security element • In times of crisis no company can be considered a good payer Source: Loan Risk Administration, Coface Romania

  20. What needs to be done? • Restrict credit limits • Previous credit limits need to be adjusted with today’s market situation • Focus on most recent data about your clients • Seek additional quality information for new customers: industry trends, receipts and payments, lines of credit, guarantees and assets. • Exchange information between industry players (Vodafone/Orange) • Be attentive to negative information: slow or no payment incidences, payment ultimatums, State dues. • Good financial standing no longer a guarantee, industry wide risks need to be considered. • Coface suggests companies to not rely on one two major clients. Suggests smaller, frequent sales amounts, shorter credit terms, portfolio diversification . Source: Loan Risk Administration, Coface Romania

  21. Romania Survey and Findings Exposure/ information degree Overall concern of Romanians Direct relation Successful organizations Increased marketing expenses during recessions! Do this effectively, taking into account customer needs, expectations and market information. The Financial CrisisMeter* (Mercury Research) enables Romanian companies to anticipate effects of crisis. Research Findings – issued on 14th of January 2009 (continued during February – July 2009): 1) Romanians are highly exposed to mass media information about the crisis: 63% declared they watched either occasionally, or constantly information about the crisis and only 4% did not hear about a financial crisis. Bucharest residents and higher educated people pay more attention to crisis related news than other categories investigated. 2) Survey confirms a strong pessimism during this time: more than half of respondents (53%) slightly more concerned about current personal financial situation compared with six months ago. 3) There is lot of uncertainty about what it might happen. Romanians show high concerns for: income decrease, making debts, not being able to pay them, not able to maintain same life style (34%). *Continuous tracking (17 November – 10 December 2008; 18 – 31 January 2009; 18 – 31 March 2009; 17 - 30 June 2009) of two categories of indicators: Personal money management and potential concerns and Trust in the Romanian financial industry. Find out what adults from Romania – people aged 18 + - feel and plan during the current economic context – from a national representative sample of 1100 respondents (high accuracy level – max sampling error ±2.9%), interviewed through face-to-face methodology in Mercury Omnibus.

  22. Romania Survey and Findings Research Findings – issued on 14th of January 2009 (Continued during February – July 2009): 4) However, direct effects of crisis are better acknowledged by more informed respondents. Higher degree of information, the higher the concerns about: Are Romanians going to adjust family budget? If economical situation worsens, people probably reduce expenses for main categories in family budget: food (Retailers – should pay attention to merchandising to weather the recession), clothing and shoes (higher demand for used clothing?), house expenses. Also, level of income and education are important differentiators when it comes to budget adjustment strategies. Being unable to save/ invest as much as usual Losing the job Being unable to pay the loan installments

  23. Recession 101: Key Learning Can we compare to great depression?? • Average length of ten recessions since World War II = 10.4 months, with range of 6 months in 1980 recession to 16 months in 1981-82,.Ntural "placeholder" time frame for the end of this recession would appear to be mid 2009. • However, given that recession is now 15 months old, not approaching its trough yet, raises distinct prospect that it will exceed the length of the 1973-75 and 1981-82 recessions (both at 16 months), • Critical question: What kind of recovery is likely to follow? Answer: probably a gradual one, unlike the more typical pattern of past recessions roaring ahead, propelled by pent-up consumer demand • Ben Bernanke, Chairman of the Board of Governors US Federal Reserve, a scholar on the Great Depression, said the Fed has learned from errors policymakers made in that era. • Fed made two critical mistakes in 1930s - maintaining overly tight monetary policy and allowing financial system to collapse. Fed proactively reduced rates from 5.25% in September 2007 to its current historic low and injected unprecedented amounts of liquidity into the financial system. • Absence of bank deposit insurance at time caused catastrophic erosion to household wealth and consumption. Today, FDIC insurance ( recently elevated limit to $250,000) provides significant cushion; Response of economic policymakers is immeasurably faster and more aggressive now

  24. Recession 101: Key Learning • The ultimate cure of a recession is letting it run its course." • The financial media often takes on a "sky is falling" mentality when it comes to recession. Bottom line is that recession is a normal part of the business cycle • Romanians are: • Consumers • Have traditionally been savers • Relatively debt free vs. West Europeans and North Americans • Can more easily persevere the effects of a recession Weekly good news stories • Foreign investors’ stakes in companies operating on the Romanian financial market tripled in October 2008, foreign capital flow on financial market reaching EUR 4 bln. • Pirelli: Assemblies plant Bumbesti Jiu, estimated to open Q1 of 2009. In Q408, Pirelli announced it would add EUR 250 million to current investments in Romania, develop industrial hub in automotive industry. By 2011, the total investments will reach EUR 500 million. • Financial chain Millennium Bank started planned expansion in Romania for 2009 with new branch opened in Suceava. Bank plans to open branches in 9 cities H109. • Carrefour exceeded the EUR 1 billion threshold in sales in Romania in 08, 37.4% more sales over previous year, to EUR 1.19 billion. • Axa Group has put EUR 6.2 million into a residential compound of 33 luxury apartments in the Baneasa area, planned to start March 09. • Jan. 03, 2009 Procter&Gamble will invest €100 million in second factory in Romania (hair care products) in Urlati, Prahova County. One few Greenfield projects in Romania.

  25. Personal approach to the Recession In a downsizing economy, the best return on investment for your career may be to focus on your current job. How? • Think of ways to generate revenues or cut costs. Concentrate on finding places to pinch pennies, or identifying cheap new sources of revenue. Or both. • Be visible. This isn't the moment to take an extended vacation. Your position could be eliminated while you're gone. Do not come ‘rolling in at ten o'clock’. Figure a way to stand out and distinguish yourself. If you're in sales, get your numbers up. Nobody will be laying off star salespeople. • Talk up your contributions. Make sure you're adding value at work by going above and beyond your basic job responsibilities.. • Keep a broad perspective. Don't get a reputation as someone who only does what he or she is told to do. Pick your head up, look around, and get in on the action. Volunteer for crucial responsibilities, including tasks for which your boss is responsible. • Get your skills up to date. Companies get rid of people whose skills are obsolete and replace them with people who are already trained. Join trade organizations and prove you're plugged in. Consider going back to school, show your employer you're serious about your career and performance. • No whining allowed. Attitude does count – a lot. Management wants people who can boost morale during tough times. Happy workers are less likely to get laid off than people who dislike what they do. If you grumble about your job all the time, then maybe giving you the sack would really be doing you a favor.

  26. Step 2: Businesses that do well Contrary to popular belief, some companies do well and even better during a recession

  27. Industries in high demand during a recession Food retailers. The Food industry less affected in recessions because people have to eat i.e. Maslow’s fundamental need # 2. Consumers may cut back on luxury food items but in times of continuous financial pressure, people might spoil themselves by buying food items little more expensive to’ forget about life for a while” Wal-Mart whose sales rose 3.4 percent in November ‘08, is a big beneficiary of consumers' downscaling.. Wal-Mart drives for more Mass. grocery business,The Boston Globe, February 10, 2009 2) Entertainment. One axiom that grew out of the Depression was that, in bad times, people go to the movies Box office data from more recent downturns show conflicting signs on ticket sales: rose in the recession in the early 1980s. 3) Chocolate: Recession-proof. "In volume terms, growth in the premium chocolate segment has slowed somewhat in recent months as a result of the global economic crisis. However, in value terms, this category is still growing," said Josiane Kremer of Switzerland-based Barry Callebaut. “Brands that have the highest quality and offer superior taste [that] are backed by strong brands already will probably have an advantage," 4) Many US lotteries across the USA are experiencing record sales, driven by intense marketing, people who trying to turn a lottery ticket into a ticket out of hard times. “When people view themselves as doing worse financially, they purchase lottery tickets,” Emily Haisley, Yale School of Management who published research paper on lotteries in The Journal of Behavioral Decision Making. The Gambling industry (casinos, sports betting etc) might be resilient to the current crisis in Romania despite some well known casinos have announced important losses lately.

  28. Industries in high demand during a recession 5) Video Games: Goldman Sachs forecast report predicted unlikely winner among media choices.“Video game sales are in the home and, frankly, video games are perhaps the cheapest forms of entertainment on a dollar per hour basis ”Nintendo seems to have bucked the recession. Japanese video game manufacturer doubled November sales of the Wii in the U.S. from a year ago, according to latest release on gaming sales. Wii over a latte. “Solid middle class going to make substitutions to buy games. Now it’s buy a Wii and don’t eat out for a month, or don’t take that ski trip,” “Or cut out Starbucks.”. “ Regardless of downturns, consumers pursue something fun," Mineo Koda , Nintendo said in an interview with The Korea Herald. 6) Buyer and Seller of Used Office Computer Equipment, ( seeITLiquidators.com) cartridge refill companies 7) Alcohol sellers. 8) Auto Repair and Recycling 9) Office Liquidators

  29. Industries in high demand during a recession 10) Used Clothing 11) Bankruptcy Attorneys 12) Jewelry re-sale. Virginia-based company Goldrush has kiosks in malls asking customers to sell them gold and silver – at a fraction of its value – so they can melt it down and resell it. 13) The Concert Business grossed under $4 billion worldwide in 2008, most ever for a year up almost 13 percent over last year, according to Billboard magazine. "Overall, it's been a pretty good year for touring," said Ray Waddell, who covers industry Billboard. "I'd never say it's recession-proof, but it's resilient." 14) Indoor sports facilities. Developers say a number of factors make them confident . When families cut back on vacations, they're likely to keep their children busy during school breaks with activities like indoor soccer camps . People cut back on luxury trips and going to a fancy restaurant, but as far as youth sports, it's something people want to do for as long as possible," 15) Big-ticket luxury items will suffer, especially in the consumer electronics space. The exception will be so-called "smart phones”. 16) Notebooks. Computer industry ships more portable computers than desktops, and part of the mix will be mini-notebook computers, known as notebooks. Computer makers will sell more than 11 million notebooks worldwide in 2008, up from one million in ’07. Stripped-down portables (no DVD drive, less processing power) have stripped-down price. Market leaders ASUS and Acer offer sub-$300 notebooks, and well as Dell and HP .Affordability of notebooks makes them an ideal solution in emerging markets,. 17) Cloud services/computing. Software-as-a-service (SaaS) companies have long promoted themselves as more capital-efficient alternatives to installed software solutions. Instead of financing big software purchases and installation, companies can "pay as they go" under the cloud services model. Ex. Salesforce.com

  30. Industries in high demand during a recession 18) Virtualization. Helps companies reduce cost of operating machines such as servers. Technology allows single piece of hardware to run systems or applications that previously had run on multiple machines – essentially allowing companies to squeeze more out of existing hardware and even defer new purchases. 19) Broadband. American consumers are unlikely to part with their broadband connections, an Accenture study found. They are more likely to get rid of cable television channels (once considered practically a utility) or their mobile phones than their high-speed Internet connections. "It is absolutely recession-proof," 20) Residential trade contractors 21) Medicinal & biological products22) Medical equipment23) Pet and pet supply stores24) Passenger transportation25) Consumer lending26) Financial transaction processing and clearing27) Portfolio management Services28) Investment advice29) Direct health and medical insurance 30) Self-storage centers 31) Tax preparation services 32) Process and logistics consulting services 33) Veterinary services34) Security guards and armored car services35) Elementary and secondary schools, Universities 36) Ambulatory health care services37) Physicians, Dentists, Specialty therapists 38) Outpatient care centers and Medical laboratories 39) Blood Banks 40) Homes for the elderly / Child care 41) Sports agents 42) Zoos and natural parks 43) Nail salons 44) Local government administration

  31. More industries in high demand • Property companies Buying good-quality assets at distressed prices. Kept powder dry by staying in cash last year and now out to exploit opportunities thrown by current downturn. • Pawnbrokers (Amanet). Hard-up consumers are selling jewellery for cash and pawnbrokers act as alternative credit source in absence of bank lending. Well-placed to benefit from tight credit conditions and economic contraction pawnbrokers continue to report strong trading and customer growth. • Funeral director is one type of company that will definitely not run out of customers in hard times like the ones that we are facing. • Specialist health and social care recruiter supplies nurses, pharmacists and specialist medical staff to the NHS and other health care organizations doing well during a recession - health care sector naturally resistant to recession – people still get ill in a downturn. • Restaurant Group. This type of company could benefit from consumers' tendency to "trade down" in a recession. The outlets tend to be in retail parks, which are popular with families at weekends. Many people cut down on trips to expensive restaurants in lean times but will take their family out to see a film and a meal.

  32. More industries in high demand • Companies which supplies individuals' credit histories to lenders are doing well because knowing what your credit rating is has never been so important (coming soon in Romania). • Door-to-door credit company. More borrowers are being turned down by mainstream lenders and forced to look further afield (Provident Financial Romania). • Insurance companies. Global shortage of capital in the insurance industry, as a result of the credit crunch. Absence of new competitors puts established players with access to reliable pools of capital . • Company specialized in online trading services for retail, professional and institutional customers. Market volatility creates more interest in such a market, so demand is high.

  33. Industries in high demand through a recession

  34. Industries from US that have experienced significant sales growth in the last 12 months (2008) - privately owned companies only. Source: Sageworks, Inc. Sageworks, Inc.

  35. Local Headlines: Industries in high demand Food retailers Carrefour, Metro have made investment commitments in last few months to build more stores in Romania. Selgros Cash&Carry chain, plans to invest some €30-40 million this year in two new stores, create 600 jobs. Business Standard, February 10, 2009 Trident hypermarket, supermarket networks will recruit 550 persons in 09 part of expansion plan, including Bucharest market. Business Standard, February 4, 2009 Mega Image supermarket chain, continue expansion strategy, speed up the introduction of own branded products in stores, create 360 new jobs in 2009 Business Standard, February 6, 2009 The Profi discount retailer, posted a 49 % annual rise in sales in January, most significant increase on first-price product segment, surged 150 percent year-on-year. Business Standard, January 24, 2009 Carrefour posted a 12 percent annual increase in sales of own brand products in January, considering orientation of clients towards less expensive products, own brands, and promotions. Business Standard, February 27, 2009 Travel industry Happy Tour Romania, the largest local travel agency, focus its strategy on maintaining its corporate client portfolio. “For 2009, we will focus on large, corporate clients, on maintaining and consolidating our client portfolio, and even expanding this. This is a year of crisis, and now, more than ever, people will want to get away from the stress and pressure of their jobs and day-to-day problems

  36. Jobs in demand through a recession The folks at Cisco want to hear from you. A survey commissioned by Cisco in July 2008 shows there will be a shortage of 60,000 of these workers through 2011 1) Networking and Systems Administration. Movement towards online systems integration has trended upwards over time. As hackers continue to create new ways to compromise integrity of systems they attack, increasingly important for networks to be iron-clad-secure,maintain user trust and apositive public image. 2) Business Analysis, Software Implementation. Professionals work with companies to figure out which software best suits their needs. install the software and teach staff. 3) Accounting and audit jobs: Tax work, auditing, preparing company's quarterly reports still goes on, tough economy or not. 4) Health care. Half of the 30 fastest growing jobs over the next 8 years will be in the medical field 5) Administrative Assistant 6) Tracking Accounts Receivable 7) Business Analysis, Research 8) Software Design and Development 9) Nursing 10) Finance Staff

  37. Jobs in demand through a recession (2) 11) Helping Commercial Borrowers: companies help buyers of commercial real estate — multifamily apartments, office buildings and shopping centers — who want to take over the sellers’ mortgages, rather than get new loans. Buyers may now have no other financing choice than to assume or take over the sellers’ mortgages. 12) Liquidating Machinery and Inventory: Banks dealing with troubled companies, need to liquidate business property acquired through foreclosures. Monitoring declining asset values of companies that had pledged their inventories and accounts receivable as security for loans. Auctioneers who travel the country, get 12 percent commission for selling off business assets. Even in a soft market, there is always a buyer. 13) Advising Troubled Companies, restructuring advisers, are directly countercyclical to economy. Financial distress, both before and after bankruptcy, ex. liquidity problems, expenses outpacing revenues; exhausting credit at financial institutions; or creditors, once lenient in a tight cycle, may now be demanding payment. “Maintaining liquidity is probably the most important thing you can do.” 14) Green Energy/Global Warming. Specifically, battery technicians, wind, solar, CO2 emissions technology, nanotechnology, materials sciences, natural gas exploration and infrastructure, and nuclear. 15) Sales representatives and account/customer support. Companies view current economic slowdown as opportunity to steal market share as competitors cut back, when the economy emerges to come out stronger than ever. To do this, they need right talent to interact with external world. 16) Actuaries As pension funds are hit by the volatile markets, trustees are turning to their actuaries and pension advisers to maintain the stability of their schemes.

  38. Startups in a Downturn • Q. What does Cisco, Oracle and Google have in common? • They were started in the worse possible economical times. • Lessons learned: • 1) Makes sense to do research and development counter-cyclically. • 2) Recessions can be really useful strategic opportunities. • 3) Everything is cheaper during downturn, including cost of labor, materials, office space. • 4) There’s less competition, both from incumbents putting out their own fires and startups finding it harder to raise money. • 5) Tough times force entrepreneurs to work on business models earlier, end up reaching profitability more quickly than when money comes cheap. “The companies are tougher because they were tested during a tougher time”. • 6) Lotus software - another survivor. Owner said “If a product meets an unmet need, it doesn’t matter if the economy is bad”.

  39. Case Studies - HP Hewlett-Packard Summary. HPborn in a Palo Alto garage at end of Great Depression, January 1, 1939. Electronic company, initially supported by a mere $538 investment, has grown into first technology business exceeding $104 billion in revenue in 2007. 1939 - Revenue: $5369. Employees: 2 What they did during Recession. After resisting global recession for most of 2008, Hewlett-Packard reported profit dropped 13 percent for the first quarter of 2009. New cost-cutting measures, including trims in employee benefits, salary reductions range from 2.5 percent for hourly workers to 20 percent of CEO's base pay. Some of money could be returned in bonuses for all employees, depending on the company's performance. CEO vowed to keep profits up by continuing to cut costs. September cut nearly 25,000 jobs, or 6 percent of its work force, over the next three years, to eliminate redundant positions from EDS. Expects to save $1 billion in operating costs through layoffs, other expense reductions in 2009. however, number of engineers working in R&D increased. "We're not cutting the critical innovation or sales resources," .Company would continue to invest in "so we emerge from this recession in a more powerful position. • Results Today • One billion customers in more than 170 countries on six continents. • HP has 321,000 employees worldwide. • HP's 2008 Fortune 500 ranking: No. 14 • $1.9 billion in profit.

  40. Case Studies - Vlasic Summary. Vlasic Pickles grew out of Detroit creamery, fresh pickle business begun by Croatian immigrant Franko Vlasic in 1920s. Vlasic's primary product, pickles packaged in glass jars, began production in 1942, during World War II, and the business rapidly expanded in the post-war years, corresponding with growth in per capita pickle consumption. Official website claims Vlasic was inventor of glass-packed, shelf stable pickle. What they did During Recession. Slashed the price of its products, it loaded them up into gallon jars and sold the oversized products at Wal-mart for $2.97 - less than the price of a quart of Vlasic sliced pickles found at grocery stores. Product worked for Wal-mart, garnered attention of consumers. Big jar-o-pickles screamed value to Walmart’s customers. Although, the fact that it was a jar of pickles didn’t really matter. What mattered was that it was a big, cheap jar of pickles! Vlasic was nothing more than in-store advertisement for Wal-mart’s Everyday Low Prices. Gallon jar helped company find its way to bankruptcy much more quickly. Its earnings evaporated. Price reductions do more than compromise earnings. They compromise customers’ perceived value of your products and services [your brand] which ultimately affects the long-term equity of the franchise. 3 Dollar pickle jar…Thank you Walmart! • Results Today • Today, Vlasic is owned by Pinnacle Foods since its name change in 2001

  41. Case Studies - Kraft Summary. “We’ve come along way since J.L.Kraft started selling cheese from a horse drawn wagon in 1903. Hard work, imagination and a commitment to bring the world its favorite foods What they did During Recession. 1933, Kraft launched its iconic salad dressing/sandwich spread Miracle Whip - again, not in spite of the Depression, but because of it. This new miracle mayonnaise spread had instant appeal to Depression-weary consumers grown tired of the boring taste of vegetables, salads, and sandwiches. Kraft Miracle Whip soon launched one of biggest food advertising campaigns to ever grace the U.S. media -- from print to TV. Initial effort led to 22 weeks of almost non-stop advertising, including weekly two hour radio show. Not only was Miracle Whip a one-of-a-kind new product, it was relevant. Innovation is not a “good times only” exercise. Innovation always matters. It must, however, be relevant to needs of the market. Within six months after initial launch, this uniquely relevant new idea outsold all other brands of dressing and mayonnaise,went on to become a mainstay in refrigerators across America. • Results Today. With revenues of $37 billion, Kraft Foods Inc. is one of the world’s largest food and beverage companies. • Kraft products are present in more than 99% of U.S. households. • Kraft markets many of the world’s leading food brands. Nine brands with revenues exceeding $1 billion and more than 50 additional brands with revenues greater than $100 million. More than 40 of brands are 100 years old. • Bllion dollar brands include: Kraft, Jacobs, LU, Maxwell House, Milka, Nabisco, Oreo brand, Philadelphia, and Oscar Mayer. • 103,000 employees worldwide, more than 180 manufacturing and processing facilities worldwide.

  42. Case Studies - Apple Summary. Apple Inc. Designs and manufactures consumer electronics and software products, best-known products include Macintosh computers, the iPod and iPhone. Apple has established a unique reputation in the consumer electronics industry. What they did During Recession. In 2003, Dow at historical lows over a 10-year period, Apple continued to invest. When asked why he hadn’t reduced research and development spending when others in industry had experienced slow down, Steve Jobs recalls: “What has happened in technology over the last few years has been about the downturn, not the future of technology. A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of [customers], they would continue to open their wallets. That’s what we’ve done. We’ve been turning out more new products than ever before, and Apple is one of the only two companies making money in the PC business. We’re not making a lot, but other than Dell, we’re the only one. Others are losing money – a lot of money.” Apple has history of remaining relevant during most difficult of times. Through innovation, Apple kept its pipeline robust, but – more importantly has remained in front of customers. Apple tells its story through new products. New products are not only required to remain relevant, they are signs of hope to employees and to customers that your company and your brand are valuable in their lives. • Results Today. • 250 retail stores in nine countries and an online store where hardware and software products are sold. • 35,000 employees worldwide and annual sales of US$32.48 billion in its fiscal year ending Sept. 29, 2008. • In 2008, Fortune magazine named Apple the most admired company in the United States. • iPhone sales from that quarter surpassed RIM's BlackBerry sales of 5.2 million units. Up to September 30, 2008, the iPhone represented 39 percent (US$4.6 billion) of the company's total quarterly revenues,

  43. Case Studies - Gillette Summary. Gillette is a brand of Procter & Gamble currently used for safety razors among other personal hygiene products. Gillette Company founded by King C. Gillette in 1901 as a safety razor manufacturer. In 1999 Gillette as a company was worth US$43 billion and it was estimated that the brand value of Gillette was worth US$16 billion. This equated to 37% of the company’s value, the same as DaimlerChrysler. What they did During Recession. Innovation is a good cost. Gillette’s 1990 introduction of its Gillette Sensor brand of shaving products. Launched in a recession, more than 8 billion Sensor razor blade cartridges and 400 million Sensors razors have been sold. By 1997, 49% of Gillette’s sales came from new products launched in the previous five years and R&D spending had reached $212 million. Results Today. P&G enhance its product performance and brand equity between these disruptive innovations with meaningful product and design initiatives every 12 to 18 months. In addition, they maintain a steady pace of commercial innovation.

  44. Case Studies Paper products manufacturer What they did During Recession “Bad costs” involve investing in things such as fixed and working capital, manufacturing, and general and administrative expenses. Investing in such assets during recession - even though their presence is intended to yield cost competitiveness or improve productivity often do just the opposite. A paper products manufacturer in UK invested in building a state-of-the-art facility during the 1990s. The prevailing logic of the investment was that new automation could replace employees working in their warehouses and improve the efficiency in how they managed orders. In reality, profits actually fell not only because of high depreciation charges, but because of need to retain expensive consultants to “de-bug” the process, software, and systems. Customer service fell off dramatically as new system did not allow for flexibility in prioritizing and re-prioritizing customer orders based on immediate needs which led to a loss of business and a reduction in market share. To compensate, the company reduced its prices in an attempt to win back business only to see its margins erode even further.

  45. So what… • Your clients may have opportunities that you can discover/explore with them. • Consider targeting some of these companies if you were not doing so in the past. • Be creative by exploring different payment mechanisms instead of the typical supplier-client relationship, ex. pay for success, pay in 3 months, bonus on cost cutting. • Change the way you sell products. Developer who sells new homes is offering ability to ‘rent to own’ which is a fairly new concept in Romania. For a small deposit and reasonable monthly payments, you can own your new home. At any time you can apply for a mortgage and pay the developer. Some conditions apply: • Barter: If you can’t pay for something you can probably barter your services for other services and products. • Re-sale of products. Some fashion shops in New York are buying used brand name clothing and re-selling after it was used only a few times. The Profit margins are good and customers get a sizeable discount off designer clothes

  46. Coffee break

  47. Step 3: Cut costs with a scalpel, not a chainsaw. Fortune magazine: 3 experts on how to cut costs: An executive of low cost airline, SVP at medical supply manufacturer and consultant at Bain & co: Q1) How do I know where I am spending too much? • ‘Our team regularly goes each budget line by line. However cuts are made where there is the least impact on customers. We don’t take a chainsaw to cut costs – we prefer to be more surgical’. • Bring in third party groups that specialize in benchmarking. ‘We compare our supply chain with companies like Wall-Mart’. We look at our systems to see if we have redundancies. • Create a dedicated (cost cutting) team and have each person spends 50% of their time on it.

  48. Step 3: Cut costs with a scalpel, not a chainsaw. Q2. Are there cuts that are worth making? • Some will never be cut since it reinforces our corporate culture like bringing in customers into our head office to tell us how our products are doing. • Prioritize. Take on cuts that are large, easy to implement like consolidating suppliers. Be careful with changes that bring small savings but come at a big cost like cutting off coffee for staff which may lower morale. Q3) What are some of the reductions that companies often overlook? • Some companies don’t look at creative ideas to avoid layoffs. To prevent overstaffing consider voluntary leave program without pay or flex time - keep their benefits and you get a reduced payroll while having access to trained, on demand staff. • 50% of costs for most are associated with purchases. If you aim at your supply chain and those costs, you can avoid layoffs. It’s free money and easy to implement. Layoffs will cost you more in the long term when the market picks up again, and it will pick up again.

  49. Other cost cutting strategies 1) Cash is King - liquidate assets and get rid of dead of stock. Start keeping some money aside in case the economy does indeed get worse. 2) Good records - keep business records up to date to always know how you are faring. The more robust your records the easier it will be to move faster in the case of a slump. 3) Batten down the hatches - When business is slow you have more time on your hands to look at ways of cutting costs. Cut down on wastage and examine all your outgoings to Remove/ reduce all unnecessary expenses. 4) Speak to your lenders - Keep communication lines open with banks Discuss skipping payments (new in Romania.) You are asking to capitalize interest to later date. This extends term of contract but cash flow will help you temporarily Most Romanian banks are foreign owned, well known option in their home markets. Open talks with another lender just in case your bank pulls the plug. 5) Examine your loans - in recession interest rates fall as government try harder to stimulate the economy - ideal time to collate all your loans, possibly switch to longer payment terms and / or fixed rate loans. The European Central Bank (ECB) has dropped interest rates by .5% to 2% and you could re-negotiate your Euribor loans to get better rates. 6) Negotiate harder with your suppliers - Ask for longer payment terms, demand quicker delivery times to require less money tied up in stock. McKesson (generic drugs manufacturer) customers include big retailers under pressure to cut costs as consumers grow stingier. For those retailers, negotiating significant cost reductions from suppliers of generic drugs is tough, so McKesson offers them this proposition: “Buy all your generics from us and redeploy your purchasing team to projects where it can achieve bigger savings”.

  50. Other cost cutting strategies 7) Improve your credit control - cash flow is king in recession so meet all customers especially delinquent. ones Send regular reminders and statements followed by a phone call the minute an invoice is overdue. Beware of clients faking payment problems. If you insist with the proper follow up you will be first in line to get paid. 8) “Reduce the amount of credit extended to customers," says Scott Shane, professor of entrepreneurial studies at Case Western Reserve University and author of Illusions of Entrepreneurship. "Get the money fast by offering a discount" to those who pay up immediately. 9) Videoconference instead of travel. Costco reduced in-person meeting costs with videoconferencing - 59 Managers that typically traveled began meeting virtually every other month. Savings: $750,000 US in 2008, $3-$5 million when they roll out nationwide. Consider using Skype. 10) Increase your Marketing – Yes increase! This is worst time to reduce your marketing budget. Goal: Keep, hopefully increase your market share and the best time is in a recession. Best time to continually communicate to your customers inexpensively (email and newsletter, appreciation letters, sending a brochure, loyalty program updates) and a perfect time for you to get out of the office and talk to customers . McDonald’s has posted the best financial results in its history. The stock price has climbed handsomely in recent years; it reached its highest point ever in August: $67 a share. It closed last week at $60.07. Despite the slow down BCR has consistently maintained their heavy TV advertising weight

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