Role of BDS providers in the current crisis
BDS = Business development services
This article deals with the contributions that BDS providers can make in the current economic crisis.
1. The Global Crisis
The current economic crisis is not just the crisis of one national economy, like that of Japan in the 1990. Nor is it only that of a particular religion, such as the Asian currency crisis of 1997. This is a global crisis. However, there are different levels of severity in the crisis. Some national and regional economies are more affected than others. There are three conceptual terms to describe these.
i. The US is in the deepest crisis. Some fear it may be a Depression, like that of the 1930s, which could last for several years.
ii. Europe and Japan are experiencing a Recession, which could end in about two years.
iii. China, India and other Emerging Market economies are in a Downturn. They are still growing, but at a lower rate than in the
last few years. India's growth which had reached a peak of 9% may be 7% in FY 09 and 6% in FY 10.
2. The Indian Downturn
A fall of 2 to 3 % in GDP growth is still a serious problem for a populous, developing economy like India.
a. Within the GDP, industrial growth has been particularly hit. The IIP which had been as high as 12% has come down to 3%. Many factories are closing; suspending operations; reducing shifts etc.
b. 5 lacs jobs have been lost so far. The number could go up to 5 millions (50 lacs).
c. Export industries like IT, Textiles, Gems etc. have been hit hard.
3. Government Stimulus
Most governments in the world are taking steps to cope with the crisis, reverse the economic decline; and resume growth. The attention is shifting temporarily from the monetarist economics of Milton Friedman to the welfare economics of J M Keynes. Both the central banks and finance Ministries are taking steps in their respective areas, monetary and fiscal. In India, the RBI has been using its two main weapons.
i. Reducing the interest rate.
ii. Increasing liquidity.
The MoF of the GoI has provided two fiscal stimulus packages, including cuts in some excise duties, and increased spending on infrastructure and social needs of health; education; relief etc. A recovery is expected in late 09 or early 2010. However, India may not return to high growth path until the US recovers.
4. Corporate Survival
Since the reforms of 1990, especially Liberalisation and Globalisation, the very survival and continuity has become a relevant corporate objective. In the earlier license-permit raj, survival was almost guaranteed, unless a corrupt or incompetent promoter or management deliberately ran into the ground. After ensuring survival, one can pursue the other objective of growth; profitability; and image. There is no permanent, or universal, ranking of these four corporate objectives. But, in the downturn, they may be ranked, as follows :
i. Survival
ii. Growth
iii. Image
iv. Profitability
5. Using BDS providers for Survival
BDS providers can help firms survive through the following kinds of services & advise :
a. Focus on cash flow. Within prudent limits, increase and accelerate the inflow; and reduce and defer the outflow.
b. Cut costs, in the entire value chain, wherever possible, without eroding value for customer, for a given price Materials; Personnel; overheads.
c. Postpone, but not necessarily cancel, capital expenditure and discretionary spending such as on some of the advertising; research; training etc.
d. Conserve cash.
6. Using BDS providers for Growth
The Indian economy is expected to grow at 6% plus, in FY 2009-10. Industrial growth will, naturally be higher at, say, 8% or more. Some sectors could grow even faster, such as FMCG, Telecoms, Pharma, Banking etc. BDS providers may advise clients, as follows :
a. Avoid price increases in current products, even if some input costs rise.
b. Absorb part or all of the cost increases through innovations for productivity and cost reduction.
c. Go for lower unit margin, higher volume strategy.
d. Adopt marginal cost-based, contribution pricing. On that basis, consider reducing prices on current products.
e. For a mass market, introduce products with fever, but essential features, at proportionately lower prices.
f. For a smaller class segment, introduce better products, with a modest increase in price.
7. Using BDS providers for Image
Maintaining, and even improving the comapny image of the firm, can pay dividends, when the economic recovery comes.
i. Continue to give priority to customer satisfaction. Don't dilute the product quality and service.
ii. Minimise any abrupt retrenchment of employees.
iii. Go for selective removal of chronic under-performers and misfits, due to attitudes and behaviours.
iv. Similarly, avoid abruptly stopping all CSR activities. Continue to do as much as possible. Focus on those, with quicker benefits
and more beneficiaries.
v. Continue with legal and regulatory compliance and good corporate governance.
8. Using BDS providers for Profitability
Profits are, of course, important. But, go for relative profitability, taking into account the inevitable impact of the downturn on the sector and competition.
a. In case of severe impact, try to ensure breakeven.
b. Even in case of losses, prepare and implement a plan for quick turnaround.
c. If making profits, try to aim for Rol in the top or third quartile of the firms in the sector.
d. Raise Rol, by controlling investments and costs; and better utilization of all existing resources.
e. Go for a longer term average high, relative profitability, taking the good and bad years together.
9. Conclusion
The above all illustrative suggestions on how BDS providers can contribute. Obviously, they can not all be applied in each situation. The BDS provider has to work with the client on a joint diagnosis of the specific context, and apply the relevant interventions. We at SIDBI alappuzha BDS project have developed a panel of such BDS providers as well as business audit tools.
