Everyone in the country, and in fact around the world, will have experienced the latest global economic downturn in one manner or another, either as an individual or as a company operator. It might not have had an immediate impact upon your own career or your private earnings, but the knock-on impact of businesses losing revenue will have influenced the monetary predicament of the wide majority of people. It has been a very complex issue with wide reaching ramifications.
The downturn now appears to be over, or is at the very least on its way to an end, according to many financial authorities. Although it might not yet be the moment to celebrate having survived the financial turmoil, it should be a period to start looking forward and preparing for a future within a stable economy. It is time to look for some recession opportunities.
Companies of all sizes, trading in all kinds of marketplaces are no doubt going to need to change their operations in light of the recession. This may well be after legislation is introduced to more closely control and monitor the action of worldwide economic organisations. Many businesses will also be looking at ways to make themselves much more robust and able to withstand financial instability in the long term. Either way, there will probably be changes for many companies, and wherever there is change there is potential.
The Recent Recession
The economic downturn of the early 21st century started in 2007 and gradually propagated around the planet over the next couple of years. Several financial analysts attributed the cause of the recession to be the crash in the U.S. real estate market, which in turn affected the worth of financial products tied into real estate assets. The growth of the property market up to that point had motivated homeowners to refinance their first properties in order to purchase second or third properties with a view to a long-term profit.
This fall in value then uncovered the vulnerabilities of such a wide-spread system of credit contracts between global businesses, particularly when much of the system was being backed by subprime lenders who were fiscal liabilities. A basic lack of third-party control of the monetary services market had allowed the development of a very complicated web of high-risk credit agreements which relied upon a thriving economy. Once the first debtors began to default on repayments, the entire house of cards was quick to come down.
The following financial fallout saw many individuals lose their jobs as well as lose their homes, whilst many large, global organisations were forced out of business. Government authorities across the world had to introduce radical financial packages to help their own banking systems, and still now certain first world nations are fighting to make it through financially. Many consider it to have been the toughest economic period since the depression of the 1930s.
Across the planet, levels of spending regarding pastry cutters has dropped since people have reduced disposable earnings about.
The Impact on Business
It’s probably fair to say that the recession had an impact on just about every business around the globe. Particular company models will have been more able to adapt to the additional financial strain than others but they will have nevertheless experienced an impact at some portion of their operations. If any key supplier or a main client goes out of business then this can have a negative impact upon your own company.
Thousands of small and medium sized companies have been pressured out of business because of the recent recession. Several of these cases will have been fairly basic; as the general public start to decrease their spending these types of businesses lose revenue, and since profit margins are often incredibly slim in a competitive market place there was very little room to accommodate this fall.
Some other cases were not so clear cut. There were circumstances where one company in a long supply chain were unable to survive and the knock-on impact would push every business in that supply chain to the edge of bankruptcy.
Job losses have naturally been a very delicate subject to the broad majority of us. It’s estimated that the current number of jobless individuals in the UK is over 2.3 million (nearly 8% of the total countries’ workforce), and many of these will probably have been victims of the international financial crisis. These kinds of job losses head to a greater drop in general spending, which results in a further fall in income for business.
The End of Recession
It does appear that the recession is coming to an end though, and that can only be great news for business. Gross domestic product (GDP) experienced a rise in the UK throughout the fourth quarter of 2009 and overall unemployment figures fell, both of which are signals of an economy that is recovering.
Industry experts from the International Monetary Fund (IMF) have predicted that the UK economy may actually reduce in size over the duration of 2010 and Mervyn King, the Governor of the Bank of England has spoken of the danger of wide-spread joblessness continuing. When added to the prospect of a new or perhaps hung government on its way into power in May 2010, as well as the need to decrease a significant fiscal deficit, the future is definitely not set in stone.
This kind of uncertainty may be utilised as an advantage though, and organisations that are ready to take a few risks or that are prepared to adjust their operations to cater for a more cautious target audience might be set to make great profits.
Overall, the negative influence that has been felt across the waste recycling sector has been easier to tolerate than in selected alternative industrial sectors around the world.
Price Sensitivity
On the outside it might seem that the clear strategy to use while the overall economy is recovering is to increase your very own sales charges again to a level that offers your company some extra margin of comfort in relation to operating costs. As the economy grows and people feel safer in their careers they will really feel secure spending more cash, so price raises should be an easy thing for shoppers to take on. This may not always be the case.
Actually, many businesses might find that they have to keep their selling prices as small as possible due to the recently triggered price sensitivity amongst the general public. Many of us have had to tighten our belts during the last couple of years, and simply because the hardest of the economic downturn appears to be over, we are not all prepared to start spending freely again. This is a pattern that is difficult to exactly quantify, however businesses will have to be aware of how their specific consumer community feels toward spending.
The term price sensitivity describes how influential the element of price is to consumers when they are buying a particular product. If a relatively large price shift, for example increasing the price of a car by £
1000, does not see a big decrease in demand for that product then the item is said to be price insensitive. If a relatively small change in price, say raising the price of a car by only £
100, does see a drop in demand then that product is price sensitive. This same principle can also be applied to shoppers themselves, and after a period of recession people are more inclined to be price sensitive.
As a result, the market place at large will have great interest in the costs of the items that they are buying. Many people will be watching out for deals for everyday products that they need, and particularly their grocery shopping. Several of these items are essentials however.
Businesses will be able to take advantage of this by using special offers and price campaigns to attract new shoppers into purchasing their own products. Buyers will be a lot more likely than ever to move from their favored brand names if the price tag is right, and firms which offer the best priced goods are likely to stand to gain from this. After these potential customers have become customers there is a good chance that they will remain faithful to their new product choice as the market rebounds further, which could lead to further spending at the original prices.
One particular business has discovered that their website has been a great way to engage with their customers during the tough economy.
Financial Security
People’s knowledge of the economy at large as well as how it influences us all has greatly increased in light of the economic depression. Previous buying decisions may well have been made in accordance to the quality of the item and its price, but there is actually a new factor that consumers will be considering now. Financial security.
Recession Proofing
Several businesses have endured bankruptcy in the aftermath of economic collapse. This in turn has put countless numbers of buyers in a very bad predicament. As individuals look to reinvest income into savings and shareholdings they would like to see that the corporation they are investing in has some sort of safeguard against potential recessions.
Price Guarantees
One particular very noticeable element of the recent economic downturn in the Uk was the sharp drop in the interest rate. After this change had precipitated itself throughout the high street shops and fiscal services organisations several people found that they were either suffering as a result or enjoying a financial advantage. Either way, it undoubtedly elevated the profile of the effect that a changing interest rate can have on every day economic products.
Customers who are looking to open new savings accounts or private pensions might be concerned that if the economic downturn does in fact drag on for much longer they will not be generating any substantial interest on their investments. In fact, the tough economy may still take a turn for the worst and interest rates could drop again. In this scenario, a savings product that provides a guaranteed rate of return turns into a really appealing option.
The exact same can be said for customers with credit agreements. If the recession is genuinely over and the worldwide market begins to recuperate much more swiftly than many anticipate, then it might not be too long before we see a rise in interest rates. This would mean that consumers would have to pay much more each month for their mortgages and loans.
A similar approach was utilised by a number of firms when the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. They would offer “price freezes” for their goods for a particular period in an attempt to keep their current consumers and bring new clients in. This price freeze permitted a buffer period for consumers to adjust to the new VAT rate.
Conclusion
Whether the economic downturn is completely over yet or not, this has functioned as a firm indication that no company can become complacent with its own position of success. Business managers must constantly seek to consolidate their situation and boost their own operations wherever possible. The companies which manage to endure the economic downturn will have learnt important lessons.