Financial Times has an article on how to handle the economic downturns in China and in India, entitled, Managing in a downturn:Looking long term on the passage to ‘Chindia.’ [link no longer exists], it sets out the following five suggestions “to help companies design a long term strategy”:
1. Focus on the sector, not the economy.
The impact of the downturn in China will vary sharply depending on the sector. Infrastructure is still hot. I know I keep saying this and even I myself have troubling believing it, but so far, China’s downturn has had very little impact on my firm’s clients largely because we have very few clients in Guangdong Province. Our tech work (internet and gaming clients) is growing.
2. Reassess offshoring.
“Companies must use this opportunity to carefully consider the short-, medium- and long-term implications of offshoring. They must also evaluate whether any of their offshoring initiatives have diluted their core competencies or hampered their ability to build and leverage intellectual capital. This is a good time to adjust the boundary between the activities that the company outsources and those that it does itself” The article goes on to urge companies to seek to renegotiate their offshoring contracts to secure better rates.
3. Prepare for supply chain risks.
The article urges companies to be even more on their guard against Chinese companies seeking to cut corners. “As business slows down for some of these providers, there are greater chances that they may violate global compliance rules, which could lead to complications such as contamination (in manufacturing) and security risks (in services). It is important that multinationals pay more attention to protect themselves from such global supply chain risks during this downturn.” My firm has seen a marked increase in Chinese companies providing bad product to Western companies or just not providing any product at all. I am getting the sense that some Chinese companies are pulling out bad product that had been sitting in their warehouses for years. They are doing so now to make fast money, believing they will no longer exist a few months from now. During the “Asian crisis of 1997” a Seattle fish buying company received containers of bricks (not fish) from a Chinese company right before it shut its doors.
4. Improve the workforce.
During the past decade, many multinationals … realized that productive employees were difficult to attract and retain. This is a good time to take advantage of the weaker labour market to recruit and retain top-notch managerial talent.”
5. Innovate from China.
“This shrinkage of the market … offers companies the opportunity to accelerate development of affordable and robust products, designed for emerging markets. More importantly, such products could be attractive for customer segments in developed economies as well.”
What do you think?