Internet Marketing Raipur
Recession: A Learning Session
What is recession?
Recession transpire when there is decline in a country’s GDP growth for two or more consecutive quarters of a year and demand for raw material, products, services, including labor decreases.
Recession in US
In 2008 it started with imbalance in economic system of US and extended in other parts of the world. From last few months, whole world has witnessed crash of major financial organization in the US and in several European countries. US being superpower of the world is facing recession, it is apparent to have its impact on other parts of the world as it is evident that whenever there is any tiny spark in US economy it spreads like wild fire in the whole world market.
Time has been spectator, that whenever a country’s economy prospers for more than 6 years, it always moves to slow down, which is completely normal in nature. Past records of US show that being world’s strongest and richest country, it has faced many recessions’ phases up till now. The greatest depression in US economy was from 1930 to 1939. This was the period of high unemployment, low profit margin and higher poverty rate.
In US the current face of crunch is due to sub prime mortgage. Sub prime is high risk loan offered to people with No Income No Asset (NINA). Top financial institutions Lehman Brothers, Merryl Lynch have invested their more part of funds into real estate sector without doing appropriate analysis and its effect in long run.
All the financial institutions have provided loan but they were not able to recover the loan amount. Providing loan to NINA group have proven a suicidal decision, it has exploded the real estate market but realty was entirely different and was not able to continue the momentum for long time.
Recession is not only going to affect India but other parts of world as out of 191 countries in globe US contributes 30% of worlds GDP.
For instance Toyota Motor Corp has decided to close all its factories in Japan for 11 days as in US its sales decline in more than a quarter of a century, demand and company profits has declined drastically.
Universal impact of Recession (every country of globe):
- Reduction in price of commodity
- Layoffs
- Factories shutdown
- Share market worst performance leads to adverse affect on investment firms as customers loose their faith.
- Decline in sales of luxury items.
- Usage of credit card will be less.
- Heavy loss to Entertainment sector.
- Decline in the disposable income of customers affects harsh on tourism sector.
- and many more…..
Impact of recession on India on different sectors:
Recession has shaken the roots of the world economy and resulted in the downfall of the major financial giants of US. Among all the countries of the globe, India too is not exempted from the impact of world financial crisis. Economic recession on world has led to multi-crore loss in businesses; thousands of employee layoffs are going on not only in export firms but also in other major sectors like IT, Automobile, Textile, Tourism and many others. US economic slumping has forced Indian industry to face the heat
Indian economy will lose 1-2% in their GDP in next financial year due to dependency on US. There are many business giants who exports their maximum products to US are now in a terrible condition. This is going to effect whole economic condition as all are interdependent on each other. Exporting companies facing losses are asking their employees not to report to office for unlimited time period. This will raise unemployment problem in the country which is going to affect other companies, debarred employees are customers of other companies. So undesirable affect on one sector will definitely have unfavorable impact others sectors also.
In India labor cost is very low; this has made India a preferred destination of US for BPO & KPO’s to operate. Employees of this sector were in golden era but recession has converted their fearless nights in to haunted dreams. Prosperous market is passing through jagged lane and curtailed all the facilities like pick & drop, meals which were previously being offered to them.
IT sector has been adversely affected by US as more than 75% of its revenues is generated from US. US economy has moved to economic slowdown which in result has raised the value of rupee, lowered the profit margin and has reduced the work assignments ultimately compelled the companies to reduce its workforce. Except for major IT companies the whole IT industry is finding very difficult to survive as many projects ended in half way and future projects are in halt. Bills payments pressure is cracking their backbone too. Major IT companies are not only giving pink slips to their employees but also they have banned fresher’s entry. TCS has shown door to its 500 employees to leave due to non-performance. IBM has already asked more than 700 employees to leave from its Indian Offices. India’s third larger IT exporter Wipro doing layoffs of 3000 employees.
Automobile sector is facing the greatest hit of global meltdown. According to data released by the Society of Indian Automobile Manufacturers (SIAM) passenger cars sales turn down by 19.38% and sales of commercial vehicles slouch of 49.52% till November 2008. Decline in sales of auto sector is worst and biggest decline in the records of history. Government has taken steps by cutting down duty of around 3.5%. All top players of market like Maruti, Hyundai, Tata, Bajaj, Hero Honda has announced reduction in bike prices ranges from 2000 to 5000 and in car it ranges from 8000 to 45000.
Tyre manufacturers are not untouched from this meltdown. Tata and Maruti have reduced their production to half. Dunlop tyre for instance has layoff their more than 2000 employees. No retrenchment, this has been decided by other tyre manufacturers but production cut is highly required to reduce the building up inventory in this time. Ceat Ltd. have cut their production and decided to stop their production for five to six days in the month of December. MRF Ltd recently cut their production at its two plants situated in Tiruvottiyur and Arakonam. JK Tyre & Industries have revealed that the original equipment manufacturer (OEM) demand for heavy vehicle tyres dropped by more than 65 per cent and for in cars segments, it is down 20-25 per cent till November.
Commerce department of India has surveyed 125 export companies and has revealed that exporting companies have lost more than 1.5 crores in between the months of August to October 2008 and due to this they were compelled for retrenchment of more than 60,000 employees.
Another sector is tourism which is affected by financial slowdown. Hotel industries have already got 25% cancellation from international tourist. Airline industry news is known to everyone. Jet airways employee retrenchment got world wide media coverage.
Decline in footfalls of customers in shopping malls has compelled retailers to take initiative to cut down prices of products and this has affected major industries like textile, FMCG, Durables etc. To lure customers whose purchasing power has declined drastically companies have adopted strategies of giving discount. Customers have restricted themselves only to necessary consumable goods. Marketers are selling their products with lower profit margin.
The drastic situation in US market such as insolvency of Lehman Brother, one of the oldest Financial Institution and step taken by Bank of America to acquire Merryl Lynch, has created economic tsunami in the share market of whole world. The waves of tsunami have created chaos in US economy. This has affected real estate sector as most of the Indian real estate companies’ have liquidity funded by both of these firms. Share prices of major players like DLF, Reliance Group, Wipro etc. scattered like playing cards. Real estate sector in India tumbled due to economic slowdown.
Stock market crash has traumatized the confidence of investors in share and in mutual fund. Insolvency of private banks worldwide especially top banks of US has reduced the trustworthiness of private banks. Common people are interested in holding money only in nationalized banks and in form of fixed deposits. Investment sectors like insurance, mutual fund, equity market are facing serious problems due to lost of faith in investments firms.
India is facing problems from several fronts. Recession is not the only major problem which is affecting the economy; terrorism is also major hurdle in the success path of India. Before the terrorist attack, India was attracting tourist and FDI’s at a faster pace but scene is entirely different now. If no serious steps have taken, not only tourism sector but other sectors will be adversely affected.
Recession is a learning session for all. In this time period every organization as well as individual learns how to utilize scare resources effectively and efficiently. Corporate start doing cost cutting to save single penny to utilize it optimally. By this they learn how strategically one penny saved can help them in overcoming from critical situation and also numerous techniques to save their earnings. Individual customers get taste of products which they did not even tried in their golden period. Individual learn a lesson about how to lead life comfortably in just five figures (Rs. per month) which was not even possible in six figures.
Strategies for marketers to overcome from this volcanic situation:
- Reducing products which are not adding profits to the corporate, from the product lines.
- Bringing down marketing & advertising budget of retail sector will help in reducing the financial burden and bringing down products costs which is highly required presently. Sales Promotion and advertising are the supreme factors for the retail industry to penetrate more into retail market. This is the time to be innovative and creative for effective advertising and marketing campaign to survive in existing trend.
- Cutting down the distribution channels with poor sales.
- Firms should try their level best for maintaining the investment level until the market uncertainty pass by.
- Reinforce the firm’s investment in profitable segment and selectively decreases the firm’s investment level by plummeting unprofitable customer groups.
- To recuperate the cash qualities, harvest the firm’s investment.
- Through disposal of assets, divestment of the business can be done.
Steps taken by RBI to pump oxygen in economy:
Government has came with a package of 300000 crore to pump the economy.
4% deduction in VAT by government has been welcomed by corporate sector.
Reduction in interest rate of home loan, car loan etc.
Opportunities for Companies:
Telecom sector: Due to economic slump products prices are raising day by day, companies downsizing their employees and share market performance have given lots of spices to share with near and dear ones and this has raised the importance of means of communication. Telecommunication sector (recharge vouchers, top-ups, S.T.D. & I.S.D calls) found this as an opportunity to expand their business in this recessionary phase.
Real Estate: RBI has announced cut down in the interest rates on loans for circulation of more funds in market, which is beneficial both for customers as well as marketers. Reduction in interest rate has again kick-started the real estate market.
Oil companies: Oil prices have reached $49 per barrel from more than $100 in just last six months. It has provided opportunity to oil companies to recover their losses. Government has given relaxation to common people, reduced petrol prices by Rs. 10, diesel by Rs. 5 and LPG by Rs. 25. , this has been made possible only due to recession.
Internet service providers (ISP): People loosing their job is rigorously searching new options and providing opportunities to firms like nauki.com, monster.com, jobseeker.com to grow at a faster pace. Sudden increase in traffic on internet is beneficial for ISP and online service providers.
Reference
http://www.siliconindia.com/shownews/Recession_cripples_Indian_auto_industry-nid-50274.html
About the Author
Sk.Faridullah,
Dy.Manager-Development
INC-Raipur
CG-INDIA
Web Design, Development, SEO Web Promotion, Web Trainning Pune