Business, Economy, India, Macroeconomy, Microeconomy, Private Equity, Thoughts

Recovery or rebound? (long lasting pains)

It’s always nice to hear that Japan has grown a 3.7%. It makes eye-catchy headlines. But if you go deeper you see that the figure is just the annualisation of a mere 0.9% between April and June, and that in the first quarter the slump was around 11%. What does that tell us about statistical significance? After all, interpreting the figures will always be mediated by our wishful thinking.

A quarter may take us out of a formal recession but won’t make a new trend. I am the first whose wishful thinking would like this to be over, but it doesn’t seem likely to me. Still a lot of pain to endure to reverse the trend. Many things are pending to be able to grow healthily, albeit I admit that growth doesn’t need to be healthy to be growth.

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And when growth gets here again, there will be more pain to endure. Companies have made put themselves in protection mode, rightsized…sorry, I meant downsized; they may have made extraordinary things to get their products moving, to appease their customers and investors. Everything to get to the end of the tunnel. But that won’t be enough.

I hate to seem gloomy. I am not. My message here is quite simple. Even if we find the right path for recovery, we won’t be at the same place we’d left. Things will have changed. When the scared company opens its shell again, it may find itself in a very different place. Some currents will have dried out. Fortunately, and that’s where my optimism lies, new wells will start flowing, somewhere. But they won’t be at the same place we took for granted long ago.

Also we will have proven our customers there are other ways, that we can do more with less. That we can remove that slack, streamlined our operations, adjusted our overheads and given better quotes. Hopefully, they will have based their recovery on that, they won’t let us go back again to the previous business conditions. And we will have to adapt to that: more pain. The leakage of jobs will go on after the recovery is here. And no sense of urgency can last forever. Sometimes it’s easy to retrench than to transform oneself.

A silly example from my daily life. Calling from India to Spain five minutes costs 10€ with my Spanish cell. Driven by the necessity not to waste resources, the experiment is to do the same with my Indian cell: 54 rupees, which are approximately 0.85€. Do you think I’m going to use my Spanish cell here again?

Although this might seem irrelevant, it’s a sign that we customers are not that stupid after all.

Did you know that the Hilton Group is about to become extinct? Blackstone bought it for $26 billion in 2007, right now they owe $21 billion in debt. Refinancing that debt won’t cost that much right now, that’s not the problem. The problem is somewhere else: executive customers have massively forgot their loyalty to the firm seeking cheaper alternatives.

Did you know that the huge amount of money that Air India is losing just required its intervention? Probably you did. Same happens with other main Indian Airlines. The interesting part is that the low cost carriers that operate here are not losing money.

And when we are out of the crisis, if Air India and Hilton make it, surely by reducing prices and streamlining operations, the customers they will face will get accustomed to the new conditions and will keep asking more for less. After all their own streamlining depends on that. What used to be exceptional will become somehow the norm and the companies not aware of that change will suddenly open their shells in a dry desert.

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6 thoughts on “Recovery or rebound? (long lasting pains)

  1. Wen says:

    Grat post sir. I found ur blog fom searching south sea company. Todays and that are both great reads. Thank u.

    Do u have one on the panic in the 18s

  2. An economic crisis is a challenge, rather than a threat. If Hilton or any big airline is in trouble, is because they can no longer sustain their inefficiencies by overcharging customers. So they’ll have to look elsewhere to find new ways to attract customers. In fact, Starwood has done so by creating new brands (i.e. Aloft)

  3. Richard says:

    We cannot deny the fact that Globalisation has open up market for everyone and the beneficiary only ends up to those that have powers. we tend to believe that the wealth may trickle down which isnt in real picture, with down-sizing and outsourcing happening at a rate faster than the speed of lightning ( ;-)) we see the real cost of labour going down and down, and the opportunities are abundant so the best option available is to opt for less input cost and with steep competitions ,there has to be a pain and the result is what we are going through now ! the state intervention is the need of the hour and the example is set upfront by The market of India ( though there remain many critical debates)

  4. Alice says:

    This financial crisis seems to have a huge impact on the people’s mind. I suppose everybody think twice before take a financial decision. The future is impossible to be predicted. That’s all !

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