Business Matter
By Manish Shah
Recession is associated with cutbacks in budgets, in workforce and in plans for the future. However, companies that are well managed can use this slowdown to widen their competitive advantage.
If a company sticks to its marketing budget while the competitors are cutting back, it will generate a larger return on its marketing investment. Various studies have demonstrated the positive effects of increasing the marketing spending during a downturn in the economy. Research done by Meldrum & Fewsmith indicates that firms that pursued aggressive advertising strategies during recession were able to increase their sales and profits at a greater pace than the firms that cut back on their advertising.
Another benefit of the ebbing economy is that it highlights the good and bad businesses of a company. A good management team will cut its laggards and focus on boosting its leaders. Since an economic downturn does not persist forever, the company, which has focused on its well performing businesses, will be in an excellent shape when the good times return. Therefore, it is counterproductive to make budget cuts across all businesses, both good and bad.
An economic downturn can play havoc on businesses. So it is an ideal time to acquire great businesses at reasonable prices. One such example is JPMorgan Chase’s acquisition of Bear Stearns in 2008 at a fire-sale price.
Companies can be better positioned to take advantage of a recession only if they have a sound strategy. The strategy enables a company to increase advertising in areas that it has a competitive advantage, to divert resources from areas that are weak and to utilize its cash to make great acquisitions. Despite the doom and gloom that surrounds a downturn, it provides a great opportunity for companies to forge ahead of then competitors.
Manish Shah is the former president of Midwest Law Printing in Chicago. He also worked at Intel, PwC and Motorola. He has an MBA from Kellogg Graduate School of Management, and a MS in Computer Science from Illinois Institute of Technology. He can be reached at manishshahus@yahoo.com.
