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Business and Economic Turmoil in 2016 … What to do?

Every business is opening a new page nowadays and many are discussing 2016 plans with a great level of skepticism and ambiguity derived from the local and regional business and geopolitical turbulent conditions. Many indicators at the end of 2015 and the beginning of 2016 are pointing towards a negative economic future. Locally, and mainly affected by the oil prices turndown (35% drop over the last year), major institutions in the country have experienced budget cuts and mega layoffs, and for the first time in its history, Qatar has announced a budget deficit, leading to strong governmental pressure and emphasis on efficient spending and the removal of governmental nomination and protection from many government/semi government owned companies.

The regions’ scenery is very much the same or even worse with the biggest economy in the area (KSA) announcing a budget deficiency of ($98 billion for 2016) and an increase on the price of fuel, in addition to the very turbulent geopolitical conditions the area is going through in the last year with several other spots of escalation, all of which are increasing the levels ambiguity and uncertainty with respect to the near future of the area. Internationally, economists are pessimistic and many economic reports are expecting a worldwide economic slowdown and a cycle of recession; supporting these expectations are the increase of the interest rate by the American federal reserve, a significant deceleration in China’s economic growth (growth in the Chinese economy dropped to a six-year low of 6.9% during the fourth quarter of 2015) and many multinational organizations such as AT&T, GE, 3M are either cutting costs or reducing capital spending.

On the level of small and medium enterprises, the scene is very much affected and is not far away from the big economic picture. According to the National Federation of Independent Business, only 25% of small businesses are planning capital expenditure in 2016, indicating a very cautious and pessimistic expectation of business growth, which is one the most important business drivers in small and medium enterprises. Growth is the factor that fuels SME’s innovation, creativity, and development.
Having described the economic scene above, what do SME’s need to or are expected to do? Do they need to slow down and get into a preservation mode, or do they continue their journey forward, trying to expand and strive for business and growth opportunities, challenging the general economic conditions and expectations?

Unfortunately, there is no single or direct answer, and the answer is dependent on several factors, some of which are:

  1. Type of industry: Some industries are less affected with this economic turndown such as the consumer industry, where a lot of signs are indicating that it may be an exception.
  2. Business model which defines how a company creates value for its customers and the strategy used to do so. Companies using innovation and differentiation strategies may not afford to outlay important innovation initiatives and extra capital expenditures to develop or improve new services or products
  3. The financial capability of the company and its access to unrestricted funding such as equity or low interest long term borrowing options.
  4. The ability to expand the market outreach of the company and to increase the customer base supported with an internal capability to do so.

For a high level advice, here is a highlight of the DO’s and DONT’s that SME’s need to consider:

Do:

  • Listen to customers, visit your most important accounts, and maintain a close relationship and find ways to keep them and serve them better.
  • Engage your employees and set new performance measures.
  • Manage financial expenditure closely (I’d even go as far as suggesting micro-managing your finances) and optimize your spending.
  • Watch competitors closely and find ways to differentiate your offerings from theirs in ways that are more meaningful to the customer.
  • Challenge your situation and constraints, work around your problems, and look for opportunities that may arise from within this current economic situation.

Don’t:

  • Cut on marketing and PR budgets. Bill Gates once said “If I went down to my last dollar, I would spend it on PR”. However, reviewing marketing strategies and tools is necessary for effectiveness.
  • Compromise on quality. No matter what happens, find ways to maintain the quality of your services and products.
  • Add unrestricted debt that can burden the business heavily if the storm takes longer than expected.
  • Tolerate delays in payment collection. Cash is king.

All the above factors, the Do’s and Don’ts, and some others need to be considered in planning for 2016. To do that, it is important for SME’s to listen to customers, engage with their employees, and keep an eye on the latest market developments and when needed, look towards external expertise to help assess the company’s situation, set priorities, and fine tune business strategies.

Credits to: Mr. Ahmed Abounahia, MBA, BSG, Managing Director – Averroes Advisory