Are managers equipped to tackle the topsy-turvy of global economy?
Regular readers of Business Sutra must have realised by now that the column is devoted largely to tools and techniques of management. Though aimed at young and upcoming business executives, the column offers something for all managers across the spectrum of age and domains.
However, the current upheavals in the global economy demand that we focus on the relevance and significance of study of economics for managers. If you think deeply enough, you will realise that whether it be manufacturing, trade, marketing, sales, distribution, finance, human resource development or R&D all are creatures of the economy. Yet economics does not find the pride of place in B-school curricula. What a pity!
For a manager or a corporate house to succeed it is imperative to keep a hawk’s eye on the changing patterns of the economy. Economies go through ups and downs. They also display easily discernible cyclical patterns. All through this, we also witness birth and demise of concepts and products. Nothing lasts forever.
Yet there is no dearth of instances when managers remained so engaged in the nitty-gritty of business operations that they lost sight of the bigger picture – the economy. Changes in economies happen all too frequently now as the world has become globalised. A major economic development thousands of kilometres away can rock your boat here, so strong and dynamic are the current business linkages. We cannot wish this away and run an insular business sitting in our silos. The earlier young managers in Nepal internalise this reality the better.
No wonder, corporate behemoths the world over employ top notch economists to keep a tab over global, national and local economies. The idea is to get advance notice of the change rumbling in the distance. There is no point waking up when the elephant is in the room. One’s the jumbo is in the room you are left with little choice. It’s the giant animal who will decide whether to trample you or pamper you.
Once you are adequately informed you, in consultation with the top management, calibrate your policies, strategies and tactics accordingly. The tools of management that you have been equipped with at the business school and in real life business interaction can then be used differently to tackle the changing scenario.
Why am I urging young managers to brush up their knowledge and understanding of economics as an academic discipline? Because this academic stream can enable you to identify and tackle practical problems in your business like a champion gladiator.
You should be aware of the global economic slowdown which is sending shivers down the spine of governments, policy makers, and even the common man. In fact, the common man is the most vulnerable when an economic meltdown occurs. Businesses too are battered but most of them have the resilience to rise again and live another day. Unfortunately, the common man does not enjoy this luxury and ends up ruined.
Let’s find out how pervasive is the current economic slowdown and how it has pulled down demand, consumption and investment. This is not the forum to go down deeply into the ‘why’ and ‘how’ of the economic turmoil. (Suffice it to say that the USA-China tariff war, US economic sanctions against Iran and the recent attack on Saudi oil facilities are some, only some, of the major reasons stoking fear of a potential global recession.) But understanding its fallout is certainly the need of the hour for young managers. How else will they be able to brace themselves against the looming crisis?
Let’s begin with the state of affairs in the US. The economic growth of the world’s number one super power fell to 2.1 % annual rate in the second quarter, down from 3.1 % growth in the first three months of 2019. This was caused by 5.2 % drop in exports on account of economic weakness in Europe and trade war with China and other countries. The trade war has taken a toll on manufacturing. According to the US Commerce Department, drop in business investment and investments in commercial and residential real estate have also contributed to the economic deceleration. Randy Kroszner, a former governor on the Federal Reserve Board, said, “Trade policy uncertainty weighs on companies. They have to think about ‘Do I invest now do I invest later?’ ”
European Central Bank President Mario Draghi is worried over the outlook getting “worse and worse” in the Eurozone. The Commission’s Business Climate Indicator is in its worse dropping mode in the last six years. A recent Bank of France survey revealed that the country’s manufacturing sector growth plunged to a six-year low in June because production in the auto sector, plastics and electronics slowed down. Arcelor Mittal had to temporarily lay off 1400 Italian workers for 13 weeks at its Taranto plant.
Europe’s largest economy Germany just about avoided a recession last year. Decline in exports amid concerns of a global slowdown was the cause.
Gross domestic product fell by 0.1 % quarter on quarter. That takes down Germany’s annual growth rate to a measly 0.4 %. Economic analyst Andrew Walker opined, “This is the downside of being an exporting powerhouse. When the international economic environment clouds over, you get rained on…China is at the centre of trade storms and it’s also an important export market for Germany. So trade held the economy back…”
The British Chambers of Commerce (BCC) has disclosed that Britain is set on a course for the most prolonged slump in 17 years because of the global economic slowdown and the US-China trade war. The Guardian reported, “…business spending was due to decline by 1.5 % in 2019 and 0.1 % next year as companies put their investment plans on ice amid the global political turmoil.” BCC has warned that investment in UK will fall for three years consecutively.
What about China which is at the centre of the global crisis? Well, the slowdown in the world’s number two economy registered in August its weakest industrial production in over 17 years. Retail sales and investment figures have fallen down despite the government introducing several growth boosting measures since 2018. The tariff war with the US is bruising the dragon badly. Industrial output growth unexpectedly weakened to 4.4% in August month on month. Reuters reports that China has let its currency weaken, not a very honourable response in business and economic circles.
Singapore, the darling of business observers, has been jolted by the US-China trade slugging. CNN Business is of the view that the island nation could be headed for a recession. It reported its weakest annual growth since 2009 when its economy shrunk by 0.6%. The wealthy nation chopped its GDP growth forecast in 2019 to between 0% and 1%. The previous prediction expected the economy to grow by between 1.5% and 2.5%. Singapore relies heavily on exports and China is its biggest trading partner.
We have seen how slow the Chinese economy is moving for well over a year.
All this is worrisome for Nepal. But far more alarming is the slowdown in neighboring India, world’s sixth-largest economy and the third-largest consumer market.Let’s not forget that Nepal’s last fiscal year, which ended this mid-July, accounted for 64.6% (Rs 63 billion) of our export and 64.7% (Rs 918 billion) of our imports with India. Over 90% of our international trade goods pass through India. The Nepali rupee is also directly pegged with the Indian rupee.
Although with a projected GDP growth rate of 5% India is ahead of the other big countries except China (projected GDP growth 6.2%), any fall in India’s economy in comparison to its past performance is bound to affect Nepal directly.
Are we ready to face the crunch? Have we even evaluated and estimated the crisis potential? This is what Nepal’s government, its private sector and most importantly, our forward-looking and hard-working young managers need to focus on.
When the going gets tough, the tough get going.
Basant Chaudhary is a Poet, Writer, The Chairman of BLC and Basant Chaudhary Foundation. ([email protected])
