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Managing Downturn

A year in the grip of the global credit crunch has cost the UK economy £600 billion in falling house prices and tumbling equity values alone.That level of wealth destruction - equivalent to around one per cent of UK GDP - could lead to reduced spending of £12-16 billion over the next twelve to eighteen months as the effects of falling stock market and housing wealth feed through to reduce spending by UK businesses and households. And analysis by economists at PricewaterhouseCoopers LLP suggests that Northern Ireland is not immune from the effects of the global credit crunch. Liquidations rise In the three months to June of this year, company liquidations in Northern Ireland increased by 50 per cent on the 2007 level, with the number of individual bankruptcies rising by nearly 42 per cent. And with corporate liquidations in 2007 already the highest for a decade, the current situation is difficult. Year-on-year average house prices in Northern Ireland are down 16 per cent, the average annual family grocery bill is up £800, and inflation is twice the Treasury forecast - consumers are feeling the pinch. There is also growing evidence that consumers are plundering their savings to sustain their current standard of living. If this is the case, further cuts in consumer spending may come more swiftly and be far deeper than so far anticipated, with widespread effects across different sectors. It is not just those in the consumer supply-chain who are affected, with the challenges of managing in a downturn facing just about every business in Northern Ireland. Managing in a downturn Managing in a downturn may be more difficult than it appears as many of today's business owners, managers and executives have built their careers on 17 years of steady economic growth. Natural attrition has removed from the corporate scene experienced managers who understood that when it comes to managing in a downturn, the status quo can not prevail and doing nothing is not an option. With downturn a current business reality and likely to be around through most of 2009, businesses need to take decisive steps to understand the situation and assess the implications and risks, that will determine their survival. But they should not forget that even downturn clouds have a silver lining and managing the opportunities is every bit as important as managing the threats – and potentially a great deal more profitable. PricewaterhouseCoopers’ experience of previous downturns is that many proactive and nimble companies emerge stronger and more profitable, while others that fail to act and to adapt do not fare particularly well. Taking the action But the difference between gain and loss in a downturn is about knowing the action to take and taking it. That starts with challenges every business should make as to the quality of their strategic, financial, operational and stakeholder management plans. Consider the impact of the downturn on customers, suppliers and competitors. Ensure sufficient working capital and debt finance flexibility; reduce unnecessary levels of operational complexity and drive down cost; and identify and manage business stakeholders’ agendas and issues. Credit will be tight and markets difficult. During 2008 and for most of 2009, doing business in a downturn is the only way we will be doing business. Some will fail, most will survive, and many will prosper. It’s learning the secrets to adapt and de-risk, and in doing so prosper in such challenging conditions, that will prove the decade’s biggest management challenge. Garth Calow is an advisory partner in PricewaterhouseCoopers LLP in Belfast. He leads the business recovery services team and can be contacted at: garth.a.calow@uk.pwc.com

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Managing in a downturn

by Garth Calow, advisory partner, PricewaterhouseCoopers LLP, Belfast

Three months is a long time in both economics – and in politics.

by Bro McFerran CBE, president of the Northern Ireland Chamber of Commerce...read more

The official magazine of the Northern Ireland Chamber of Commerce

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