Articles

Global Financial Crisis

The New Era of Management

These are no ordinary times.

The global financial crisis started to show its effects in the middle of 2007 and into 2008.    

The great investment banks no longer exist. Central banks are working in concert but struggling to keep up with events.   China's government is pumping hundreds of billions of dollars into the economy to maintain a desired level of growth. 

Along the way, the very core assumptions about globalisation and debt, long taken for granted have come into question.    

Today we are witnessing the intervention government unlike we have seen in our lifetime.      

We will see massive changes in industry structures and consolidation.      

Most economic regions are now facing recession, or are in it. This includes the US, the Eurozone, and many others.      

At such times governments attempt to stimulate the economy. Policies include an to increase borrowing, reduce interest rates, reduce taxes and spend on public works such as infrastructure.   

Borrowing at a time of recession seems risky, but the idea is that this should be complimented with paying back during times of growth.    

Likewise, reducing interest rates sounds like there would be less incentive for people to save money, when banks need to build up their capital reserves. However, as the real economy starts to feel the pinch, reduced interest rates is an attempt to encourage people to take part in the economy.    

Tax reduction is something that most people favor, and yet during times of economic downturn it would seem that a reduction in tax would result in reduced government revenues just when they need it and then spending on health, education, etc, would be at risk. However, because higher taxes during downturns means more hardship for more people, increased borrowing is supposed to offset the reduction in taxes, hopefully affording people a better chance to weather the economic storm.    

Finally it is at this time that public infrastructure work, which can potentially employ many, many people, is palatable. Often, under free market ideals, government involvement in such activities is supposed to be minimal. Even the other forms of “interference” is usually frowned upon. However, most states realize that markets are not always able to function on their own (the current financial crisis, starting in the US, being the prime example); pragmatic and sensible adoption of market systems means governments can guide development and progress as required.    

Nonetheless, many governments have started to contemplate these kinds of measures. For example, South Korea reduced its interest rates , as has Japan, China, England, various European countries, and many others.    
Many have looked to borrow billions or in some way come up with stimulus packages to try and kick-start ailing economies.    

While these might be reasonably standard things to do, it requires that during economic good times, a reversal of some of these policies are required; interest rates may need to increase (one reason for the housing booms in the US, UK and elsewhere was that interest rates were too low during good times), borrowing should be reduced and debts should start to be repaid, infrastructure investments may not need to be as direct from government and private enterprise may be able to contribute, and most politically sensitive of all, taxes should increase again to offset the reduction in borrowing.    

At Standard Edge, we are helping businesses on how to cope with the extraordinary uncertainty.      

By providing practical advice we bring fresh thinking.      

Anxious employees, customers, suppliers, and business owners are looking for a steady hand and clear, candid advice that will help weather the financial storm.

History suggests even the deepest downturns can create huge opportunities.

Can the 1930s provide us useful lessons for setting priorities in today’s uncertain and evolving environment?      

Here is the opportunity to innovate      

Business owners are often told to maintain the course.      

The global financial crisis and its spillover into the real economy have generated considerable debate in the Great Depression.  

Many businesses hesitated to innovate during the 1930s or at the very least, undertake strategic reviews and prepare themselves for better times.      

Downturns are tough on business owners. Their position on the front lines of consumer spending doesn’t translate into a rapid turnaround when the economy starts to recover. 

Declining sales followed by a sluggish recovery period mean business should move quickly to minimize performance problems.      

Standard Edge will meet the challenge head on with our clients. We will look at a large number of options, ranging from costs, restructuring support functions, increasing revenue by refreshing stores or overhauling promotions.