Download The Recent Recession final slides

A few facts
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Worst downturn in UK since 1921
Worst downturn in most western
countries since 1929
Worst downturn in world trade since 1945
(-12.3%!!)
Most decisive counter-cyclical government
action ever (which is why unemployment
in the West isn’t sky-high)
A few themes
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UK recession or world recession?
Prepare for the recession or prepare for a
recession?
Evaluating the unpredictability of the
events (expectations changed so quickly)
The special characteristics of this
recession – govt intervention & the
aftermath; and the banking crisis/’Crunch’
1929-1930 v Jan-Apr 08-09
Crude steel production 1930/1929 v 2009*/2008
0%
-10%
US
UK
Germany
-20%
1930
-30%
-40%
-50%
-60%
2009
1929-1930 v Jan-Apr 08-09
Crude Steel production 1930/1929 and 2009*/2008
0%
-10%
US
UK
Germany
-20%
1930
-30%
-40%
-50%
-60%
2009
Total world output 2009: -22.7%
World Steel Production Jan-Apr 2008-2009
(000 tons; World Steel Association)
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
+0.1%
-40.1%
-28.8%
2008
2009
China
Europe & US
ROW
135 years of UK boom & slump
Unemployment 1875 to 2010
(historical statistics till 2008, then consensus of economic forecasters)
%
18
16
14
12
10
8
6
4
2
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
0
Time Line:
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Aug 07 Money Markets seize up
Sept 07 Northern Rock collapse
March 08 Bear Stearns collapse
Aug 08 Darling mocked for ‘60 yrs’; BoE
rate: 5%
Sept 08 Lehman Bros collapse
Oct 08 BoE rate: 4.5%
Nov 08 BoE rate: 3%
Dec 2%; Jan 09 1.5%; Feb 1%; Mar 0.5%
House prices spark the Crunch
Annual % change in house prices US and UK 2002-2009
Credit
Crunch
starts
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
UK
0.0%
USA
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
-25.0%
Jul-03
-20.0%
Jan-03
-15.0%
Jul-02
-10.0%
Jan-02
-5.0%
Crunch impact on UK economy
Darling
Forecasts
The Budget
12/3/2008
GDP 08/09
+2%
GDP 09/10
+2.5%
GDP 10/11
+2.75%
Pre-Budget
Nov 08
The Budget
22/4/2009
Crunch impact on UK economy
Darling
Forecasts
The Budget
12/3/2008
GDP 08/09
+2%
Pre-Budget
Nov 08
+0.75%
The Budget
22/4/2009
GDP 09/10
+2.5%
-1.0%
-3.5%
GDP 10/11
+2.75%
+1.75%
+1.25%
+0.7%
Crunch impact on UK economy
Darling
Forecasts
The Budget
12/3/2008
GDP 08/09
+2%
Pre-Budget
Nov 08
+0.75%
The Budget
22/4/2009
GDP 09/10
+2.5%
-1.0%
-3.5%
GDP 10/11
+2.75%
+1.75%
+1.25%
PSNB 08/09
£43bn
PSNB 09/10
£38bn
PSNB 10/11
£32bn
+0.7%
Crunch impact on UK economy
Darling
Forecasts
The Budget
12/3/2008
GDP 08/09
+2%
Pre-Budget
Nov 08
+0.75%
The Budget
22/4/2009
GDP 09/10
+2.5%
-1.0%
-3.5%
GDP 10/11
+2.75%
+1.75%
+1.25%
PSNB 08/09
£43bn
£78bn
£90bn
PSNB 09/10
£38bn
£118bn
£175bn
PSNB 10/11
£32bn
£105bn
£170bn
+0.7%
What next?
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‘Easing’ leads to inflation? ...
... Or will low capacity utilisation keep
prices under control?
Will the recession be V-shaped? U-shaped?
W-shaped or L-shaped?!
More importantly, is this the end of UK and
US indulgence, as power and wealth moves
East?
Quick Test on the U4 Exam
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How many minutes?
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How many marks?
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What % of marks for evaluation?
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How many is that per essay?
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Outline one conclusion you can draw from
the above.
Quick Test on the U4 Exam
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How many minutes? 105
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How many marks?
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What % of marks for evaluation? 35%
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How many is that per essay? 14 !
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80
Outline one conclusion you can draw from
the above. A) Need–and have time–to plan
B) Pause for thought before conclusions
Recession, Business & Strategy
The most common business
response to recession – cut stocks
Quarterly Changes in Inventories UK - up to 4th Q. 2009; ONS
£m s
4,000
3,000
2,000
1980-82
recession
1990-92
recession
1,000
0
-1,000
-2,000
-3,000
-4,000
-5,000
2009
recession
Next most common – cut
investment spending
Private investment (% change since previous Q)
%
10
8
6
4
2
19
79
19 Q4
81
19 Q2
82
19 Q4
84
19 Q2
85
19 Q4
87
19 Q2
88
19 Q4
90
19 Q2
91
19 Q4
93
19 Q2
94
19 Q4
96
19 Q2
97
19 Q4
99
20 Q2
00
20 Q4
02
20 Q2
03
20 Q4
05
20 Q2
06
20 Q4
08
Q
2
0
-2
-4
-6
-8
1980
-10recession
1990
recession
2001 mini
recession
2008/09
setback
Downturn in Business
Investment spending
Investment in Equipment & Machinery
% YOY
30
Q2 1989
20
10
0
-10
Q2 2007
Yr 1 Yr 1 Yr 1 Yr 1 Yr 2 Yr 2 Yr 2 Yr 2 Yr 3 Yr 3 Yr 3
Q1 Q2 Q3
Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3
1990
2009
-20
-30
-40
Q3 2009
% change since a year ago
-5.00
-10.00
-15.00
2009 Q2
2007 Q4
2006 Q2
2004 Q4
2003 Q2
2001 Q4
2000 Q2
1998 Q4
1997 Q2
1995 Q4
1994 Q2
1992 Q4
1991 Q2
1989 Q4
1988 Q2
1986 Q4
1985 Q2
1983 Q4
1982 Q2
1980 Q4
1979 Q2
World Economic downturn is a
key factor in ‘Britain’s recession’
% Change in UK Exports of Goods and Services
15.00
10.00
5.00
0.00
Waitrose struggles at the start
Waitrose weekly sales 2007-2010
£m s
140
130
120
110
Yr 2007
100
90
80
70
60
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week 1-52
Waitrose struggles at the start
Waitrose weekly sales 2007-2010
£m s
140
130
120
110
Yr 2007
100
Yr 2008
90
80
70
60
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week 1-52
Waitrose triumphs in recession
Waitrose weekly sales 2007-2010
£m s
140
130
120
Essentials
launched 09
110
Online free
delivery 09
100
Yr 2007
Yr 2008
Yr 2009
90
Yr 2010
80
70
60
1
4
7
10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Week 1-52
Key Points
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Short-term recession plans focus on
stocks and discretionary investment
The short-term plans may go too far
(because they are reactions to a
downturn with no known bottom)
New long-term strategies may take 9-12
months to emerge, leaving an
opportunity for small, nimble companies
Recovery and the Future
The Underpinnings of Strategy
The recovery possibilities
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The V
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The U
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The L or the W
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The Mountain
Sharp recovery; soon
back to business as usual
Long recession, but full
recovery
Very long recession, or
the dreaded ‘double dip’
Recovery in the East
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China looks set to return to +11% in
2010; India to +8%
In 2009 China overtook the US to become
the No 1 export market for Japan; in Dec
09, Japan exports to the US were -7%, to
EU +1% and to China +43%
‘Chindia’ is sucking the East out of
recession
China – world’s biggest car market
Annual automobile sales, by country
M. cars
20
18
16
14
12
10
8
6
4
2
0
China
India
USA
2001
2002
2003
2004
2005
2006
2007
2008
2009
China – world’s biggest car market
Annual automobile sales, by country
March 2010
China car
sales +67%
US: 1.07m
China: 1.7m
M. cars
20
18
16
14
12
10
8
6
4
2
0
China
India
USA
2001
2002
2003
2004
2005
2006
2007
2008
2009
Annual Per Capita Spending on Toilet Paper
(US$)
$s
25
22.3
20
15
10
5
2.9
0.01
0
USA
China
India
Growth Potential in the East
$s
60
Confectionery Spend per head 2008 (US$s)
54.63
50
40
30
20
10
0.65
0.38
China
India
0
USA
Tougher in the West
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U.S. growth perhaps 2.5%
EU growth perhaps 1.5%
IMF forecast:
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Advanced economies
Emerging/developing
United Kingdom
2010
2.1%
6.0%
1.3%
2011
2.4%
6.3%
2.7%
Strategic Options for UK firms
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Focus on Britain, to rebuild a strong core
in existing sectors
Focus on Britain, but rethink the new
future (what will be the new trends?)
Focus on the growth markets:
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either the existing ones (China and India)
or the next wave, e.g. Vietnam, Cambodia
and sub-Saharan Africa
Focus on the core
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In tough times and with an uncertain
future, it may seem sensible to ‘stick to
the knitting’ …
… Asda could focus even more on price;
Paul Smith become more British than
ever; and Harrods remain a shop to
aspire to, rather than visit regularly
It worked before, so it’ll work again
Rethink the new future
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If recovery sets in fully, will all spending
revert to 2006/2007 patterns? Or will
there be new faves?
Vertu? M&S Food? Stella McCartney? –
lost impetus and lost competitiveness?
So should Apple launch a range of
£5,000-£10,000 iPhones? And should
Tesco relaunch its ‘Finest’ range?
Diversify towards growth
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Burberry will increase outlets in China from
44 to 100 in 2010; its Jan 2010 accounts
reported AsiaPacific to have sales +18%,
with China ‘performing strongly’.
JCB is pushing to increase its presence in
China; it has a 50% share of the
construction equipment market in India,
but only 0.5% in China!
Another Mini-Test
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Give two reasons why this recession is
‘special’
What happened to UK interest rates
between August 2008 and December 08?
Identify two short-term plans for
businesses at times of recession
Identify one cautious & one bold long-term
corporate strategy during this recession
Another Mini-Test
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Two reasons why this recession is ‘special’
Biggest since 1921; big fall in world trade
Interest rates August 2008: 5% Dec: 2%
Two short-term plans: cut stocks; cut
discretionary investment, eg co. cars
Cautious strategy: - focus on the core
Bold strategy: go where growth is: Chindia
1. How the recent recession can create
opportunities and threats for businesses
and industries
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Opportunities: property availability/price,
e.g. ShakeAway from 16 – 42 branches;
closed competitors, HMV re Woolworths;
flexibility (small firms)
Threats: to finances of growing firms, new
small firms and firms with high gearing,
eg Debenhams; to the survival of marginal
businesses, eg Woolworths and many
shops/restaurants
2. The long-term strategies and shortterm plans adopted by businesses in
the recession
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Short-term plans may be drastic, eg.
Honda closing all production for 3 months;
they may also prove over-reactions, e.g.
Tesco’s treatment of suppliers; most
common plans: cut stocks and investment
Strategies: a re-think about the future,
possibly dramatic, e.g. close down a
division or shut down marginal outlets;
rethink the purpose and direction of
investment spending
3. Factors influencing the strategies
businesses adopt in the recession
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Circumstances, e.g. Tesco v Carpetright
Resources (3Ms)
Time horizons: 18 months? 5 years?
Leadership: entrepreneurial or cautious?
Pressures, e.g. Google pulling out of
China (external pressure); or the internal
pressures on B.A. due to mistrust
4. Strategies that business could have
adopted to prepare for the recession
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Contingency planning
It can be argued that ‘the’ recession was
not predictable; ‘a’ recession was
All businesses should consider: their
dependence on one product or market –
and the nature of that product/market;
their financial circumstances; the
flexibilities they have planned for
5. The possible impact of the recession on
stakeholders and relationships between
businesses and their stakeholders
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Each stakeholder is affected differently, both
in general and specific circumstances; worst
off are small/weak suppliers when dealing
with big customers, but NB Fairtrade KitKat
Relationships can be strained, eg BA
management/staff and Tesco/Boots:
business/suppliers; but stakeholder-friendly
businesses (Coop/J Lewis) have done OK
6. The case for and against different
businesses/industries receiving govt.
financial support during a recession.
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For support: to protect the weak/limit the
strength of the downside; to protect
industries with a good long-term future,
but a very tough short-term outlook
Against: better to let the weak die so that
stronger firms can thrive; this is what a
free market is about; future generations
should not be burdened with today’s debts
Final Advice 1.
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For all essays: i. plan by brainstorming
and then prioritising; ii. develop 3 points
on either side of the argument, ie 6 in all
DO NOT fuse together the 4 strategy
bullet points, i.e. keep asking yourself:
‘Am I really focusing on bullet 2, not 1-4’
Whichever bullet points come up, focus
on the question rather than the examples
Final Advice 2.
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For section B essays, focus on the
business in the title to develop your
main application marks
For all essays: i. at the end of each para
re-read the title; ii. pause for thought
before writing your conclusions