Managing in a slow-growth economy starts with getting on top of the data

 

 

 

 

A modest recovery in the global economy, however, is projected to indicate economic stabilisation, but not a sign of robust revival. 

      Many economists perceive that the world economy remains fragile, given the risks and uncertainties around the world such as Europe’s debt crisis, China’s economic sluggishness, the US administration’s policy stance, the prospect of more departures from the European Union, and rising migration and terrorism. 

      These could significantly undermine the world economy at any time, leaving many economies to suffer from weak international investment and trade and even derailing the recovery.

As Thailand is dependent on exports for two-thirds of its gross domestic product, subdued global trade, coupled with lingering political instability, tepid private consumption and investment, and the fluctuation of the baht, is likely to create economic vulnerabilities and impede economic growth. 

Lessons learned from crises such as the Asian financial crisis (1997) and the US subprime financial crisis (2008) have reminded business leaders of the risks that might arise and the price that they need to pay if their strategies are not appropriately formulated, implemented and controlled. 

In our work with companies in Thailand and around the world, wee see a common pattern – radical strategic change in various operational aspects. This is a common business practice in times of economic uncertainty. 

Some management approaches such as cost control, effective working capital management, appropriate financial and operating models, and strategic M&A activities are normally implemented during a downturn. 

However, our view is that business leaders need to be aware of the depth and duration of the potential economic downturn before developing their strategic and operating plans. 

An organisation should first collate data to develop a contingency plan with plausible scenarios from mild, moderate to severe in accordance with market factors and internal realities. 

Next, a practical course of action must be proposed to ensure that the business can effectively minimise the harsh impacts of the economic slowdown and strongly recover when economic conditions return to the growth mode.

To understand the thoughts and strategic actions of Thai businesses during the economic slowdown, Deloitte Thailand surveyed several major industries including the automobile, oil and gas, and financial services sectors. 

More than 100 business leaders participated in the online survey from September to November.   Their sentiment was quite clear – 81 per cent thought Thailand has been facing a moderate economic slowdown. 

Although most felt that the overall economy has not yet rebounded from a period of slow growth, only half believed that the economic slowdown has not had a negative impact on their business. Meanwhile, 55 per cent said they expect the economy to recover in less than three years. 

Similarly, our respondents ranked the Chinese economic slowdown, subdued global trade and decline in oil and gas prices as the top three factors significantly affecting their businesses.  The results are in line with the facts that Thailand is an export-oriented country and China is its best customer. 

The threat of domestic political instability is considered the top impediment to their business. The concerns over the political situation continue to erode business sentiment in Thailand. 

Nevertheless, almost 60 per cent believe the government’s economic stimulus packages support their business and help invigorate the economy.

Overall, the responses of the leaders in the survey suggest that their businesses have been facing up to the moderate slowdown and understand what it means to their businesses and some of the actions they need to take to survive in the market. 

Given the current risks and uncertainty, an assessment of various plausible scenarios based on the depths and duration of the downturn as well as stress testing are first recommended. 

We believe the rewards could be higher if businesses clearly understand the situation and foresee all potential future outcomes to minimise the negative impacts during the difficult times, positioning themselves ultimately to grow strongly when the economy starts turning up.

 

Sahanon Tungbenchasirikul is an associate director and WEERACHAI WIWATCHANKIT a senior consultant at Deloitte Thailand.