What is your strategy to overcome lockdown?
What do you do when a global pandemic hits you? A million-dollar question that everyone has been asking themselves in the last couple of months. Be it the state governments, CEOs/CFOs of blue-chip companies, medical experts, budding entrepreneurs or the common man, everyone is looking out for their answers. While the governments are resorting to measures like total lockdowns, this has given rise to added problems for the corporates. With hindrances as to production stalls, factory shutdowns, raw material shortage, logistic issues acting as the epicentre, additional factors like shortage of money supply, lack of confidence from investors, low consumption by households, are hinting towards a possible recession.
In the last month or so, we have seen major companies losing big fortunes owing to the falling stock prices. For instance, as of 19th of March, tech giants Microsoft, Apple, Amazon, and Alphabet along with Facebook had lost combined market value of approximately USD 1.3 trillion after hitting their peak only a month ago. In India as well, the story has been no different. Stock markets have struggled to cope up with the implications and as a result, trading was halted twice in the last month. Reliance Industries, for example, saw its biggest loss in 10 years when the share price dropped 13 percent in a single day last month. The story has been the same in the aviation industry with players like Air India and Indigo announcing company-wide pay-cuts to cover for losses incurred due to the lockdown. Air India, the first company to announce pay-cuts is reported to be suffering an estimated loss of Rs 30-35 crore per day owing to suspension of its operations. The IT sector, one of the biggest contributors to India’s outsourcing business also struggles. Although employing remote working may seem like the easiest available option, yet the critical nature of clients’ data proves to be a big challenge. The story has been the same in the power industry, while automobile suppliers continue to suffer from the slump in sales. The financial sector is also sailing in the same boat. To add on to the Yes Bank crisis, most of the institutes continue to suffer even after the RBI’s (Reserve Bank of India) assistance. Consequently, CRISIL has slashed down India’s FY21 growth forecast to 3.5% from the earlier predicted 5.2%. Now amidst all this chaos, the question still remains, what should companies do in times of a potential economic crisis?
Let us pull out a few stories from the last decade, specifically from the 2008 financial crisis. When the recession had hit global markets about 12 years back, few companies not only managed to survive but instead capitalized on the situation. I am talking about the likes of Lego, Amazon, Netflix, Dominos, Ford, Citibank, who backed themselves and later enjoyed the dividends. While the aforementioned companies may have had a base to work upon, there were these startups like WhatsApp, Slack, Venmo, Groupon, and Uber which had started from scratch and went on to write remarkable success stories. But why and how? What led to the success of these companies? The reasons were simple. Each of these companies took at least one of the following routes. Lego, for instance, identified expansion opportunities and extended its business to Asian and European markets. The result? A 63% increase in annual profits. Likewise, Groupon capitalized on the opportunity by introducing an alternative solution in the market. They identified the consumers’ reluctance to spend money and provided a system where consumers can enjoy discounts and buyers can customize their offerings as per their needs. Hence, creating a win-win situation for both. Similar was the story of Amazon that provided an innovative product in the form of ‘Kindle 2’ for people staying at homes during the holiday season; whereas slack and Uber were started with a vision to solve problems people had been facing. Now as we roll back to the present, what lessons do you think we can learn from the above cases?
Make no mistake, I am not stating all companies in India are suffering. The pharma industry has been enjoying good times as companies like Sun Pharma and CIPLA continue to grow in the stock market. And there is no science behind this, these companies simply decided to invest more in their R&D instead of downscaling their operations. While most companies are following defensive strategies by announcing pay-cuts or by laying off their employees, however, some companies are looking at this as an opportunity and employing their offensive strategy. For example, recently Mylab became the first Indian company to provide COVID testing kits. Had they thought otherwise and decided to shut down their R&D, this would not have been possible.
Similarly, home learning apps like Byju’s, Unacadmey, and Vedantu are providing free access to all their courses in a bid to increase their user base. Companies like Zoom Video Communications are also investing in developing infrastructure for catering to their rapidly growing user base brought by the adoption of remote working solutions. Food delivery apps like Swiggy, Zomato are instead delivering groceries and providing contactless delivery options to its users. Uber recently announced a new service called ‘Uber Essentials’ to facilitate essential travel for the public to visit pharmacists and hospitals. The company has promised to maintain safety and hygiene and is currently making the services available in the following cities- Bengaluru, Gurgaon, Mumbai, Nashik, and Hyderabad. While Oyo, the hotel booking giant, has offered its idle accommodations for facilitating quarantine requirements in this time of crisis.
As evident from the past, it is, therefore, necessary for businesses to think out of the box to survive through these times. We need to look out for opportunities and come up with innovative ideas that add value by offering solutions to persisting problems – something that we have been doing for the last 30 years, and intend to continue doing it even now.
To sum it up, what should start-ups and big corporates do in the current situation? With the ongoing recession (yes, we believe it’s already here) making it difficult to manage the operating and capital expenditure for some companies, we highly recommend investing in intellectual assets at this time. It is only wise to hold onto the capital expenditure and instead invest in developing intellectual assets and securing the subsequent IP rights. Not only does this sound like a cost-effective approach but the IP rights secured today can act as a tool of competitive advantage in the long run.
What has been your strategy? How are you and your business dealing with this coronavirus outbreak? Feel free to share your thoughts.
Authored by Vinay Sharma
Compiled by Akshit Kapur