Vintage Filings Business Blog

Effects of the worldwide economic recession have trickled down to developing nations – and India is not impervious to the consequences. A significant proportion of India SMBs (small and medium businesses with up to 999 employees) have experienced tighter cash flow and sharp declines in revenues brought on by cancelled orders or investment plans. Business has been put-on-hold by SMB customers. Inventory constraints are another key problem that SMBs in India face – as they are burdened with a glut of excess products.

These are some of the major findings that have been obtained as part of AMI’s latest quarterly tracking study, 2009 Q-1 India SMB: “Impacts of a Game-Changing Economic Downturn: How to Market Effectively & Stay Competitive”. This study was initiated among India SMBs during October – December 2008.

PC shipments within any country have a very close relationship with GDP and other economic indicators. Based on the current economic situation and India SMB spending in the last 3 months, AMI forecasts that in the next three months, almost 23% of SMBs in India are likely to invest in basic IT products such as desktops in the next 3 months – a marginal drop from the purchase propensity exhibited in the last 3 months. Other consequences of the somewhat bleak outlook are lower employee hiring rates and a near-freeze in the addition of branches.

India SMBs have been adopting a wait and watch policy for new technology adoption. AMI’s in-depth research among these SMBs reveals that most have not cancelled or shelved their new technology adoption and purchase plans; rather they have merely postponed them. Future PC purchases by India SMBs are likely to be driven by enhancement of compliance requirements and adoption of various PC-based applications, e.g. accounting software.

India SMBs remain receptive to IT spending, especially when consistent with their efforts to leverage current IT – thereby enhancing productivity, improving customer relations, and expanding business capabilities. It is important for IT vendors to identify new bundling opportunities to repackage the offerings (hardware, software and/or services) into more complete IT packages that provide value-addition to customers yet enable significant cost cutting. The ‘pay as you use’ model is gathering momentum since OPEX is being preferred to a greater extent than CAPEX. Key drivers behind the growth of the former are lower initial costs and overall TCO, fewer maintenance problems, greater affordability and easier availability of broadband. As per AMI’s quarterly tracker survey, significant proportions (more than 17%) of SMBs indicate that they would be very likely to invest in software applications if they are available on a flexible monthly, per-user payment structure.

The above equates to an opportunity for tech marketers and IT vendors. They should speak directly to SMBs and explain the value proposition of IT as a key to survival and success in the new economic environment. Use of better communication modes is another key method of navigating the economic downturn. As SMBs make an effort to reduce travel costs they utilize Internet-based collaborative technologies, e.g. audio & video conferencing as well as VoIP/ Skype calls, to connect remotely to employees and branches. These tendencies hold considerable promise for data communication vendors.

Amid a bear market, credit crisis, rescue packages, stimulus bills and more, investors continue to search for investment advice they can trust. As they try to contain their emotions, use extreme caution in bucking the headwinds and attempt to navigate around the minefields in the wake of a total S&P 500 return in 2008 that was -37%, Zacks Investment Research has released the year-end rankings of model portfolios of some of the streets retail brokerages.

This is the third consecutive survey during a volatile stock market. Even though all posted negative total returns, its noteworthy that , in the second half of the year, almost half outperformed the benchmark indicator in what was an ugly year for Wall Street. The Top six performers moved up in rank from their mid-year 2008 levels. For the full year 2008, eight out of fourteen brokerages turned in a better return than the S&P 500, with positive excess returns versus the index. “The top performing brokerages for the year were invested in the sectors that produced the best performance in 2008”, says Tracey Ryniec, stock analyst for Zacks.com. “Although all sectors finished lower for the year, consumer staples was the top performing sector and was considered to be the best performing defensive area during the stock market’s rough ride. Not surprisingly, the top model portfolios were heavily weighted in consumer staples stocks.”

Ryniec also points out that the technology and healthcare sectors, also among the top performing sectors in 2008, counteracted losses the portfolios saw in the financial sector. “All three top performing model portfolios used an outsized investment in either technology or healthcare to boost returns. Technology was among the top two sector holdings of the three best performing portfolios. Additionally, oil and energy, the top performing sector of the first half of 2008, saw such large first half gains that it provided an extra boost to portfolios going into the second half of the year which aided full year performance.”

The top three winners for 2008 were Edward Jones, Credit Suisse and Morgan Keegan respectively. Edward Jones is also the first place taker in the three year category, while Morgan Keegan ranks first in the five year.

During the current economic time, it is critical for companies to find any and all cost saving measures available.  Archstone Consulting, a management strategy and operations consultancy, today revealed in its annual Cost Management survey that 57% of the companies have not yet identified sufficient savings opportunities to meet the cost reduction targets necessitated by the dramatic economic decline in 2009. The survey was commissioned to understand the cost reduction targets companies have established, areas of focus to realize these savings and the challenges companies face in implementing their respective strategies.

While the respondents reported a high rate of success in cost reductions last year, companies are drastically shifting cost reduction tactics as they search for incremental savings. The survey found that in 2009, companies are turning increasingly to the use of more complex initiatives, such as logistics redesign (+11%), shared services (+9%) and asset rationalization (+9%), in order to realize their cost savings goals this year. Furthermore, respondents of the survey expect a decreased use of discreet tactics including restructuring (-11%), overhead cost reduction (-6%), off-shoring (-5%), and strategic sourcing (-4%).

“Our prior cost management report concluded that 86 percent of companies surveyed said cost reduction initiatives were an integral part of how they operate. However, as companies face this new economic environment, they are relying less on traditional cost reduction measures and are searching for more creative options,” said Todd Lavieri, President and CEO of Archstone Consulting. “Companies today have to act very aggressively to protect their profits — they need to review their previous cost reduction plans and reexamine the savings opportunities that were left on the table in 2008.”

David Wireman, Principal and Operations Improvement Practice Leader at Archstone Consulting added, “Respondents reported they will also be looking to reduce Engineering, Research and Development and Customer Service costs, areas that have traditionally been left untouched by cost reduction efforts, indicating the pressure companies feel to find every possible cost reduction opportunity this year.”

Further Opportunities for 2009

As companies strive to step up their cost reduction efforts and tap into hidden pools of cost in 2009, many companies are seeking to find the next level of cost reduction opportunities. Survey respondents identified the following challenges that prohibited companies from realizing their 2008 goals. These challenges, when addressed, represent unrealized, untouched and unrecognized opportunities for 2009:

• Implementation delays and a lack of resources.
• Upfront investment requirements, regulatory implications, risk to quality or customer service, and potential revenue impact.
• A lack of cross-divisional and cross-functional visibility, divided focus, and the lack of bandwidth and analytical capability, as well as difficulty in tracking “soft” savings.

An increasing range of companies are seeing their business models erode as communication services, information and entertainment content shifts to the Internet. For many telecom service providers and media companies, organizational survival is at stake, according to In-Stat.

Organizations must do more than simply adding functions, such as links to social networking sites, Twitter messaging, chat rooms, and user comments/feedback. While these functions may help marketing and customer retention, they do not represent a Web 2.0 business model.

“Web 2.0 business models encompass an ecosystem of partnerships, designed to leverage both internal and external knowledge and assets,” says Keith Nissen, In-Stat analyst. “End to end ownership of the entire business model is a dying breed. Telecom operators, media companies and others must modify their business models.”

Recent research by In-Stat found the following:

• 78% of heavy Internet users regularly use two or more social networking sites.
• Operators have a key opportunity to provide consumers a “Personal Information Center” (PIC) portal. For example, 66.6% of respondents are very or somewhat interested in aggregating access and sharing of personal images through a PIC.
• Personalized content delivery and advertising is a key success factor. Currently, two-thirds of users never click on Internet ads.
• Century-old business models are obsolete. The newspaper industry’s downward spiral will result in a loss of a projected $25 billion in revenue annually.
• The IP media phone, potentially the consumer’s fourth screen, may be an ideal Web 2.0 service delivery device. By the end of 2013, In-Stat forecasts that over 16 million US households will have a media phone.

Does your company have a mobile marketing plan?  With the number of mobile subscribers expanding on a daily basis, setting up a strong wireless foundation is key to:

• Increasing market share
• Differentiating from the competition
• Opening up new revenue streams through mobile syndication

In today’s economy, where companies demand maximum results from invested marketing dollars, the mobile channel packs promising, powerful results. “Recent consumer surveys have shown that, on average, mobile marketing campaigns are showing remarkable response rates ranging from 2% to more than 20%,” said Tim Suther, Acxiom’s senior vice president for multichannel marketing services. “This high response rate, combined with a low cost of delivery, represents a highly effective channel for marketers.”

For today’s small business to succeed tomorrow, the ability to innovate will be more than something nice to have, it will be a necessity.  New research shows that innovation will be essential for small businesses over the next decade as they try to thrive and survive by seizing new opportunities, improving their competitive position and providing more value to their customers.

The findings appear in the latest Intuit Future of Small Business Report.  It focuses on the key factors that drive, enable, amplify and shape the outcome of innovation, and the six characteristics of innovative companies. The report is part of the ongoing Intuit Future of Small Business series, conducted by Emergent Research and the Institute for the Future.

Innovation is common among the 77 million people employed by the nation’s small businesses, the report found, but entrepreneurs don’t see themselves in that light. Yet that doesn’t diminish the critical role innovation plays in their business or the effect they have on the U.S. economy.

“Innovation isn’t restricted to science labs and corporations. It’s the driving force behind small business entrepreneurship,” said Roy Rosin, vice president of innovation at Intuit. “Small businesses instinctively use innovation to create new products and services, efficiently manage their business or find and acquire customers. These innovations are the keys to their future.”

Small business owners are natural innovators, the study found, with their inspiration driven by three needs: necessity, opportunity and ingenuity. Whether prompted by changes in the marketplace, competitive pressures or simply the desire to create something bigger and better, small businesses are constantly refining and redefining how they work and what they produce.

Innovation Enablers

Compared to large corporations, small businesses have a number of innovation advantages that enable them to more readily identify opportunities, quickly react to changing conditions and remain competitive. Their smaller size makes it easier and cheaper to try new approaches faster than larger businesses. These six enablers include:

• Personal passion: Personally invested, most small business owners are willing to try new approaches to make their business more successful.
• Customer connection: A deep and direct relationship with the market and customers helps small businesses understand customer needs, identify new opportunities, and fix problems quickly and efficiently.
• Agility and adaptation: Unlike large corporations, small businesses can quickly adapt to changing market conditions and implement new business practices.
• Experimentation and improvisation: When pursuing new opportunities, many small business owners and managers aren’t afraid to experiment and improvise, accepting failure as part of the path to success.
• Resource limitations: Small businesses are adept at doing more with less. And these resource constraints lend to their innovative mindset.
• Information sharing and collaboration: Small businesses traditionally rely on strong social networks to share information and inspire innovative thinking.

In addition, other factors amplify the ability to innovate. They include use of technology, access to capital, fostering a culture that values experimentation and building market knowledge. Also, government regulation can spur or rein in innovation.

Innovation Outcomes

Innovation occurs at all levels of small business, from the front office and dealing with customers, to the back room and producing products. Its outcome can also extend beyond the business, with effects that either sustain or change entire markets.

Market-sustaining innovation describes the ongoing refinements, or incremental innovation, in products and processes that most businesses regularly churn out to improve productivity and financial performance, increase customer satisfaction and save time. It includes about 80 percent of a firm’s innovation efforts, driven by an opportunity to make something better, not create something new. This type of fine-tuning may be as simple as offering a customer the chance to lease a product or service, rather than purchasing it outright. While not widely visible, it creates a new playing field that keeps small businesses competitive.

In contrast, market-changing innovation occurs on both large and small scales, and represents fundamental product, technology or business model changes that shift the competitive landscape of an industry. eBay is a classic example of a breakthrough company that changed a market by disrupting traditional retail systems. While rare, these innovations are highly visible and industry changing, essentially rewriting industry rules.

New research conducted by EnviroMedia Social Marketing indicates young Americans, an estimated audience of 76 million people, will power the new green economy and are the key to future economic growth.  This national opinion poll reveals a clear generation gap in understanding the cause of climate change — and marketing experts say businesses that pay attention may find new growth strategies.

More than any other age group, 18- to 34-year-olds believe global warming is caused by human activities. Additionally, the research indicates Americans who believe in this connection are almost twice as likely to buy more green products in this economy than Americans who believe it occurs naturally.

“That should serve as a wake-up call to sellers and marketers of current and future green products and to any company in general,” said Kevin Tuerff, cofounder and CEO of Green Canary Sustainability Consulting, a subsidiary of EnviroMedia.

“These consumers reward companies providing services and products that are less toxic, less packaged and less energy intensive.”

Convictions Drive Purchases for Young Climate Change Believers

Results of the survey of U.S. consumers are being released today as The Wall Street Journal’s gathering of business leaders in Santa Barbara, Calif., called “ECO:nomics, Creating Environmental Capital” (March 4-6, 2009) begins.

• Overall, 51 percent of Americans believe climate change is caused by human activities. Twenty-nine percent believe climate change is occurring naturally, and 15 percent say climate change needs to be scientifically proven. Just 3 percent of the public does not believe climate change exists.
• Sixty-four percent of 18- to 34-year-olds believe humans cause climate change — more than any other age group.
• A surprising 82 percent of Americans say they’re still buying green products despite changes in the economy.

• Those who believe climate change is caused by human activity are more likely to have attended college; believe that green transportation or electricity from renewable resources is most beneficial for the environment (rather than recycling or minimal/reduced packaging); and are influenced more in their green purchasing decisions by third-party certifications than by word-of-mouth or manufacturer labels.
• More than half (56 percent) of the people who believe electricity from renewable resources is the most beneficial action for the environment believe humans are causing climate change.

In a ravaged economy, salespeople are on the front lines, working harder than ever to keep merchandise moving despite vast reductions in spending and dwindling lines of credit.

Sales training needs have changed drastically due to the faltering economy, said Executive Professor Randy Webb, Director of Undergraduate Studies in The Program for Excellence in Selling at UH Bauer and former CEO of Uncle Ben’s Rice. The conference will address that landmark shift, with an emphasis on leading-edge issues in the theory and practice of sales management during a downturn.

“If you are a salesperson, you want to be well-prepared in a recession so that you have the knowledge, experience, determination and resilience to succeed,” Webb said.

Webb and Stephen Haines, Vice President of Sales and Marketing for Centex Homes Houston, recently spoke about some of the strategies they advocate in difficult times. “Before, it was pretty much just keep people lined up and take orders,” Haines said. “Now is when you need real sales people to be successful. Sometimes the best defense is a good offense.”

So, what constitutes a pro, as opposed to the “order takers,” sales people who are out in full force when the economy is great but who struggle in times like these?

“The better ones, despite the circumstances, are not likely to hunker down,” said Haines, who has managed sales teams for nearly 20 years. “They’re almost always out there thinking of a new way to generate sales.”

He and Webb recommend sales people get back to basics, offering these pointers:

• Accept, acknowledge and deal with the drastic change in the sales environment. “Face it head-on,” Webb said. “You can’t deny there’s a problem. People are going to be very wary about what they buy. First, they don’t have the money. And second, there’s fear. Look at the amount of wealth on paper that’s been lost.”

• Check your attitude if it’s negative and/or anxious. Attitude, more than ability, determines whether a salesperson will be successful, Webb said.

• Listen, then be a problem solver. This is not the time to market wants and wishes. “Your job is to uncover real needs. There has to be a real mutual benefit,” said Webb. Haines agrees, offering this perspective: “Don’t prescribe to your customer; discover the problem they’re having and come up with the solution.”

• Pay attention to details and don’t be afraid of repeating key points numerous times. Don’t assume a potential customer will remember what you say. “They can never hear it enough,” Webb said.

• Stay informed. “Read the Wall Street Journal; pay attention to what’s going on in Congress,” Haines said. Keep up on current local events such as company relocations, consolidations and other business activity, Haines noted. The information can then drive the way you or your customers do business.

• Conversely, don’t over-analyze all the negative news to the extent it keeps you from doing your job. One of Webb’s colleagues summed it up this way: “Close the newspaper, turn off CNN and go sell.”

Speaking at The Wall Street Journal’s ECOnomics conference, T. Boone Pickens provided his third consecutive monthly update on the level of United States’ imports of foreign oil, at the same time that President Obama and Congress begin to forge a national energy policy.

Pickens said that based on the latest figures from the U.S. Department of Energy’s Energy Information Administration (EIA), the U.S. imported 62 percent of its oil, or 339 million barrels in February 2009, sending approximately $13 billion, or $328,709 per minute, overseas to foreign governments.

“The stimulus package, the President’s new budget, and the national energy debate are underway across the country, and for the first time in 40 years, there is a serious discussion about how we get this country more energy independent,” said Pickens. “Last month alone, we imported nearly 339 million barrels of oil at a cost of $13 billion, streaming revenue overseas and in many cases, filling the national treasuries of dictators and governments whose interests are not aligned with the United States’. At the same time, our own economy is in crisis. For America to recover from this recession, to save existing jobs and to create new jobs that will keep up with advancing technologies, we must harness our domestic energy resources and get off of foreign oil. The Pickens Plan is the way there.”

Key elements of the Pickens Plan that called for expanded use of renewable energy and the development of a new national power grid were included in the recent stimulus legislation proposed by President Obama and passed by Congress. The second phase of the plan, expanding the use of domestic fuels such as natural gas, to replace foreign oil/diesel/gasoline, is expected to be a key focus of an energy plan.

In January, the U.S. imported 67.4 percent of its oil, up from 66.5 percent in December 2008. In total, the U.S. spent approximately $475 billion on imported oil in 2008.

Pickens continued, “The good news is that we have a President who has repeatedly said that he is committed to substantially decreasing foreign oil imports during his term. I believe that he wants to do this. I will continue to publish the monthly import numbers to track our progress and hope that soon we will start to see a reduction in how much foreign oil we import.”

The year 2008 may be gone, but it is definitely not forgotten. Every American is feeling the impact of the country’s economic battle and is making substantial changes to their everyday lives and shopping habits to stay afloat. Because changes have been broad and deep, the consumer packaged goods (CPG) industry must stay on their collective toes and respond to continually changing rituals with a new level of deftness, according to the latest IRI Times & Trends Report. The report explores CPG industry performance during the past year and provides insights on what to expect in 2009.

IRI has studied this economic transformation since the beginning and has divided 2008 into two stages. Stage I, “Shocking the System,” took place in Q108-Q308 and was characterized by an unprecedented rise in energy and food prices.

“Consumers reacted with sharp cutbacks to purchases overall and began a re-evaluation of what, why, where and when they buy food and center store items,” says IRI Consulting and Innovation President Thom Blischok. “Shoppers took a new look at old spending habits and started to make significant changes.”

Stage II, named “A Refocus on Impact,” began in Q408. During this quarter, commodity prices moderated and energy prices plunged, but consumers continued to cut back. Surprised and concerned by the severity of price increases and the credit crunch earlier in the year, shoppers did not re-open their wallets as prices moderated.

January 2009 began Stage III, “The Lasting Reality.” With the continuing rise in unemployment, ongoing weakness in the banking system and credit structure, and a belief that energy prices will increase again in the near future, consumers remain extremely skeptical. Among consumers earning more than $100,000, there are few signs that shoppers are backing away from their most extreme cost-cutting behaviors; but among all other income groups, the wallet remains closed.

“Recessions expose the health of CPG manufacturers and retailers,” continues Blischok. “Innovative companies thrive, while weaker companies struggle and fail. To be a success in this recessionary environment, you must anticipate and respond to change before it happens. This is instrumental in establishing long-term shopper loyalty even after the economy gets back on track.”

So what steps do businesses need to take?  IRI recommends the following action steps that retailers and manufacturers can take to improve market share, shopper loyalty and financial position in today’s economy:

• Planning: Shoppers are making most decisions before they enter the store. Manufacturers and retailers should shift merchandising and promotion strategies into people’s homes via traditional media and online social media.
• Purpose: Consumers have changed their rituals and are cooking more at home with fresh ingredients and are bringing snacks and lunches from home to work. Manufacturers should make fresh ingredients more available and rewire their snack strategy. Retailers must make it easy for shoppers to find these ingredients and supporting products in their stores.
• Price: Shoppers demand good prices and quality in what they buy. Manufacturers and retailers should redouble their collaboration strategies to offer consumers the best value possible.
• Product: Shoppers are buying familiar products, so new product experimentation is at an all time low. Manufacturers should consider an enhanced brand-extension strategy. Retailers can increase shelf space of existing brands at the expense of new products.
• Promotion: Shopper direct marketing has arrived and will become a strategic differentiator. Manufacturers and retailers should develop new media strategies which will ensure consumers’ maximum exposure to marketing messages.
• Place: Shoppers are looking for the best deals wherever they can find them. Loyalty to a channel/banner is only as good as “what have you done for me lately?” Manufacturers and retailers must review and update the value proposition of products and stores.
• Permanence: Shoppers are deeply worried about the future, and many changes they are currently making will last. Manufacturers must update their management structure in a way that facilitates an ongoing ability to offer new shopping experiences that address evolving consumer needs.