Recessions are full of opportunities for companies

Allez, j'optimise mon travail scolaire en le diffusant un peu online.

Ce billet était à l'origine un travail à rendre en cours d'anglais, mais ça serait dommage que ma prof d'anglais (qui ne s'intéresse probablement pas du tout à l'économie) soit la seule personne à lire ce piece of work qui m'a  quand même demandé une bonne heure et demi. Le papier est en réaction à un article de l'éditoraliste financier du New Yorker James Surowiecki qui avait un conseil à donner aux entreprises sur la meilleure stratégie à adopter en temps de crise économique. Et oui, il y aura sûrement des fautes et des choses mal dites.

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This paper is a reaction to an article I read a few days ago in The New Yorker, written by the journal's financial columnist James Surowiecki. His column is about the economic downturn and how companies should react in tough times like now. Surowiecki's thesis doesn't sound very orthodox: in his opinion, companies should run aggressive, expansive strategies in hard times, investing money on advertising, research and development, acquisitions...

In the current economy, many signals infer that Surowiecki's message is not taken seriously by managers and decision-makers. Indeed, many companies are now laying off (that's what we all can see in the newspapers, on TV, every day, all around the world and especially in modern economies such as ours) and cutting spending. It's clear for instance that many companies are now cutting their ad expenses (as we know, TV channels and newspapers suffer from it for a few months).

In his paper, Surowiecki suggests that companies are wrong and that the current recession actually is a great opportunity for many companies. The columnist gives several examples of companies (Kellogg, Hyundai, and many others) which got stronger in periods of recession, getting larger market shares and making more money by taking risks and keeping investing when the others adopted defensive strategies (typically cutting spending).

Even though failures happen, these aggressive strategies in hard times usually pay because investments are cheaper and make a big difference. With the same amount of advertising expenses, an ad campaign in a recession will touch a lot more clients and raise a lot more money than in a normal economy (where everyone is aggressive), because it won't face any competition and ad prices will be lower. The mechanism also works for R&D and acquisitions of other companies, real estate, financial assets, etc. To broaden what the author says, everyone who can should make good investments right now, not only companies. With stocks, bonds, houses at low prices, people have interesting investment opportunities to seize without taking too much risk: that's the message, since the beginning of the financial collapse, of the famous American investor Warren Buffet who made his great fortune by buying low (when everybody is afraid) and selling high, making huge benefits thanks to shy markets.

Political leaders usually see the consequences of economic downturn on R&D spending, for example. That's why, French government and others have decided to lend money at low interest rates to push companies to do some research and to innovate. Another political response to the crisis should be to help entrepreneurs with good ideas, innovative projects, to create new companies, by giving them financial and technical support for example.

However, aggressive strategies are a solution for only a limited number of companies and they won't save the entire economy. In fact, Surowiecki's advice can't really apply to small companies because they don't have any fund, they don't have the “deep pockets” that big companies have, to invest in any way. Moreover, it's very difficult for these small companies to get loans from banks (or from the financial markets) at this time, because banks also face huge financial problems (and costly banking system bailouts put in place by governments in the last months didn't succeed for now to restore credit, so that the current situation can be described as a 'credit crunch'). More generally, small companies can't really impose their own strategy because of their limited reserves, their tiny market share and the pressure they face on prices.

To conclude, I think James Surowiecki makes an interesting point in this column : in the current crisis where uncertainty is everywhere, companies should not apply too shy, pessimistic, defensive strategies; if they are financially able to, they should make bets on future and keep investing while their competitors hesitate. Unfortunately, we can't expect too much from this new kind of risky-capitalism or intuitive-management. The upturn of the world economy we need won't come from it and will demand a lot more efforts.