In an economic downturn as steep as the current recession, companies tend to hunker down, cut costs and seek efficiencies. But firms focused on rapid growth are blending these defensive tactics with offensive measures in their efforts to pass their competitors.

This is the main finding of a new research report from the Economist Intelligence Unit (EIU), Management magnified: Strategies for revenue growth in an economic downturn, sponsored by SAS. The research is part of a three-pronged analysis of management strategies that includes an examination of decision making in a recession and an assessment of executives’ perceptions of the link between sustainability and growth.

Companies will continue to face challenges in the near term. The EIU forecasts a slow recovery for the global economy through 2013, although performance will vary by region and industry. The economies of North America and Western Europe will slowly expand, not topping 2 percent GDP growth until 2013. Latin America and the transition economies in Central and Eastern Europe will pick up in 2011, and the Middle East and North Africa will experience a somewhat stronger rebound, starting in 2010. Emerging Asia will be the fastest growing region in 2010 - 13, led by India and China.

Globally, banking, construction and the automotive sector are likely to be severely battered but digital technology and low-carbon businesses will probably benefit from the changing business environment.  

Firms with their financial houses in order before the recession are best positioned to grab market share during the downturn. The severe credit crunch that characterised the start of the current crisis crippled companies whose growth strategies depended on heavy borrowings. Companies that have cash on hand can go on the offensive, taking market share from more vulnerable competitors.

The location of companies’ operations also can affect their access to financing—banks in south-east Asia, for example, were less affected by the credit freeze.

“A purely defensive strategy might seem most appropriate to ensure short-term survival, but it is unlikely to produce long-term growth,” said Katherine Dorr Abreu, senior editor at the EIU.

“In their planning, companies must take account of changes in the relative positions of economies and industries as a result of the recession, and also the opportunities to change their position within their sector.”

Other findings of the study include:

• Flexibility is vital for companies to reposition themselves for new markets and new customers. Successful companies are using information about their customers, often already available in the firm, to pinpoint areas of possible growth and reposition themselves and their products. They are resizing their offerings in order to reduce prices, changing their product mix to appeal to local rather than global markets or shifting their targets from the developed to the emerging markets.
• Constant innovation is required, even in the most turbulent times. There are limits to what can be done with existing products, and companies that can afford to are continuing to innovate as part of their growth strategy. Indeed, in all of the companies interviewed, innovation programmes, which increase a firm’s flexibility, have been spared the knife.
•  A downturn encourages firms to cut non-strategic areas and focus on higher priorities.  Many companies are spending money to gain advantage, but they are cutting in less important areas or where efficiencies have been identified. Trimming unpromising products or divisions, reining in a salary structure that has ballooned out of control and abandoning markets with no growth potential are all more palatable to stakeholders when they are seen as part of a well-considered response to a crisis.

The online survey included 234 executives worldwide: 31 percent are located in Asia-Pacific, 31 percent in Europe, 24 percent in North America and 14 percent in the rest of the world. The survey encompasses companies of every size: 44 percent are from companies with less than USD 500m (EUR 349.5m) in annual sales, 11 percent with sales ranging from USD 500m to USD 1bn, 18 percent from USD1bn to USD 5bn, and 27 percent with revenue of more than USD 5bn. Forty percent of respondents are C-level executives. A broad range of functions are represented; the major ones are strategy and business development (44 percent), general management (36 percent) and finance (33 percent).

The full report is available for download from www.eiu.com/sponsor/SAS/MMGrowth.

Photo by ichaz (flickr)

EIU / Expatica