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Nov 20, 2011

Do you Have a Buggy Whip Factory in Asia?

In many ways, the 19th century continued until the outbreak of World War I. The 20th century ended with the fall of Lehman Brothers.

In confusing times such as these, it is natural for people to draw parallels as a way to understand current events surrounding us. They hope to gain some insight on an uncertain future. Here are some examples: A recent issue of BusinessWeek suggested that America of 2009 may learn from Japan of the 1990s. In Korea, journalists, businesspeople and even some economists refer to the 1997-98 Asian financial crisis as a case study from which they may forecast a future.

But America is not Japan.

In so many cultural and political ways, such comparisons defy making accurate projections. And the "IMF Crisis" was a regional event. It was relatively isolated from the global economy, compared to the worldwide crisis we face today.

Today, several public figures in Korea amaze me. Some continue to suggest the tough times we are facing will be followed by a V-shaped recovery, similar to what Korea experienced in the Asian financial crisis. When I recently challenged one such speaker, the well-respected economist backpedaled. He stated his V-shaped Korea recovery model was premised on the Chinese stabilizing their chaotic economy within this year.

But anyone following the mass factory closures in China, with the growing threat of political instability there, is not likely to count on the Chinese economy being substantially on the mend within the coming 12 months. And yet one frequently hears this kind of siren song.

If one were to find a meaningful historical parallel relevant to what we are now facing, it would be Sept. 15, 2008 and June 28, 1914. We can easily recall when Lehman Brothers filed for Chapter 11 bankruptcy. That in effect announced the beginning of this global recession. And as any schoolboy can recite, it was in 1914 when a Bosnian Serb assassinated the heir to the Austro-Hungarian throne.

Both dates, in real terms, triggered the beginnings of their centuries.

In many ways, the 19th century continued until the outbreak of World War I. The 20th century ended with the fall of Lehman Brothers. Both 1914 and 2008 were major watersheds.

And we, having just entered this Brave New World, are just beginning to realize what has happened.

Now that we have been thrust into a major historical shift, we may find our greatest difficulty comes from not adapting.

Our real challenge could lie in letting go of anything that becomes an impediment to future survival.

We often cite buggy whip manufacturers as iconic representations of the 19th century. I am sure many buggy whip companies were thrilled by the initial explosion of sales orders with the outbreak of the First World War. All the armies were still largely dependent on horsepower. In other words, most buggy whip manufacturers didn't realize their market would soon disappear.

My point is this: our best survival strategy may not be trying to survive a short- or medium-term downturn only so we can continue to make our buggy whips.

We may be better off by pondering two considerations. First, this economic recovery is global and is likely to be U-shaped, if not L-shaped.

Look at the current issue of Foreign Policy. There, the highly regarded NYU economist, Nouriel Roubini, who correctly foresaw the current crisis over a year ago, warns of the U.S. facing a 24-month, U-shaped recovery that could well extend into being more L-shaped in reality. Many people think Roubini will be proved right yet again.

Given this and other economic indicators, business managers may be better off planning for the long haul. They probably should not base their business plans on the relatively rosy projections of consultants and politicians.

The second consideration is determining what survival strategies and tactics may be necessary to get through the following two years and beyond. Up until this point, many companies have already done the obvious. Primarily cutting costs and searching for new means of finance. Some are restructuring, to maintain profitability while doing essentially the same kind of business. And some companies are going on buying sprees to pick up the fire sale bargains that pop up at times such at these. All of this may be fine for strengthening an existing business strategy.

But remember those buggy whip manufacturers who must have done well at the beginning of World War I. Ultimately, the most important, long-term consideration a business planner may need to factor in, is what kind of business will be viable five years from now.

We don't have space in this column to go into detail about the future. But Bob Dylan once sang, "You don't need a weatherman/ To know which way the wind blows." The reader can probably imagine where we are going.

I will give one scenario. Consider that we will be living in a world of more independent energy sources. Governments and buyers will demand products and services that generate smaller carbon footprints. Both consumer and industrial consumption behavior will be less disposable and more value centric. Even the defense industry will be ?greener? as nations become increasingly concerned about contamination.

Regardless of how you view the future, the ultimate question facing you right now may be this: How relevant will your business be in a very different world of 2015?

The time to start planning for long-term survival could be now.

*The writer is the president of SoftLanding and a Senior Commercial Adviser for IPG.
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SeanHayes@ipglegal.com