By Olu Akanmu
"and the cows that were ugly and gaunt ate up
the seven sleek, fat cows”
-Genesis 41:4
“and the thin heads of grain swallowed the
seven healthy, full heads”
-Genesis 41: 7
This essay
discusses what businesses can do to pull through the years of recession. The
years of lean cows are the years of famine akin to the years of economic
recession. When Pharaoh dreamt as above in the biblical history, Egypt
mobilized to prepare for famine or economic recession by building strong
national reserves of grains in its years of boom and abundance. With such
strong national reserves or savings of grains, the biblical Egypt of Pharaoh
was able to minimize the impact of famine on its people even when it lasted for
seven years. There was however a country whose Kings did not save its grains in
its years of fat cows because their Kings did not dream, they had no vision and
lacked foresight. When famine, the years of lean cows came, there was limited
supply of grains available in the country. Grains became so scarce that there
were long queues of citizens to buy the limited quantity of grains available
from the national warehouse. The King out love for his people decreed that the
now scarce and limited national grains should be sold to the people at the same
price or close to the price, they used to buy, in the years of fat cows. Grains
had however become more valuable in that country because of its limited supply
in the now years of lean cows. The queues for grains were so long that millions
the citizens who wanted the scarce grains were willing to pay far higher prices
than the official price of the King, reflecting the true value of the scarce
grains. This created very significant rent seeking opportunities in the sales
of the scarce national grains. A citizen would also need to be well connected
to access the grains even if they are the most economically efficient user of
the scarce national grains. This was because the queues for grains were so long
that no one was certain when it would get to their turn if they stayed on the queue
as the supply in the national warehouse got depleted.
As the grains
supply got depleted by the day, their value to the citizens increases at higher
premiums to the King’s official price. The
state was now selling its grains at old prices, lower than their real value, at
far lower revenue that constrained its ability to replace the stock of grains
it has sold, such that the national grains reserves began to fall rapidly
creating even further scarcity. Meanwhile, there were merchants in overseas countries
where there had been good harvest of grains. Those merchants would like to
bring in ships of grains to the country to sell in very large quantities. They could
see the demand from the scarcity in that country but they lacked the incentive
to bring their ships of grains because they had to sell at that large quantity
at the official decreed price, far lower than the true value of their grains.
Therefore, there was very limited private supply of grains into that country to
complement the limited supply of the King. The famine and recession therefore
got worse and became unnecessarily prolonged beyond its natural course. Extrapolating
this analogy, it is certain that if biblical Joseph were Nigerian, he would
have advised against an inflexible exchange rate policy in our current economic
situation.
Nigeria’s recession,
our own years of lean cows is characterized by very high inflation, declining
real wages and accelerating unemployment and underemployment. It manifests on businesses in three ways,
which are massive contraction of market demand, rationalization of demand and
the trade –down of market and product preferences as consumers shop for value. There
are nine ways a business can respond to this recession and pull through this challenging
period. The first is re-engineering your product and services for value to keep
them at affordable prices for consumers. Toothpastes and packages of consumer
goods are now getting smaller to keep them at affordable price points. You can
also take out the bells and whistles in your product to keep them at affordable
prices. Bells and whistles are product ingredients that may be twenty percent
of your cost and deliver only five percent value to your customers. By taking
them out, you can effectively shave fifteen percent off your cost making your
product or service more affordable. The second way your business can respond is
to make your route to market more efficient. Find partners who have a wider
market reach and plug into their platforms. It will be cheaper than doing it
yourself especially if you a small business and your scale is small. You may for example plug into established
digital and e commerce aggregation platforms to reach a wider market while developing
your own websites for more people to reach you at a lower cost. The third way
is to find if there are new value segments emerging in your industry or market
because of the recession. Enter such value segments early to colonize and
dominate them. Such emerging value segments will be usually small and may not be
able to accommodate more than one or two brands profitably. The first brands to
get in are the ones who can build a minimum profitable scale while the third
and fourth will have very little market left to harness.
Fourthly, your business
can identify markets, sectors or segments that are resilient and realign your
commercial investments around them. Despite the famine in Isaac’s time in the
book of Genesis, Isaac sowed and prospered because he had the skills of finding
wells in dry and famine lands. Identify your more resilient markets and realign
your commercial investments to focus on those need or geographic segments. The
fifth way your business can respond is to rationalize your product scope,
offering and store-keeping units, to make them efficient in line with market
reality. Are there product or product lines that consumes twenty percent of
your working capital but deliver only five percent of revenue and have done so
stagnantly over a long period? Such
product lines are candidates for rationalization to make your commercial
program more efficient. You must however be careful to preserve your core
strengths and market advantages even as you rationalize your offerings to
ensure you can take full advantage of next market upturns when the economy gets
out of recession. The sixth is to increase the local content of your product to
make your business less forex dependent. This also ensures that you can keep
your prices affordable. The seventh way is to find customers who can replace
the import content of their product with your own local product. Today, retail
chains with their shelves getting empty because of their inability to import, are
looking for local agriculture processed products to replace previously imported
products. Are there such opportunities in your own industry or in adjacent
industries where you can become an effective, cheaper and available local
substitute? The eighth way is to run tactical promotions to stimulate demand. Lotteries
and lottery -leveraged initiatives interestingly become more appealing to mass
market customers as economic situation bites harder. The ninth way your
business can respond to recession is to explore export opportunities for your
products, which will give amplified local currency returns even at relatively small
scale.
Best wishes to your
business in the new-year.
Olu Akanmu publishes a blog on
Strategy and Public Policy on http://olusfile.blogspot.com
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