Finding a Growth Strategy in the Post-Crisis World ..!!

Despite some headline grabbing, global merger and acquisition volumes are 38% lower than a year ago.

How are major industries rethinking and redesigning future growth models, at home and abroad?

Key Points
• The world will return to growth but it will be a jobless recovery and the economic recovery will vary across regions and countries.
• Companies must remain flexible and innovative to meet shifting purchasing patterns and more demanding consumer needs.
• Organic growth funded by internal cash flows is preferred to debt driven mergers and acquisitions in the new economic environment.

Synopsis
The extent and quality of the economic recovery is the big debate. The US administration says that the freefall has stopped. The IMF upgraded its prediction of world growth in its most recent estimate. However, others such as the World Bank and some independent economists are more negative on the subject. A recent survey found that most observers think there is a recovery but that it remains fragile. The role of sentiment is critical.

The recovery will likely be lumpy and vary by country and by market. Recovery will rely on increasing demand and increasing GDP. However, it is likely to be a jobless recovery since there is excess capacity in the system.

The shape of the recovery will also vary across regions. Western Europe faces an “L shaped” recovery (a longer recession). The US faces a “U shape” (growth will return but not right away). Asia, Latin America, Africa and the Middle East are all well positioned for a “V shaped” recovery (rapid bounce back).

Business leaders need to understand what the new environment will look like. The economy before the crisis was not “normal” and will not return to that situation. There was an extreme expansion of credit that will not be repeated.

For companies to thrive in the post-crisis era, innovation is the key. Innovation is the essence of value creation, and the ability to reinvent business models. When companies diversify, the businesses should complement each other and allow for innovation. There is also need for new business models. Consumers are challenging the old model. Today’s consumer is setting a new standard, looking for new products and new ways of buying things. This is creating a transformation agenda for businesses in meeting this need.

The appropriate business model depends on the situation. There is no silver bullet. Whether a company should be diversified or focused, there is no “right answer”. It needs to be what fits and works. But it is clear that if a company is not successful in one market it is unlikely that it will be successful in others. And for diversification to work, the company cannot have a “top-down” centralized model – flexibility and some decentralization are needed.

Organic growth is always the strongest way for a company to grow, but acquisitions are the quickest way to get there. However, mergers and acquisitions need to be done right. Two drunk people don’t make a stable person. Some Chinese companies have expanded internationally, but not all stories have a happy ending. They have found that there is just as must potential to destroy value as to create value. Issues such as higher labour costs and major cultural differences in Europe and elsewhere are difficult to overcome. All risks need to be considered, and there has to be an underlying purpose for acquiring a company. It needs to link to the overall strategy and what value it will bring. Size itself is not enough to do this. Following mergers, companies then need to be aggressive about driving integration.

Happy Reading..!!