Industry Studies
Crisis and Resilience: Who Survives When the Economy Stumbles?
The Big Picture When economic storms hit, not all companies weather them the same way. This fascinating study of 450 Indian firms during the 2008-2009 global financial crisis reveals surprising patterns about which businesses proved most resilient when times got tough.
The Survival Game: Winners and Losers The crisis hit Indian businesses hard:
- Only 10% maintained strong sales growth
- 36% saw slower but still positive growth
- 54% experienced negative growth
- Profits fell even more dramatically, with 66% of firms seeing negative growth
But some companies proved remarkably resilient. What set them apart?
The Young and the Restless Win Age proved to be a critical factor. Younger companies consistently outperformed their older counterparts. Why? The study suggests newer firms might be:
- More adaptable to changing conditions
- Less tied to traditional ways of doing business
- Quicker to implement cost-cutting measures
- More focused on emerging opportunities
Small Can Be Beautiful Contrary to what many might expect, smaller firms often fared better than industry giants. Their advantages included:
- Ability to quickly reduce output when needed
- Lower overhead costs
- Focus on niche markets overlooked by larger players
- Greater operational flexibility
The Export Paradox One of the study’s most intriguing findings involves export-focused companies. Despite the crisis originating in global markets, firms with strong export operations often performed better than domestically-focused companies. Why? These companies:
- Successfully pivoted to domestic markets when exports slowed
- Had more diverse revenue streams
- Were generally more efficient and technologically advanced
- Had experience dealing with international competition
Advertising Pays Off Companies that maintained strong advertising and marketing showed better profitability, even during the crisis. While it couldn’t prevent sales declines, brand loyalty helped protect profit margins.
Strategic Shifts: How Companies Adapted The crisis forced Indian firms to rethink their strategies:
Research & Development:
- Increased internal R&D spending by 25%
- Reduced purchasing of external technologies by 15%
- High-tech sectors maintained or increased R&D investment
- Low-tech sectors cut back on research spending
Marketing:
- Most sectors reduced advertising budgets
- Exception: Pharmaceutical and food companies maintained marketing spend
Employment:
- Overall wage costs as percentage of sales increased slightly
- Varied significantly by sector
- Some sectors used cost-cutting while others protected jobs
Lessons for Today’s Business Leaders
- Agility matters more than size
- Diversification provides resilience
- Brand investment offers protection
- Innovation spending shouldn’t be the first cut
- Strategic pivots can turn threats into opportunities
Looking Forward This study offers valuable insights for companies facing future economic challenges. While the specific circumstances of each crisis differ, the fundamental qualities that help firms survive remain remarkably consistent: adaptability, efficient operations, strong brands, and the courage to invest in the future even during difficult times.
Academic Abstract:
This study has analyzed the relative growth performance of Indian firms under the current economic slowdown and explored factors helping certain Indian companies to do relatively better even in this crisis period. It has been observed that the overall growth and stability of the global economy has become extremely important for the growth performance of Indian firms. In fact, sales and profitability growth of some 450 Indian manufacturing and IT firms were significantly reversed with the condition of global market turning adverse since late 2008. It is interesting that those Indian firms were relatively young in age and more focused on global market have been better off in terms of sales and profit growth than other firms. Also large firms and those having higher advertising intensities have enjoyed higher profit growth in this period.
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Full citation: Pradhan, Jaya Prakash (2011), ‘Firm Performance during Global Economic Slowdown: A View from India’, Economics, Management, and Financial Markets, 6(1), pp.57−81, Publisher: Addleton Academic Publisher.
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