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Strategic response to Global Economic Crisis

Recession is when country’s Gross Domestic Product (GDP) is in negative for the two or more consecutive quarters. Unfortunately, that is case throughout the world now and it has affected even the developed nations like U.S, U.K etc. So, it has worsened the condition throughout the world. Almost each and every industry has suffered a setback in their results due to this global economic crisis.

This research is focused on effects of recession on retail industry and strategic response of the industry to face the situation. As retail industry is basically selling goods or products to the end user.

Literature Review:

Recession can be describes as process of decreasing demand for raw materials, products and services. Over the past 1-2 years, we have seen stock markets fall drastically throughout the world, which resulted in economic crisis. One of the main reasons resulting in current recession is shortage of funds falling house prices.

As it is said, current recession is considered to be the worst than previous. Every industry has suffered a setback; U.K’s leading high street retail chain “Woolworths” was went into administration with huge debts of ₤385million with its 815 stores throughout the country. Since then, U.K has been suffering major setbacks on a regular basis like major banks like llyods TSB, and major retail outlet like Marks and Spencer had declared major losses during this period. Since then, government have to come out with various bail out plans to rescue the financial system of the country.

Its not the first time United Kingdom is facing recession, previously country faced recession in 1981. which was mainly caused because of strong pound, resulted in less exports because it was expensive and government imposed high interest rates to bring inflation down from 27% to maintain tight monetary policy. At that time, Margaret Thatcher Prime Minister of United Kingdom and Geoffrey Howe, her chancellor came out with major steps to face the crisis, like they cut down the government spending instead of increasing and raised taxes rather than reducing and also slashed government benefits by ₤12/- who went on strike and were made subject to tax.

There has been constant debate of what is the root cause of this global financial crisis. There are various answers to this questions, some say, it all started in U.S, because housing sector was at a boom with low interest rates and it boosted the house prices, and getting loan was easier. Banks use to grant loan even without knowing the ability of repayment by the customers. As the demand for houses was as high as ever, owners started to increase their house values and refinance their second mortgage loans at lower interest rates. And as there were two many houses build by the builders it exceeded demand and resulted in decline in house prices. people who bought home at high prices were paying interest at their original value when mortgage was granted, which forced them to sell their houses at a lower price compared to which they bought and thus, they couldn’t repay their loans and banks and other financial institutions were under huge losses, which created financial crisis. This was the scenario throughout the world.

Another main reason can be Globalisation; Globalisation is the system of interaction among the countries of the world in order to develop the world economy. Globalisation refers to the integration of economics and societies all over the world. Globalisation involves technological, economic, political and cultural exchanges made possible largely by advances in communication, transportation and infrastructure. (www.hubpages.com)

Almost every industry is affected by this severe recession. Industries like Real estate, Banking, Automobiles, Retail, Tourism, etc all had a huge impact of recession. People are finding it very difficult to sell their houses because buyers don’t have money to buy because banks now are refusing for mortgage loan and customers can’t afford the interest rates. It has directly affected construction sites because people are not buying house which automatically affects electricians, builders, Painters, etc. and thus, creates unemployment. Due to unemployment, tourism industry is also affected because people don’t have money to spend on holidays. And same with automobiles industry, customers look to satisfy their basic needs rather than comforts. Even retail and wholesale industry is not left out from current recession, many major retail Giants like Marks and Spencer, Debenhams, Next Retail, etc has been adversely affected from this crisis. So, we can imagine how disastrous and worst current recession is. At the end, only person suffering from all these, is a normal individual.

Today, Even retail industry is in recession, all major retail chains like Marks and Spencer, Debenhams, Next, etc have seen decline in their sales over the past few quarters. But recently, Next PLC had surprised with a positive results for the first six months of the year. It is quite positive and encouraging sign for other high street retail chains.

Strategic Response:

Major organisations have started responding to the situation with various strategies. Some of them are discussed below:

Corporate Strategy:

Organisations are finding it very difficult to overcome this global crisis because it is globally affected and there is no way to go. So, organisations try different strategies. Government came out with a bail out plan for worst affected organisations like Royal Bank of Scotland, HBOS, Northern rock, etc in the financial sector. Even retail giant Marks and Spencer, were forced to shut 27 retail outlets after its shocking results, which were down by 7.7%, which is worst in the decade. As every organisation is strongly affected by the recession, many organisations are developing like acquisitions, mergers and tie-ups. There are some favourable steps that an organisation should try to follow to survive in this sort of situation:

Should cut down the expenses, and try to improve its liquidity by enhancing cash inflow. Stronger liquidity helps in surviving and competing in the long run.

Should look for regular source of income and new alternative of raising funds.

Should bring immunity in the organisation to survive in the long run and simultaneously to grow and expand the business.

Human Resource Strategy:

As we have seen many organisations had cut their jobs because of recession in order to save money, which they believe it minimizes costs and can give them a chance to survive this critical period with limited number of employees. And cutting jobs wherever possible without directly harming the organisation. U.K’s current unemployment is between 2.4 million to 3 million, which is worst in Europe. This strategy is been favoured by many organisations but it creates unemployment in the country which is indeed not good for the nation and also not an ethical solution. Many organisations have also changed their recruitment patterns or some organisations have stopped recruitment for the time being. Organisations have become very specific about recruiting and look for more experienced person instead of giving a fresh graduate a chance.

I personally think organisations should be more responsible and take some positive steps or decision. Human resource department can help organisations in a great deal, HR should communicate with the employee on a regular basis, HR should also evaluate revenues and incomes of the organisation and should be aware of legal obligations of the employees and organisation.

Marketing Strategy:

Marketing strategies plays a very important role in overcoming recession period. During recession period, Organisations marketing strategies depends on the impact of the recession, because different organisations is affected differently. So, appropriate measures needs to be taken by the organisations. Many organisations have also trimmed their product range, which superfluous and also withdrawn from the market which was high risk market or not suitable for the product like real estate agencies shutting down due to low house prices and people not willing to sell or buy the houses. There are also some organisations which move their business to different countries in order to reduce costs. Companies are also finding and developing new products to get consumer confidence back.

Research Question:

Has recession really affected all sectors of the business? How much it has affected? And what are the steps taken by the organisations to overcome such critical situation? These results should help in understanding causes and effects of recession and would help to improve it.

Methodology:

Research Approach:

The purpose of the study is to identify causes of global economic crisis and steps taken by the organisation to face the situation. The initial approach to this study would be deduced from the existing theories on this subject. The results of this study would be induced in the later stage of the study from the analysis of data collected from the various sources.

Types of data to be used:

The raw facts and figures which are collected by means of observation, etc is known as Data. Data is classified in two categories i.e., Quantitative and Qualitative data. Quantitative data refers to the data which is in numerical and measurable terms. E.g., Questionnaires, Experiments, etc. Qualitative data refers to the views and opinions, which can be in the form of interviews, observations, etc. In this research, both Quantitative and Qualitative data will be used. Questionnaires will be used to collect data from employees about how their job is affected in the organisation and interviews will be conducted with the managers and board of directors of the organisation about what measures or techniques/tools are they adopting to face this global crisis. This will give us in depth analysis and understanding of causes, effects and strategic measures of global economic crisis.

Data requirements:

The data required for analysis of this research is of primary and secondary in nature. Primary data includes information which is collected for the specific purposes. E.g., Observation, surveys, interviews, etc. In this research, the analysis of primary data collected through various means such as observations, questionnaire, etc. The main reason behind selecting questionnaire survey in this research is to know the views and opinions of the employees working within the organisation and questions are such that it will give us the in depth data which is required and it will be more convenient to analyse the research and interviews with higher authorities will give us another view point of the situation. It will provide us with more accurate data of the strategic measures of the organisation against the economic crisis. Both theses methods together will help us to come out with a proper and well analysed conclusion and depending upon that appropriate recommendation can be provided. Secondary data is also known as desk research, it involves collecting data Secondary data collected for this research is from books, papers, internet, and articles. From secondary data, we can find out financial crisis in the past and causes, effects and strategic measures adopted by the organisation and country to overcome such situation in the past. It might also give us some sort of idea about facing recession period.

Final conclusion for this research can be reached from the in depth analysis of both primary and secondary data.

Research methods:

A Deductive approach is used to collect primary data for this research. Deductive approach is basically a hypothesis which is stated and methodology is designed to test that methodology. (univ.of sunderland) The method used in this research is in the survey form. Survey is the most economic way of research and collection of data. And also secondary data will be achieved by conducting desk research on all the information and analysing data with articles, books etc for this research.

Methods of Data analysis:

The analysis will be done from the data collected primary and secondary collection methods. Questionnaire mainly consists of open ended questions. From open ended questions, answers can be analysed individually to find out the causes, effects and measures of the organisation and organisational problems of the employee. Second method will be conducting one to one interviews with higher authorities. From them, we can know the actual response of the organisation during the economic crisis.

After analysing results of the both methods might help and support the conclusion and recommendations for the future improvement in the research question.

Ethical Issues to be considered:

Ethics means a system of moral principal or practice. “Ethical concerns will emerge as you plan your research, seek access to organisation and to individuals, collect, analyse and report your data. In the context of research, ethics refers to the appropriateness of your behaviour in relation to the rights of those who become the subject of your work, or are affected by it.” (Saunders et al 2003, pg 147). Code of ethics for this research is to ensure the confidentiality of information provided by everyone and to maintain privacy and secrecy data provided throughout the study. Participants will be informed well before about research and its purpose. Written request and permission will be conducted prior to any interviews or survey in the organisation from the official authorities. Complete coordination and co-operation must be ensured between researcher and selected organisation throughout the research.

Limitations of the research:

The limitations for this research might include time required to collect required data from the sources through questionnaires and interviews. Because, people might take their time to complete the questionnaire and for interviews, special appointment might be needed, which might depend on the schedule of the person to be interviewed. Another limitation can be to analyse every sector/industry which affected and survived because data will defer from each other. Hence, for this research, it is necessary to select any one or two industry and then analyse strategic response of the organisation. However, adhering to the time frame and research plan derived, project can succeed.

Conclusion:

Recommendations:

References:

Inc. Kotler, Philip (1973), "The Major Tasks of Marketing Management," Journal of Marketing, 37 (October), 42-49. 

Saunders, M., Lewis, P. & Thornhill, A., (2003). Research method for business students. 3rd ed. Englewood Cliffs, NJ: Prentice Hall.

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