Economy’s Dynamism - Impact and Market realities

Introduction

Economy is the macro reality that has embedded players that creates the ecosystem, and various players in mostly uncoordinated manner work towards their own goal achievements and maximizing their satisfaction. The players in the economy are the bigger ones like the companies, those who are regulating these called the regulators, and finally the customers who are the beneficiaries of the outcomes. These prime the economy by being the consumers of the offered goods and services, sometimes indirectly, fronting the actual consumers!

Ups and downs?

As the economy comprises of different sectors, and there are cyclicality and seasonality in production as well as the demand, the ups and downs happen at the macro level. There are external aspects like floods, wars, embargoes, terror acts, pandemics that affect the health of the economy beyond any minor correction mode. What do you do as the administrators of the economy? Secondly, what do you do as the champion of the industry/company?

As the person in charge of the macro governance, forecasting and mitigating for the expected “surprises” is one approach. Resources probably may not be the immediate constraint or limitation. As the champion and pilot of the industry/company, carefully studying the fallout of the expected macro developments and planning to mitigate those aspects that directly or indirectly affect the operating variables of the company is the best approach. You must be careful as mitigation requires resources and, on any day, compared to the resources required that are in our control/possession are always in short supply.

Longer and often self-fulfilling cycles

The trends and forecasts often when negative about the growth and developments, caution is the word all search and implement from their vocabulary. There shall be cascading influence, and outcomes shrink in almost all the sectors. When an entity “A” is cautious, they won’t spend their resources on almost all “discretionary” items. Often the discretionary items are technology upgrades, training programs, equipment replacements, less attractive or risk appearing new product launches or new business ventures. Thus, cash out reduces, conserving on the limited resources, one may feel. However, downstream of this is the supplies of such companies are starved of the new business and the flow becomes leaner stream. This trend continues as most consume less than they have been doing for the last couple of years or so. Thus, lower business quantum, less money flow, and finally all-round pessimism shall become common things to see. “Shrunk” shall be the report on the economy. We all know that the Keynesian approach of government helping with interventions to boost the aggregate demand in the economy may be the trigger of “coming out”. In our country’s context, the job creation under “National Rural Employment Guarantee” program was introduced to provide hundred working days of labour and wage so that rural demand is generated. The simple understanding is, if there is no money in the hands of the customers, they won’t help in priming the economy and keeping the economic cycle flowing healthily. If none has the capacity to pull the juggernaut, it is the government that can trigger the moves for creating better aggregate demand.

On a positive closer note

The ups and downs and cyclicality are witnessed regularly. These are beyond our micro and meso control in most cases. As the “Stimulus-Response” approach suggests, we have not much control on the stimulus which is coming from “outside”, often out of the country too like the current international wars that are happening in a few geographies and going on for extended times. Prolonged uncertainties on the energy sources, damaged exports, disturbed labour markets, and required technical collaborations, definitely affect us.

From a risk perspective, awareness and identification may happen but on mitigation front, we may not be completely prepared. Keeping other options in terms of plan B and plan C for many of the critical issues and inputs shall help. The value chain disturbances or increased costs must be mitigated by leveraging the positives that might be possible in other areas and in the least case by reducing the margins in some important cases. The company’s culture should be aligned in such a manner that frugalist approach and “owning up” their respective processes are taught to all in the organization. Then generally healthy margins would have remained, and these offer the much-needed cushion.

Ups and downs are natural in life and can be our philosophical take. How do we mitigate, reconcile, and cheer ourselves up is the challenge. There shall always be light at the end of the tunnel, and this too shall pass can be our positive take. Till then, persevere, preserve, and be in present should be our approach. The tide with such an approach shall quickly turn to the positive. Rest shall be a smooth sail. ?