- As we enter 2023, global leaders continue to have high-level discussions on critical issues facing the global economy amid recession threats.Â
- This article highlights how tech companies can withstand the volatile economy.
Amid recession threats, global leaders continue to have high-level discussions on key issues facing the global economy. The second half of 2022 already witnessed a substantial decline in tech and retail stock prices, rise in inflation and interest rates, and supply chain issues. Moreover, with companies still recovering from the jolt of COVID-19, another stiff challenge of withstanding the economic downturn awaits them.
According to the May 2022 Global Economic Outlook session held at Davos, economists around the world feared the onset of another global recession identical to the one in 2008-2009, popularly known as ‘the Great Recession.’ With plummeting IT and retail stock prices, much like the ‘dotcom bubble burst’ in the early 2000s, companies are embracing strategies to cut costs across the board.
Considering the ripple effect of a volatile economy on global markets, tech firms are keen on reducing headcounts, freezing hiring, and delaying new projects. Also, some tech companies are more inclined toward diverting R&D and employee training expenses to marketing and customer-facing departments to ensure customer satisfaction, ultimately driving business revenue.
Recently, GrowthSpace, a talent development platform, collected data from 150 customers and published a study that revealed the change in platform usage over different quarters (Q1-Q3 vs. Q4) of 2022. According to the data, the platform usage increased for marketing and sales from 16% to 24% and customer services and HR staff from 7% to 12%. Moreover, data showed that the platform usage to train high-level management employees was reduced by 4% and increased by 5% for individual contributors.
Looking at the above data, it is evident that tech companies are training the customer-facing workforce that is active on the frontline rather than investing millions of dollars in R&D. Today, even when top companies like Google, Amazon, Microsoft, Twitter, IBM, and several others continue to lay employees off, some companies that are committed to productivity and effectiveness are investing heavily in talent development. In a way, tech firms are aiming to offer a stable working environment by prioritizing employee retention during these uncertain times.
While cutting discretionary expenditures can help, how companies respond to the current economic developments will allow them to plan for future growth.
See More: Four Investments to Succeed in a Struggling Economy
3 Ways Tech Companies Can Respond to a Volatile Economy
While there aren’t any best strategies for the current times, tech firms can opt for ways to survive this volatile environment. Let’s understand some of the key ways that can help tech companies navigate these challenging times.
1. Plan for expansionary phase
It is important to understand that recessions have a short life and are generally followed by longer periods of growth. Let’s look at the previous recessions like the Gulf War recession (1990-1991), the dot-com bubble burst (2000-2002), and the Great Recession (2008-2009). One realizes that all these events were followed by sustained, stable, and rapid growth that lasted longer than the actual recession itself. Hence, companies need to plan for the upcoming expansionary phase. One can start by studying the strategies adopted by companies that survived past recessions and emerged as winners.Â
A good example is Samsung.Â
The company focused on profitability and efficiency during the testing period of 2008-2009 when the world was grappling with the consequences of economic turmoil. It put efforts into improving the quality of a limited set of products like LCDs, mobile phones, and semiconductors. They analyzed that consumers may buy high-quality products out of fear that the lower-quality products may not last long during the recession. Hence, rather than targeting all of its products, it focused on improving the quality of a limited set. This eventually turned out to be a masterstroke as the company not just sustained the economic slowdown but also emerged as a leader in that same product market.
Here it is also important to note that the Great Recession served as a fertile ground for wealth creation for top investors of the time, like Apple, Amazon, Facebook, Netflix, Google, and Microsoft.
2. Acquire resources, assets, and competencies
Organizations should aim to acquire as many resources as possible while their competitors cut costs and try to survive the economic collapse. This is done by keeping in mind the forthcoming expansion phase that may follow the recession.
Typically, task forces are readily available in uncertain times as companies contemplate layoffs, cut salaries and bonuses, and cut down on R&D and new projects. As the same talent looks for new employment opportunities, tech firms can target and acquire them to prepare for expansionary growth later on. Companies can also target customers that are not satisfied with the competitor’s services owing to their cut down on customer services.
A recession is the best time for companies to buy reasonably priced assets. According to Bloomberg’s May 2022 data, nearly 200 North American biotech companies are open for acquisition for less than their market cap valuation. This allows big pharma brands to acquire smaller companies without any financial burden. The period from 2008 to 2010 served as a boon to tech giants as they acquired several patents, technologies, and smaller companies to establish themselves while the market was falling apart.
3. Focus on digital transformation
The COVID-19 pandemic testified that running operations is typically possible with digital technologies at our disposal. This is precisely why several tech companies could ride the pandemic wave without disruption. With a digital presence, companies can manage resources better, handle supply chains, provide better customer experience, speed-up product development, and improve overall productivity,
Digital transformation enables retailers to leverage machine learning methods to better understand customer preferences and buying patterns. The data can further be used to adjust offers, personalize recommendations, and tweak pricing on the fly if required. Hence, prioritizing digital strategy can be vital for a company’s presence in the market.
See More: 6 Tips To Race Ahead of Inflation This Holiday Season
Takeaway
As fears of recession loom large, tech companies need to capitalize on the opportunities and acquire the suitable assets, customers, talent, and competencies at fair prices. Additionally, accelerating digital transformation could lay the foundation for the upcoming growth period once the recession has gone by.
Can tech companies bank on other innovative approaches to navigate these uncertain times? Comment below or let us know on FacebookOpens a new window , TwitterOpens a new window , or LinkedInOpens a new window . We’d love to hear from you!