Question

What are some ways that companies can survive and manage an economic downturn? The textbook is silent on this scenario (Gamble, 2019, Chapter 6). What are some lessons that we can draw from our readings in Texas Monthly and Harvard Business Review?

Solomon, D. & Forbes, P. (2020, March 26). "Inside the Story of How H-E-B Planned for the Pandemic." Texas Monthly. Retrieved at www.texasmonthly.com

Answer 1

Companies can adopt a few practices to mitigate the impact of a crisis. Since most of the firms operate in losses during this period, companies should aim to minimize losses. Now, most of the fixed costs are long term commitments that can not be altered immediately. As such, companies try to reduce their variable cost. The most important variable cost is the wages paid to labor. As a result, we observe large scale layoffs and a massive jump in the unemployment rate. In order to prevent losing the customer base, companies can also provide price discounts (especially those who have accumulated profits in the previous periods) to the customers and keep the demand up. Many companies take advantage of low-interest rates during such times (central banks usually cut interest rates during a downturn) and invest in long term infrastructure which can be used to meet demand as the curbed purchasing tendencies are unleashed once the downturn is over. Many firms also seek government subsidy and tax cuts to keep themselves competitive in the market.