Question

There are linkages between the microeconomic decisions made by managers and the macroeconomic environment. There are numerous examples from the current recession of company layoffs at the micro level, directly influenced by the decline in economic activity at the macro level.

For this assignment, research this linkage. How did the recession impact businesses/managers at the macro and micro levels? You may use one company as the basis of your research.

1500 words essay

Answer 1

The past five years saw business sectors of the world wither a storm brought on by a global economic crisis, which started with American banks. This crisis left many companies and world economies limping. So far many organizations have faced the challenges of swimming through the waves of the crisis and trying to pick up the pieces after the economic downturn aftermath, amidst the doubts and uncertainty of whether the crisis is over.

2008 was a year that the world saw major economies experience a sudden economic downturn brought on by a financial crisis first experienced in the United States of America which than spread like flu to the rest of the world. Because of this credit crisis and meltdown in the USA, there was a worldwide reduction of overall spending which greatly affected the economies. The financial crisis has also coincided with the third unfavorable movement, which is the slowdown of the economic circle. The following few years saw many economies experience a recession. Some of the key features of this unfavorable period to many businesses and the economies of the world included, a negative or a very low growth, Raising unemployment, falling asset prices, raising inflation, a decline in real income and a reduction in spending by the consumers. The global economy experienced a 2.4 percent contraction in 2009. This picture spelled a general business cycle contraction and also presents great challenges in managing an organization during and after this crisis. Companies crave for a stable economic environment in which to plan and increase profitability. The reality is that, they are challenged by a whole range of small, medium and large opportunities and threats. This crisis affects and challenge businesses across the world. For some companies, they may spell doom or disaster while others; they may spell an opportunity that can be seized. Unfortunately, many companies did not strike favorable opportunities during the crisis, they were rather challenged with a duty of trying to save their companies from sinking. This paper aims to analyses the real challenges in managing an organization that is experiencing a reduction in the success of its business during the financial meltdown.

The financial turmoil has plunged the sales revenues and profits of many companies into a decline, the companies will cut back on hiring new employees, or freeze hiring entirely in an effort to cut costs and improve the business performance, some companies might stop buying new equipment, conducting research and development and stop producing or coming up with new products. All this is crucial in the growth of sales revenue and market share. Many organisations might also reduce spending on marketing and advertising. Organisational resources (humans especially) did not significantly predict the impact of the economic crisis . These cost-cutting measures affect other businesses, both big and small, which provide the goods and services used by the big manufacturer. SMEs have a flexibility and rapid ability to quickly respond to the business environmental needs, their ability to satisfy rapidly changing customer needs and their potential for close relationships with customers. SMEs are very important for a business chain because they can quickly get close to the customers. They don’t seem to be more significant like big companies, but if they are affected as a result, the smooth operations of the industry are greatly affected. Consumer spending which is the major driver of the business activities will also decline because of the effects of the recession. Economic crisis acts as an exogenous transitory shock, which mainly reduces the demand for goods and services. Consumers’ real income has decreased, prices have gone up, and their spending will also slow down as a result. A paradigm shift has also taken place, forcing people to evaluate their personal and household finances as well as their spending. Some companies where not experiencing growth at all, they were just trying to stay in business and not go out of the game, but even that was difficult. No new client came to the market: growth was only possible at the expense of competitors and financial institutions where struggling to stay afloat as well. This companies tried to follow what other companies did in older to survive.

When the declining revenues show up on the company’s earnings report, the company’s stock price may decline. Dividends may also fall, or disappear entirely. Shareholders may become dismayed. Global crisis may have a big effect on stock volatility behaviour. When something is not right somewhere, fingers will have to be pointed at someone and this is the case all over the world following the 2008 financial meltdown. The shareholders and the board of directors may call for an entirely new senior management team. The company’s advertising agency may be dumped and a new one hired. The advertising and marketing team may also face a reshuffle. During crises, stocks volatility register high levels and stock prices fall sharply in both developed and emerging markets. When the company's stock falls and the dividends slump or stop, investors who hold that stock may sell and reinvest the yields into better-performing stocks. This will further depress the company's stock prices.

After the cost cutting measures, the value of goods and services produced by the recession-impacted manufacturers may decrease. In an attempt to cut costs to improve and save the business from bankruptcy, the company may compromise the quality and the desirability of its products and services. This poses a challenge for senior executives, who wish to remain at the competitive edge through technology innovation. Human resources are a source of sustainable competitive advantage because they are a representation of unique skills that are difficult to duplicate and replace. This is especially true because it is the human resources that give brain power to a company, which enables it to have that competitive advantage over others and make it possible to sustain that advantage throughout the years. This also enables them to keep and maintain their market share because after all, the workforce that they are trying to reduce is the one that presents quality to the consumers and quality generates customers.

Getting back to its absolute sales and revenues before the crisis is the biggest trial of all trials that many companies have to face. Many organisational processes face different pressures to change and adapt to new circumstances. The aim is to manage the business through the recession successfully and see it back to its glorious years again, but that can prove to be challenging, since many businesses have reduced their workforce and reduced on less essential projects and many other growth factors, to cut costs. As one of the important stakeholders, employees are a crucial strategic resource to the firm’s success . This may mean that companies are not guaranteed to move ahead when the recovery starts, maybe they will fall behind their competitors. Some economic experts are of the opinion that the crisis is not yet over or that it is too early to declare an end to it. Because of this uncertainty, companies may find themselves not sure of what strategies to employ. Some companies might have to restructure and remake their organisations to cope with the new business environment that the crisis has presented [14]. Pointed out that business model innovation rennovations is the most challenging strategy for incumbent companies. Many companies might have to prove this prediction to be true because this may mean changing their company from a product company to a service company and the likelihood of success for this kind of change is not guaranteed.

Consumers are loyal to companies that convince them with their good reputation. With the recent economic downturn, a lot of companies had to be faced with a lot of struggles, cutting salaries of their employees, laying off workers, declining profits and productivity. This kind of picture does not reflect well on the reputation of any company. On the contrary, it will only kill the confidence consumers have in the company. The crisis have reduced or removed consumer’s confidence and emotion to act irrational when spending argued that it seems that even after the eventual economic recovery, increased uncertainty and volatility will remain permanent features of the business environment. This is proving to be true because consumers have tightened their financial belts and will not easily spend their money because they are preparing themselves just in case another crisis comes back. Some lost their jobs and they are cautioning their spending. Though the world economy may begin to recover, consumer confidence will not be easily gained back because they are still feeling the hangover of the crisis and feel that it still lingers in some areas. It is possible for companies to still have consumer confidence back, provided that these companies start performing the way they performed before the crisis. There are still a lot of problems and challenges in some sectors. Some sectors’ performance might affect consumers’ confidence in the company even if it might not be doing badly. Cutting resources and costs beyond limits, however can have negative, long-term consequences and must be avoided. Companies need to be cautious of cutting too much cost and in the process; they cut resources which are vital to their long-term growth and recovery.