IT IS official. The United States' National Bureau of Economic Research said on Dec 1 that the US economy is in recession.
The fallout from the sub-prime mortgage crisis and the battering of Wall Street and the world's stock markets have had serious consequences for many countries, including Singapore.
Undoubtedly, people are worried about how long the recession is going to last, job security, salary reductions and their ability to service their financial burdens.
Worrying is not going to benefit you. So what should you do?
You can take comfort in the fact that, historically, recessions come and go. Conditions undoubtedly change for the better.
Businesses and people who exploit the current opportunities and position themselves for the better times ahead will do well and be market leaders in the future.
If you are a business owner, here is some advice on handling the following typical reactions to a recession:
1. Businesses are worried
Like you, your customers are worried too.
Talk to them and explore ways to help them. What are they worried about? Revenues, profits, overheads, costs, survival?
Offer them advice and try to help them be more optimistic. Such discussions help to eradicate the gloom and will strengthen your rapport with your customers.
2. Businesses cut down on their spending
The key message is that they do not stop spending altogether.
Businesses reduce their spending and give their business to vendors whom they trust and perceive as offering value for money.
Perhaps, you can help your clients manage by offering them a recession rebate until conditions improve.
Avoid lowering your prices. That can send a wrong signal to your clients. They may think that you have been over-charging them all this time. Plus, it will be difficult to raise the prices once the economic outlook improves.
3. Businesses focus on cost management
It is natural to want to manage business costs more carefully in difficult times.
Differentiate between needs and wants. For example, in good times, your staff would consider buying a PC with more functions to deal with increased workloads.
During the current difficult time, can that PC be "downgraded" to a "want" instead?
Many companies use difficult times to downsize by retrenching. It may be prudent to use retrenchment as a last resort.
Why? Because it can cost a company more than $100,000 to replace a manager in terms of recruitment, training, lost production and opportunity cost.
Unless your company is 100 per cent sure that a position is no longer required for the foreseeable future, it would be better to use other cost-management methods, such as shorter work-hours or pay cuts.
Retrenchment can lead to low morale which is probably already low in such a situation and diminish the company's reputation as a good employer.
4. Businesses scrutinise their goods and services
Customers' focus tends to shift during difficult times. Like you, they are going to focus only on their needs.
Be flexible, and tailor your services to suit their needs for the current time. Superior value and price performance are key issues.
5. Businesses relook at their marketing activities
It is a mistake to stop your marketing activities altogether.
On the contrary, you should adjust your marketing message to position your business as the best value for your clients' money, helping them to reduce costs and to do well in the recession.
6. Businesses worry about losing customers
Do all you can to hold on to your customers. Studies have shown that it costs five times more to gain a new customer than to keep an existing one.
Be as flexible as you can to keep your customers happy.
That does not mean that you should agree to loss-making deals.
Your long-time customers will be reasonable, as long as you demonstrate that you are trying your best to meet their needs.
You must always remember that you are in business to make a profit.
Work closely with customers to understand their special requirements and adapt your services to suit them.
Such working relationships with customers are crucial and can go a long way in establishing you as their key vendor or consultant.
Build for the future
Your company is successful because of its core values, culture and unique selling propositions.
Do not lose track of these or the foundation of your success will be undermined.
Hard times are also an opportunity for progressive companies to cherry-pick talented people who may have been let off by their employers.
In a soft labour market, they are unlikely to demand very high salaries.
High-calibre employees will help your company raise its productivity and stay ahead of the pack when market conditions recover.
Like the Chinese phrase wei ji, you should focus on the ji (opportunity) instead of worrying about the wei (crisis).
Understand your strengths and focus on your customers' requirements. You will not only survive this recession, but may also come out of it much stronger.