Beyond Survival: Winning in a Global Recession

Unfortunately, we're all in this economic downturn together. But there are strategies to help your business emerge on top

By Harold L. Sirkin

I spent much of November meeting with executives of 18 companies in seven countries: France, Germany, Italy, China, India, Japan, and Brazil.

I don't take notes at such meetings and I don't carry a tape recorder. The conversations are confidential. But I can tell you that, without exception, the CEOs I met are all feeling our pain, because our pain, they made clear, is their pain. Little happens in a vacuum any more. In today's interconnected world of globality, where the destiny of companies and the economic fortunes of nations are more tightly bound than ever, what happens in one country affects many, many others.

As I write this, the European Union, Japan, and the United States are all clearly in recession. Even Hong Kong and Singapore, two of the so-called Four Tigers of Asia, are in recession. But the downturn is in fact universal. Every country and almost every company has been touched. Customers are slowing payments to conserve cash; companies are delaying payments to suppliers; and so on down the line. As demand falls, prices fall. The hurt is widespread.

When major economies such as the U.S. and EU slide into recession, unemployment and uncertainty rise and business and consumer spending decline. The United States is the largest export market for many countries. Reduce sales here by any significant amount and a chain reaction occurs. Chinese and Mexican factories slow down, business declines at Indian outsourcing service centers, orders for European luxury goods fall, and basic commodity prices tumble as demand trails off—affecting additional companies and economies.

Oil-exporting nations, for example, have seen the price of crude fall by nearly two-thirds in a matter of months. The prices of other commodities also are down significantly, affecting the economies of countries that rely on these revenues, such as Brazil, a major exporter of iron ore, and Jamaica, a major supplier of alumina and bauxite.

And conditions are likely to worsen before they get better.

Those who talk of "decoupling"—that is, how China, for example, might dodge the downturn by redirecting production to the domestic market—are on the wrong track. There is no more decoupling. The economies of the world are more deeply entwined than ever, and the U.S., Japanese, and European slowdowns are not only having an impact in China and elsewhere, the impact hit extremely fast.

While most Americans are concerned primarily with the effects of recession on their jobs, incomes, investments, and retirement prospects, there is a greater worry: a deep or protracted recession in the United States, Japan, and the EU will affect the entire globe. The United States alone spent more than $1.97 trillion on imports in 2007. The recession means we will buy less this year and next—and who knows beyond that? The cutbacks will not only be felt in Canada, China, Mexico, Japan, and Germany, the five countries that sell the most goods to the United States, but in many other countries as well.

CEOs are concerned mostly about their companies. A major Brazilian exporter of raw materials told me that he's concerned the U.S. slowdown will reduce Chinese demand for his company's products. An Indian CEO is worried that the slowdown would cause American companies to "in-source," or bring back home, IT and call center jobs, creating greater problems in India.

China stands to take the biggest hit from the global recession—since its three largest customers are the United States, Hong Kong, and Japan, which imported a combined $519 billion of Chinese goods in 2007. Many Chinese factories already have been stung by falling orders, as customers wait for massive levels of inventory to clear from long supply chains. In some cases, we were told, orders have been cut by more than half. This, in turn, has forced dramatic production cutbacks, idling workers and factories.