Reading Hard Times

Before you say I-told-you-so, it must be asked: was all that panic just a mindless overreaction to the very real fears of a global meltdown? Some argue that India—and Indian companies—have been plain lucky. As confidence limps back to normal (we’re not out of the woods just yet), how is it that some companies have been stronger in tiding over the recession? “The fear of the financial crisis in the West was much more than the problem,” says Mahesh Vyas of CMIE. But the slowdown has laid bare the vulnerabilities of many top companies badly hit by over-diversification and aggressive takeovers. It’s a humbling moment for corporate India—the crisis could have been much more severe but for the prompt action of the government. But bailout will not be among the top management lessons from the slowdown.

Mantra 1: Thou shalt forever remember that cash is king

Sound management of the good ol’ khata, not surprisingly, tops the list of survival lessons during a time when both domestic and foreign sources of funds seemed to dry up completely. In short, companies with better inventory management, shorter cycle of debtor collection, and enhanced plant efficiency were survivors. As Apollo Tyres’ Neeraj Kanwar puts it, that’s how “savings in terms of interest cost and better cash flow” helped the company improve its financials.

Similarly, “when the shrinkage came, we improved our payments from clients (state and central government agencies) by 10 days,” says Rupen Patel, MD of Patel Engineering, a leading infrastructure construction company. Also, with RBI adopting an accommodative policy, many companies have been able to get their high-interest bank loans restructured, while others are exploring alternate routes.

But where companies had over-extended themselves—like pharma major Wockhardt, realty major DLF, retail chain Subhiksha and even the venerable Tata Group—to fund acquisitions and expansions, the slowdown has inevitably taken a toll. Firms have had to sell assets—physical as well as equity stake in companies—to raise funds. And the problems are not over for many of these companies, with a few like Subhiksha facing liquidation.

Mantra 2: Stick to the knitting, but innovate for survival

In tough times, companies that kept working on retaining existing customers—while maintaining flexibility on shifting market dynamics—have emerged as winners. IT firms, for instance, reached out to newer customers and hitherto-ignored markets. Automobile and FMCG players rushed out to discover greener pastures in rural India. This has paid rich dividends for them. “If you are able to keep focus and change along with the customer and market dynamics, it will ensure that you don’t miss out on any big story,” says Apollo’s Kanwar. In May, Apollo Tyres acquired Vredestein Banden BV (VBBV), a high-end tyre manufacturing firm in Netherlands.

Unlike manufacturing, in HR management, the challenges were different with many companies resorting to job cuts, says K. Pandia Rajan, MD of manpower major Ma Foi Group and Ranstad India. Ma Foi shifted focus to entrepreneurship and other career options for those getting displaced. “We also started focusing on government and multilateral-funded projects,” says Rajan, revealing that rising demand for temporary staffing helped the firm increase its marketshare—though profits dipped.

Mantra 3: Manage employees better with less in hand

In the last year, companies have had to work hard to maintain employee morale in times of retrenchment, salary cuts and increased workloads. It’s definitely not an easy task, say most HR managers. “Keeping the firm in a positive orbit amidst a barrage of bad news is a challenge,” admits Rana Kapoor of Yes Bank. Which is why, despite the general air of gloom and doom, a bulk of firms that have been able to trudge through with decent results are rewarding their employees with increments and bonuses.

But there’s been a tempering of expectations. Salary expectations have become more realistic (a fact that has brought a smile to every headhunters’ face) and it is understood that these aren’t times to take the workplace for granted—translating into a higher degree of responsibility and accountability. Companies are also learning how to organise employees better in order to achieve greater efficiencies.

Also, there’s the opportunity to scout for the ‘right’ talent at the correct price—significant talent has come into the pool when a few MNCs reacted with retrenchments in India, especially in the banking and financial sector. For many, retrenchment has left a bad taste. “Companies who had faith in economic revival worked to retain good talent while keeping their operational costs low to tide over the temporary slowdown period,” says Prof Ashok Kapoor of MDI Gurgaon, who is an advisor to many corporates.

Mantra 4: It is a good time for efficiency and family values

Reading global signals and taking preemptive steps while the European and the US markets were tottering helped many Indian firms, feel experts. Others used the slowdown to restructure operations. “Any slowdown is also an opportunity for cutting costs, looking for new markets and energising focus on core areas,” says Sanjiv Goenka, vice chairman of RPG Group and president of AIMA.

Indeed, the slowdown has been a big boost to family-run businesses in India. There has been pressure to yield ground to professionals—and indeed many family enterprises have been doing just that. After the crisis, “conservative” family-run businesses have been by and large seen as better placed to handle the sharp swings than professional-managed firms. Companies that fared best during the slowdown were those that did not “outsource their judgement”, points out Rahul Bhasin of Baring Private Equity Partners India.

In sum, firms that focused on customers and didn’t over-leverage their financials have emerged looking better after the slowdown. With many companies having paid the price of being “very aggressive in a benign market”, Bhasin feels the slowdown will act as a check. Talk of consolidation, mergers and acquisition are once again gaining momentum with medium and big companies that seek inorganic growth, while MNCs like Carrefour and MTN are pursuing alliances in India. Dealing with risk—and reaping rewards—is in the bloodstream of firms. However, it’ll take some time before memories of the past year fade away.