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G20 summit: What do business leaders want?

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1st Apr 2009
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Stephen Archer of UK business consultancy Spring Partnerships outlines the key concerns of business leaders ahead of this week’s G20 summit and how world leaders can best address the economic crisis.

With all eyes on the world leaders at the G20 summit this week gathered to collectively address the economic crisis the main issue affecting businesses owners in the UK is whether they can do something quickly to stop the rot.

There is a high level of expectation and an even higher level of hope around this critical summit. This recession is unique in many ways but its top down nature is particularly notable. In other words, rather than being driven by consumer behaviour it is driven by the partial collapse of the financial system which in turn has severely damaged businesses.

The consumers by comparison - assuming they are still employed (94% still are in the UK) - is not so badly hit, as the strength of high street sales has demonstrated. Most notably they are impacted where credit is most necessary; e.g. for cars and houses. We therefore have a recession where business is the main victim so far. In time this could feed through to the rest of the economy with disastrous effects.

So what do business leaders want from G20? The short answer is belief. This is not as glib as it might appear. If business does not believe that the G20 have agreed to enough solutions, then the recovery will be much slower.

The key demands of business leaders ahead of the summit (in order of priority) are:

1. Consistency
A genuinely unified approach and agreement to each others' particular country interventions to help local economies.

2. Fix global debt hangovers
There needs to be some very big thinking on solutions to long term sovereign debt. This risks stifling growth rates for decades to come. Provisions for long term write downs or even write offs should be considered. In reality, the total payback may never be possible and give the economic and social costs of stagnation then radical solutions sought. A sort of ‘game over: Restart but learn your lessons’ set of solutions.

3. Free trade
Any significant whiff of protectionism will be disastrous. This should be eliminated vigorously.

4. Regulations
This is arguably the easy one and Lord Turner has taken a healthy lead on this. Without regulations, business will not trust banks which could result in disaster again.

5. Communication, communication, communication
Obama has done a great job, and Brown a terrible job. Leaders must lead, not just talk amongst themselves. Tell the world and each economy what the global measures are to the global problem. Make it clear and convincing. The moment has passed when it is permissible to say ‘we are not quite sure what is happening’.

Recession regression and pessimism porn
So what do the leaders have to respond to? The systemic failure of the financial system is a given, as are the consequent decay in consumer spending and the fall in industrialised world trade. However, these problems are increasingly the symptoms not the cause.

Arguably, the biggest barriers to recovery now is a deep rooted pessimism amongst UK business executives that government solutions will not work or take effect too late to prevent a worse recession. The other major problem is the 'regressive' attitude of consumers and businesses.

The outcome needed from G20 is the belief that the end is in sight; after all, we know there will be an end, and very few people are suggesting that it is beyond 2010.

It is no longer just the lack of credit that is keeping small business owners awake at night; it is a deep rooted pessimism about the future. Let’s face it, many credit starved businesses have gone bust already, and those who have survived have a deep fear of borrowing cash that no amount of quantitative easing will fix.

What's more, the global drop in trade has meant that many small businesses want less credit, need less credit or don't exist anymore to have any use for it at all. Now the main issue now is low confidence affecting the entire business community; paralysing investment and causing consumers to retreat and fuel the economic crisis.

For exmple, look at the UK government’s £75 billion quantitative easing action: In normal times this would cause a significant flood of credit, cause inflation and ‘heat up’ the economy as the money is released into the economy and gladly used by business and consumers.

In the current situation none of this may happen because no one wants to borrow money so readily, always assuming that banks increase their willingness and flexibility in lending. This is an upside down recession, affecting the financial community first and causing consumers to react and regress. Unemployment has risen to over 2 million, but it is not likely to hit the 3 million mark and yet there is the greatest economic fear and apprehension climate since 1945.

Many people are better off than a year ago with low interest rates, reduced mortgages in many cases and falling retail prices, but they are still retreating from the economy until the storm blows over. They are staying indoors watching and listening to the weekly, daily, hourly news with the rubber necking fascination usually reserved for car crashes or porn addicts.

The speed and volume of economic bad news, the self confessed uncertainty of the governments of the global economies are all serving to paralyse their spending creating a classic economic vicious circle. However, it is far worse in the business community where confidence is even lower and consumer expenditure translates into the longer investment cycle. Investment in business, the inter-business activity and confidence are at a dangerous and profound low.

Positive steps forward
Whatever the outcome of G20, there are things that businesses can do now to prepare for a bright and confident future.

1. Review the way business is resourced
This is a good time to look at resourcing. Staff may have been thinned out or even removed totally, but a skeleton team should be kept in place to respond to and exploit the upturn. Outsourcing is a very good option currently, outsourcing costs are down and they represent scalable, variable costs. Many suppliers (e.g. marketing agencies) are so keen to build relationships that they will work on much reduced costs and they can add a lot of value to companies. There are companies that are even turning down offers of free work from suppliers - madness!

2. Externalise
The current crisis has caused a great deal of internalised thinking, but companies should be far more externally focused. They need to look at market trends, understand changing customer expectations and look at what competitors are doing (and be prepared to 'steal with pride'). They need to be creative – after all, it's free.

New ideas should be tested on customers. If the advertising and marketing spend has been cut then other, cheaper methods of staying in touch with customers must be considered. Mail shots e-newsletters and more PR is a must. Advertising can be expensive, but communication need not be. Customers will be reassured that a business is still there and energised.

3. Invest in products and services
Businesses may need to cut back on R&D, but this is not the time to stop. They need to use the information gleaned from external research to understand new market opportunities and where investment should be made.

Short to medium term expenditure should be prioritised - long term spending can be put on hold until things pick up. Another idea is co-developing products and services with other organisations and R&D can be outsourced too. There are commercial and academic organisations that make very good centres for development.

4. Change the psychology
The glass is half full, not half empty. It can be a fight out there, but leadership must maintain focus and morale. A motivated organisation is an effective one. Business owners need to show belief. The team needs to be focused on creating new opportunities in a positive working environment that believes the recession will end soon. People should be involved in future plans and in developing new strategies. These are all positive psychology actions that will get the team up and ready for economic recovery.

Stephen Archer is director of UK business consultancy, Spring Partnerships.
www.springpartnerships.com

Want to know more? Follow our G20 summit round up on AccountingWEB.co.uk's sister site Finance Week.
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