Factors influencing the strategies firms adopt in the recession

INTRODUCTION

Well functioning businesses with healthy cashflow and good control over their expenditure should have the ability to survive and deal with the obstacles presented by a recession. However this is difficult to achieve for many businesses as businesses are susceptible to many external events i.e. loss of a supplier or introduction of a new supplier. Nonetheless, businesses should have strategies in place to adopt in a recession to ensure survival. This may appear straightforward and simple but three important factors can influence the way these strategies are implemented and if they are implemented at all. Within this essay I will analyse how the three factors can influence the strategies and look at examples of businesses that have experienced the recession.

FACTORS

Firstly, price elasticity has a large influence in recession strategies. Price elasticity is a calculation that businesses use to discover how the demand of products will be affected by a rise or decrease in price. If a business is elastic then demand will be greatly affected by a price change therefore all businesses aim to be inelastic, meaning an increase in price will have very little or no effect on the demand of a product.

A second factor that can influence strategies are human resources. To retain capital in a recession firms can do a number of things i.e. cut hours, make redundancies, stop/decrease employee fringe benefits or change some employees’ tasks to homeworking. The mood of the workforce plays a large part because if the business has a happy and motivated workforce then a business can cut all employee’s hours rather than making some employees redundant. A recent example of this is the case of the accounting firm KPMG. The firm offered its 11,000 employees a shorter week where the fifth day is unpaid and unworked. One spokesman said they didn’t want to lose skilled people and this creates a more united feeling between employee and employer. If the workforce feel they are respected and treated well then the business may be able to avoid redundancies which can be expensive to a business.

A third and final factor is the availability of finance. Within a recession this can prove difficult as the banks slow and stop the borrowing of money therefore firms must ensure they have good money management skills. However, if a business does borrow more money then their gearing can increase. The higher the gearing of a business, the higher the chances of gaining too much debt and going in to administration. As most people cut down on the spending and most businesses do see profits fall in a recession, borrowing more money can prove devastating. This is evident in the case of the shoe store chain Faith. They had huge debt and with no available finance and falling demand, the business fell into administration.

CONCLUSION

To conclude, to survive a recession a business must run it’s operations efficiently and take influencing factors in to consideration.

The case for and against different business industries receiving government financial support during a recession

During the recent recession many industries have found themselves in financial difficulties. Although some have managed to survive and even thrive, others have relied on the Government to offer financial aid. The industries are those that our economy and culture is built on and their survival is essential. These are industries such as the banking sector and the car industry. Therefore, the Government has offered help in a number of ways but were these options the best choice?

THE UK CAR INDUSTRY

In the last year, the UK Government has implemented the ‘Scrapage Scheme’ and it gave those with a car that was registered on or before August 1999 the option to have at least £2000 off of a new car. The Government put aside £400m and they paid £1000 of the £2000 with the car manufacturers paying the other half. It was intended to encourage consumers to spend their money on new cars to keep the industry afloat in the recession.

Big name manufacturers participated with the full list being published as Allied Vehicles, Bentley, BMW, Chevrolet, Citroen, Daihatsu, FIAT, Ford, Honda, Hyundai, Isuzu, Jaguar, Kia, Land Rover, London Taxis International, Mazda, Mercedes Benz, MG Motor, Mitsubishi, Nissan, Perodua, Peugeot, Porsche, Proton, Renault, Rolls Royce, SAAB, SECMA UK, Ssangyong, Subaru, Suzuki, Toyota, Vauxhall, Volkswagen, Volvo, Iveco Ltd, Chrysler, Renault Trucks UK Ltd. This gave consumers a range of brands and vehicles to chose from.

It did prove successful with the Government reporting over 330,000 cars being purchased through the scheme this year. They have even extended the scheme to include cars registered on or before February 2000 and to vans. This widens the amount of people who can take advantage of the scheme and purchase a new car or van.

Along with the scheme, the Government has released plans to pump £2.3bn into the UK car industry to keep the industry going, to support current supply levels and to protect jobs. However, even with this intervention, the industry has taken a hit from the recession with reports of production falling around 30.9%. The help from the Government could considerably contribute to the survival of this industry.

BANKING SECTOR

The most obvious industry to be hit hard in the recession is those solely reliant on money for business; the banks. In October 2008, the Government offered a bail out of £37bn to try and keep the banks from going out of business. In return for this, the taxpayers will own 60% of RBS and 40% of Lloyds TSB and HBOS. The banks would also have to limit the amount and number of cash bonuses given out to their employees to retain profits to pay back the Government. Lloyds TSB would also have to sell some of their branches to attempt to raise some capital.

One bank that did not receive help in time was Northern Rock. This banking company acquired such a large amount of debt that in February 2008 it was taken in to state ownership after 2 unsuccessful takeovers (neither potential buyer could afford the debt). This meant the Government took ownership of the company and they also did not give any reimbursements to any shareholders.

THE ARGUMENT FOR SUPPORT

The positive effects of Government support to businesses in a recession are high. The aid keeps the economy moving forward through the recession instead of heading deeper into it. This therefore means that the Government have no choice but to give financial aid, they must do all they can to aid survival. Another benefit is that it can save jobs and avoid a large sudden inset of unemployment.

THE ARGUMENT AGAINST SUPPORT

The opposite argument could be that it is the businesses own doing that they cannot survive through a recession. If they had saved some profits or made more strategic decisions maybe they wouldn’t need the Government’s help. If they hadn’t, then the money could have been spent on improving health care or schools for example.

CONCLUSION

Ultimately, the Government has to help those industries that our economy needs to continue to exist. The negative effects of not providing financial support are greatly outweighed by the positive effects. This can be clearly seen in the case of Northern Rock; many people lost their life savings as well as their careers.

Without consumer and business spending, the economy will cease to enter the recovery stage of the business cycle.

BIBLIOGRPAHY

· http://www.direct.gov.uk/en/Nl1/Newsroom/DG_178251

· http://news.bbc.co.uk/1/hi/uk_politics/7853149.stm

· http://news.bbc.co.uk/1/hi/business/8497239.stm

· http://news.bbc.co.uk/1/hi/business/7666570.stm

· http://en.wikipedia.org/wiki/Northern_Rock

How the recession can create opportunities and threats for businesses and industries

INTRODUCTION
Within the business cycle, a stage called ‘recession’ exists. It happens after a ‘boom’ and is identified when GDP falls for two consecutive quarters. It’s characteristics include falling levels of demand, output, profits and consumer confidence. There is also higher levels of unemployment and few people invest. It would first appear that a recession would only create threats and dire consequences for most businesses however, there are some businesses that do thrive in these circumstances. I will be exploring a business that has thrived and a business that has fallen victim to the recent recession.

OPPORTUNITIES - PRIMARK
One company that has reported a large 10% increase in profits is Primark. This company has built its reputation and business on being low cost and low quality. While this may not be an appealing choice of store to purchase clothing and home products, this company has proved it can be successful even when consumer’s disposable income is low. Their strategy is clearly thriving as the company have yet to report any losses, only profits.

Primark’s simple business strategy is key to its success in the recession; cheap labour, cheap raw materials, cheap prices for consumers. During a recession many people curb their spending to survive and do not spend as much on more luxury items, they settle for lower quality items. With the company priding themselves on being low cost and offering women’s shoes for as little as £2.00, their success in hard times was inevitable.

The business did not spend on expensive advertising ventures, they relied on word-of-mouth, which would obviously contribute to the company's early profit. The business also rely on cheap labour to be able to pass on the cheap prices to customers. Though Primark insist they follow high levels of ethical standards, questions are raised about the validity in the claims of the company. A recent BBC Panorama program uncovered sweatshops in India where children were paid around 60p a day to sew sequins and buttons onto clothing destined for Primark shelves. Children as young as 11 years old were found within the cramped sweatshops. Is this not against the ethical standards of the company? Primark retaliated by dropping the suppliers that were involved in the employment of the Indian children.

It could be argued that Primark has not taken an opportunity in the recession; they have always been low cost and low quality and have not changed this to survive the recession. The recession itself provided Primark with the opportunity to increase its profits by simply relying on its strong retail reputation.




THREATS – LAND ROVER
Evidently businesses to make extreme losses in the recession and they are mostly the businesses that produce and sell luxury items. Land Rover have recently experienced severe falls in consumer demand and spending and have therefore had to take certain measures to ensure their survival.

When Land Rover reported a record 50% fall in demand, drastic action had to follow. Actions in the shape of redundancies, reduced working hours, part time working and closures of factories. The fall in demand was due to the decreased amount of disposable income consumers had to spend on more luxury items. They were therefore left with alternative options i.e. keeping their current Land Rover rather than upgrading, purchasing an old model, purchasing a cheaper make of car all together.

Another contributor (which was out of the hands of Land Rover) was the rising cost of fuel. Land Rovers notoriously consume large amounts of fuel and are therefore expensive to run compared to other smaller cars. Even though fuel is a necessity to consumers they will try and cut back as much as possible to retain their capital.

The actions taken by Land Rover could potentially create a ripple effect; suppliers who depend on the demand of Land Rover for their raw materials may find themselves in financial difficulty if the business stopped buying from them. Or vice-versa, if a supplier was to go out of business then Land Rover may struggle to replace them in terms of price or quality.

CONCLUSION
To conclude, I believe the ‘middle’ businesses (selling middle ground products) are often the under the most threat in a recession, examples of these would include ‘Zavvi’ and ‘Woolworths’. It is the ‘high end’ and ‘low end’ businesses that survive because for ‘high end’ businesses, i.e. luxury products/brands, have the profits and established economies of scale to survive – they are strong enough. With regards to ‘low end’ businesses, i.e. budget products/brands, their market increases as more people spend less.

The success of a business either surviving the threats that a recession poses or taking advantage of the opportunities it presents, it must have capital, efficient ideas and resourceful strategies.

BIBLIOGRAPHY
• http://www.guardian.co.uk/business/2009/apr/21/primark-announces-profit-rise
• http://www.telegraph.co.uk/finance/financetopics/recession/3463256/Ripples-of-recession-spread-out-from-factory-floor-to-barber-shop.html

• http://www.dailymail.co.uk/news/article-1028499/Exposed-Primarks-sweatshops-pay-children-just-60p-day.html

Essay on stakeholders regarding Heathrows Third Runway

INTRODUCTION
In January 2009, the British Government approved the plans of the British Airport Authority (BAA) to build a third runway at Heathrow Airport. It would take 10 years to build and finish but would result in a further 400 flights from Heathrow and an increase of 16 million passengers per annum. At first glance this proposal appears to be an excellent one but is this the case when all stakeholders are taken into account? Within this essay I will attempt to answer this by analysing and exploring the quantitative and qualitative data regarding environmental groups, local communities, employees, customers and BAA itself.

THE OWNERS - BAA
To begin I will look at the internal stakeholders. BAA are a large company who predominantly own a number of British airports, they are actively involved with sales of sites, purchasing of land, expanding etc. For BAA, the third runway meets the Government’s wishes to expand the UK’s airports to increase the country’s competitiveness and as Geoff Hoon MP (Transport Secretary) said ‘it is critical to this country’s long term economic prosperity.’ So not only will the runway benefit BAA financially, it will benefit the UK economy financially, which is essential in the current financial climate of the World.

EMPLOYEES
The Trade Union Congress have also backed the plans as it brings only benefits to employees at Heathrow as the third runway will create promotion opportunities for many. This creates a good relationship and a good atmosphere for the employees to work in.

ENVIRONMENTAL GROUPS - GREENPEACE
Next I will look at the external stakeholders. Environmental group Greenpeace have greatly opposed the plans since they were first made public. They are greatly concerned with the implications of building a third runway. They claim the increased flights and use of more fuel will decrease the air quality of the surrounding area and that if the plans go ahead, Heathrow will become the single biggest CO2 emitter in the UK. However, the plans do meet the EU Emissions Trading Scheme and BAA have been given strict restrictions and guidelines which they have vowed to follow.
Greenpeace have decided to take physical action and have bought a piece of land in the middle of the land designated for the third runway. They are inviting fellow supporters to own the land with them; they hope this will create a ‘legal minefield’ for BAA due to the amount of owners. On their website they are inviting followers to submit plans and ideas to build something physical on the land to prevent construction or at least create difficulty when construction begins.
With regards to Greenpeace’s worries over the effects the new runway will have on climate change, a paper by Scaffetta and West (two environmental scientists) published in March 2008, showed the natural cycles of the sun were accountable for up to 69% of global warming. This shows CO2 emissions are not the largest contributor to global warming.

LOCAL COMMUNITIES
Another group of stakeholders, the local communities, share similar views with Greenpeace. The village of Sipson which holds over 700 homes will have to be completely demolished to make way for the third runway. To those living there, businesses and their heritage will be lost. Also, to further communities the increased noise may impact and decrease the value of their home and their quality of life.
However, the new runway will create over 65,000 new jobs which will be widely available to the local community and surrounding area. Potentially, villagers of Sipson could relocate not far from their original home and potentially get a new job to replace the one they had lost. Also, for businesses surrounding the airport i.e. hotels, B&Bs, restaurants, cafes, the increased footfall from the expanded airport could increase their customer intake and therefore their profits.
BAA strive to listen to all concerns and aim to provide solutions. For example, the company offers a ‘Home Relocation Assistance Scheme’. This allows any household that falls within the 2002 69 dB Leq noise contour over the current runways at Heathrow to relocate away from high levels of airport noise with financial aid. They will provide, to any eligible homeowner, a lump sum of £5,000 plus 1.5% of the sale price of the property (up to £12,000).

CONCLUSION
With regards to customers, the plan to build a third runway only benefits them. It will reduce overcrowding and delays at Heathrow which will improve their experiences within the airport. The plans will also allow them to have more choice of times and dates of flights and allow for more availability. Ultimately, the proposed plans will only bring benefits to customers. By appeasing customers, BAA’s brand awareness will increase positively.
In conclusion, the proposed plans are not in the best interests of BAA alone. The plans are in the best interests of the company, the customers, the employees, the government and the shareholders. The alternative (the alternative being no expansion of any kind) would not benefit these stakeholders as much as the third runway will. Even though there will inevitably be an increase in noise and air pollution and a village will be lost, when put to scale, more people will benefit from the completion of a third runway at Heathrow that won’t.


BIBLIOGRAPHY
- http://www.baa.com/portal/page/Corporate/BAA+Airports%5ECorporate+responsibility%5EIssues+and+our+approach%5EAirport+expansion/e7b5fe1037c6f110VgnVCM10000036821c0a____/448c6a4c7f1b0010VgnVCM200000357e120a____/%20responsibility
- http://www.greenpeace.org.uk/tags/heathrow
- http://news.bbc.co.uk/1/hi/uk/7831962.stm
- http://www.airplot.org.uk/
- http://www.climatechangefacts.info

Test Blog - Kraft's takeover of Cadburys

INTRO
On the 19th January 2010 at 13:00 GMT, the iconic and unique Cadbury business was bought for £11.5bn by the large American conglomerate, Krafts. To what extent will this hostile takeover affect stakeholders? And will the change in ownership benefit them or hinder them? The stakeholders I will be considering are employees, customers, shareholders and suppliers.

EMPLOYEES
In the UK, Cadburys employs 5600 people and 47,000 worldwide and the main interest of Cadbury's employees would be the security of their jobs. In the UK, many of them will have worked at the offices and factories for many years and will feel as though they have directly helped Cadburys achieve its iconic British image. All employees appear to be at risk of losing their jobs, those at the top of the business are no longer needed - why would Krafts continue to employ them when they can replace them with someone with knowledge and years of experience in being part of Krafts?
The change to an American ownership could be devasting to employee morale. If the HR approach changed, staff with valuable skills and knowledge could leave which would have a definate negative impact on Cadburys at this point in time. Cadburys have consistently implemented a soft HR approach where it's employees are generously rewarded. The question of Krafts adopting a hard HR approach is does have the potential to come true as Krafts have previously implemented this in the US and found it to be a success. As the company has borrowed a massive £7bn for the takeover, it's primary objective will be to pay off it's large debt (which now includes Cadbury's own debt). The fact that Krafts has borrowed the money does not improve the likelihood of Cadbury's employees losing their jobs as Krafts could close and sell factories and office and make employees redundant to cut costs to pay back some of it's debt.
When looking at Kraft's track record on buying and running British companies, it isn't positive. In 1993, Krafts bought Terrys and shortly closed the York factory and made those employees redundant and moved production abroad. If this is anything to go by, the outlook for Cadbury's employees keeping their jobs, is pretty negative.
It appears there is no reassurance to employees about their job security in the long term and whether they will have to look for a new job very soon in a time when unemployment is high and job openings are few.
However, one former Cadbury's employee stands to benefit greatly from the takeover. Todd Stitzer (former Cheif Executive) stands to walk away with £30million in a pension, shares, a years pay and other things.

CUSTOMERS
Questions are being raised about the damage the change in ownership could do to the brand image of Cadburys. Cadbury's mission statement is currently 'Cadburys means quality'. It may be simple but it reflects the thoughts and feelings in its British customers. The company has always prided itself being of a British heritage and having a positive global effect.
This brand image will unquestionably change. Decisions for the British business will now be made by an American company who is known for building it's company on the sale of cheese. Customers know this through the Media coverage on the takeover, will they still believe the brand to be one they trust?
If Kraft do not sustain the highly regarded brand then sales in the UK set to fall dramatically. Customers will become unloyal and buy other brands and Krafts stand to lose capital if this happened. This in itself could potentially cause job losses. If brand image becomes more negative and Krafts cannot make a sustained profit then they make the decision to move production to the US or further abroad which means they will close production here in the UK.

SUPPLIERS
Suppliers for Cadburys face an uncertain time, the impact of the takeover could be especially devasting for some. Some suppliers will stand to lose their major purchaser if Kraft decide it would be cheaper to import supplies from abroad. (Which looks likely as Krafts will need to pay off their huge debt) If suppliers relied solely on Cadburys buying their stock then this could mean the end for their businesses.
Another concern is whether Cadburys will remain a Fair Trade company or not. Krafts does not pride itself on this so there is a chance they may no longer produce Cadburys products to Fair Trade standards. This could create a negative ripple effect through all those involved in the Fair Trade operations, the direct suppliers (those who supply the stock to the factories) right down the path the raw materials take to the farmers abroad who have benefitted from the move to Fair Trade.
This not only means suppliers will lose money and potentially struggle to survive but it could also have a negative effect on the brand image. If Cadburys was no longer Fair Trade, customers would lose faith and trust in the business.

SHAREHOLDERS
Finally the last stakeholder I will be looking at is shareholders. Krafts offered special dividends to shareholders if they passed the decision to takeover (which they did) and this raises the question of if they are only interested in a short term return and they passed the takeover for their own benefit. It could suggest they are not planning for long term returns and are not planning to own shares in Cadburys for much longer.
Although there are some uncertainties for shareholders in Cadburys because if Kraft fail to make any profit on Cadburys then shareholders stand to lose money if they sell their shares at a decreased price.
Also, Krafts are planning to introduce more shares, which means a lower dividend per share because there are more shareholders to pay. However, this is also a benefit for potential shareholders because it gives them an oppurtunity to purchase shares. This could mean more competition between shareholders when making business decisions which would act as a drawback for current large shareholders.

CONCLUSION
In conclusion, the outlook for Cadburys does not look good. Its long standing British heritage will change, which will inevitably damage the brand image in the UK. This could create a domino effect: if brand image falls, Krafts will make no profit, they could move production elsewhere, meaning redundancies and less business for suppliers. The only group of stakeholders that appear to make a definate profit from this new ownership are the shareholders, those who own shares in Krafts though, not in Cadburys.