The Trials and Tribulations of 2008, the Enormous Challenges of 2009
by Toby Grey
Often, when trying to describe either past experiences or future prospects, people will resort to sporting metaphors to convey ideas of what happened to them, and how they felt about those events……..but on looking back on what happened to those many small and medium-sized businesses – Cisco’s Silver and Premier Channel Partners – with whom it is the privilege of Bridge Resourcing Solutions to work, I cannot help but feel that it is not the language of the sports ground that is most appropriate, it is the language of the fairground – and one designed by the diabolical Professor Snape at Harry Potter’s Hogwarts College, at that.
Why a fair ground, you ask, why Hogwarts? Well, let’s see. Did the year 2008 start out quite sunny for you? Lots of technological change in progress…….new mobile technologies, cloud computing on the web, all sorts of business changes from new methods of customer relationship management to new ways of outsourcing and offshoring……a large number of new projects for a wide range of customers?
But in the 2nd quarter of 2008, that warm and pleasant sun slipped behind thick cloud cover, and failed to re-emerge, the day darkened markedly, the temperature dropped as a chill wind set in from the west. You noticed it first in the property markets – a lot of press comment about sub-prime property in the USA, with anxious speculation about its effect on banks and investment funds in Europe; then in the residential and commercial property markets, when it became clear that your neighbour would never sell his property for anything like the amount he was asking for, let alone hoping for……
Of course, you understood why, every time you went to fill up your car with fuel – those money wheels would spin crazily till you had nothing left in your pocket for a Friday evening drink with colleagues and friends. And that was before you or your partner started screaming about the soaring cost of food in the shops, whilst inflation raised its ugly head and Central Banks started to push up the cost of your mortgage because they feared that inflation was returning to torment us. The consumer really started to hurt, as all the Dementors in the economy started to thrust their grasping claws into his pocket to rip out any remaining disposable income.
The cost of a barrel of oil topped out at an absurdly speculative $147, until the bubble was punctured and its price plummeted – crashing to less than $40 at one stage in November, and less than one third of its price barely 6 months before. Even environmentalists wondered whether that price would be sufficient to encourage the Seven Bad Sisters to go out and find enough oil to replace consumption, so that we would have fuel for our homes and vehicles in our old age.
What? Feel sorry for Exxon, Shell or BP? In a way, yes! Numerous exploration and development projects were shelved until investment returns could be foreseen more reliably. And the extraordinary China Story started to unravel – western economies shut off their purchase orders from China, throwing huge numbers of manufacturing and construction workers into unemployment – along with the vessels that carried China’s exports to Europe and North America, as the shipping index of ship charter rates slumped more than 90%.
And that was when you realised that you, your technology business and many similar Channel Partners were well and truly lost in the Forbidden Forest of Hogwarts. Many of the assignments on which Channel Partners have been working in 2008, have now been curtailed or even terminated, as clients have slashed investment projects or postponed them until the consumer regains his courage in the face of rapidly rising unemployment, increasing taxation and a scary full-scale banking crisis.
It’s that banking crisis that hurts most right now. Overdraft facilities are being hacked back even for good companies, trade finance is being denied for many manufacturing and retail businesses, sensible projects are no longer being funded, liquidity is king. And that, in spite of colossal amounts of money being pumped into the economy to encourage banks to lend to each other and to the real economy. Everybody is convinced that bankers could not run a piss-up in a brewery because of those bonuses they couldn’t jump over, whilst bankers themselves are busy blaming everybody else - speculators, regulators, politicians, even central bankers.
Everybody feels really sore about a lot of things; taxpayers, business, investors, the consumer, the employee, the unemployed, those on benefits…….everybody feels like they have been on a crazy helter-skelter, a terrifying roller-coaster ride, a whirling roundabout out of control, lurching from horror to horror – the fairground from Hell.
So how do you feel about 2009? Had enough of those stomach-churning fairground rides? Confident about finding your way out of the Forbidden Forest, and not falling down a precipice of government debt into the ravine of a collapse of sterling? Well, you shouldn’t be…….
Many businesses are on pause till December 31st, whilst the accountants chuck all the bad news they can into the 2008 accounts, ready to start 2009 with a fresher view and a clean sheet of paper. Of course, all businesses realise that they simply cannot stand still any longer, they must take action and do something. So the first new activity will likely focus on projects that will improve productivity, increase efficiency and reduce unit costs……best to concentrate on smaller incremental projects, as the large scale projects will take a long time to achieve approval and funding.
Meanwhile, the politicians and central bankers will be praying that once the automotive industry is sorted, there will be no more sectors in crisis and that they will have injected enough liquidity into the economy to stimulate the banks, property and business back to a semblance of normal life, without mortgaging the futures of our children and grandchildren to servicing an ever greater mountain of debt. Nevertheless, confidence will remain shaky well into 2009, international trade will continue to drop away, and economic growth will not re-emerge until Q4 of 2009 at the earliest. Investment markets will continue volatile and prone to shocks, as inflation calms and flirts with deflation in certain sectors. As credit availability continues to contract through the first half of 2009, many businesses will seek to deleverage (in spite of low interest rates), fearing that the economy will continue to present severe challenges until 2011.
As they say, this will be a time when the next great fortunes will be made. Be ready to take meaningful risks in the pursuit of new business, but maintain enough liquidity to ensure that you can recover from unexpected nasty surprises. Business will start slowly and tentatively in 2009, with many companies feeling their way through the fairground maze, which will move and gyrate quite crazily from time to time. Clearly, there will be a renewed emphasis on risk management, but many of the current gurus will be tossed on the bonfire of vanities, after their total failure before the fierce heat of real world experience in 2008. Ignore political risk at your peril!
For there will be more surprises (as if 2008 did not bring enough), ranging from monstrous Ponzi schemes that even JK Rowland could not dream up, to nasty new stealth taxes and extraordinary swings in opinion polls as the electorate tries to come to terms with the new and hostile economic environment. Expect the unexpected!
And there will be casualties too – for example, semiconductor chip production is expected to fall by 16% in 2009, which might lead to a market surplus. So redundancies from failing companies may present their competitors with opportunities to acquire cheaply a range of new technical skills – stay in touch with Bridge Resourcing Solutions to access the best available talent in the market.
But above all, start the year feeling lucky – you will need Lady Luck along side you and your business (as well as a good tax accountant), until things start to settle down again in the second half of 2009. I wish you well, and a very merry Festive Season, before the storm is renewed in January next year……
Toby Grey
Toby is Director responsible for Finance and International at Bridge Resourcing Solutions. Graduating from Oxford University with a Law Degree, he qualified as a Chartered Accountant with Coopers & Lybrand - now PwC. He subsequently became Finance Director of DHL in France, before spending 15 years in London and Sydney with TNT, holding a range of senior HO international finance positions. Toby then spent 5 years in South America, as Regional CEO for Sea Containers and GE SeaCo. Toby’s extensive international senior management experience provides valuable support to Bridge’s consultants as they strive to fill senior positions at national and multinational clients; whilst his deep financial knowledge helps to ensure the financial success of Bridge’s own business.
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