Crisis? What Crisis?

It is not quite the same parallel to the famous period in the 70s when the then Labour Prime Minister went on holiday as the country literally disintegrated around him with rubbish piling high and uncollected in the streets and blackouts started in the evening as energy strikes bit. However, I can't help raising an eyebrow when people insist we are in a 'Credit Crunch' or 'Economic Slowdown' and not a recession.

What does 'Economic Slowdown' mean?

The technical definitions by economists are a few quarters of successive lack of growth and recession is the same but with negative growth. That's a pretty simple definition but of course to the average person in the street, we see the signs of such monsters a little earlier.

Inflation is the first thing to hit us. I struggle with Government definitions but I only have to look at petrol prices, the average weekly shop and energy prices (it now costs me over £1,800 per year to power and heat my home - a semi-detached 4 bedder) to know that inflation is rising. House prices are coming down and the market is stagnating - I know people who have had their property on the market for over a year, yet it was the sort of house that would have sold very quickly before that.

And then there is business.

How are you feeling the Business Pinch?

At a recent event, a good friend of mine who runs his own Hi Tech Recruitment Business, said he had not experienced any slowdown. In some respects I agree. My business is dependent on outside companies wanting to expand and grow in the European Market and I have certainly seen greater reticence by US companies wanting to expand but equally I found Israeli and Indian companies to take up the slack.

However, his comments did intrigue me. We all know that one of the direct outcomes of a recession is lower corporate profitability, moves to cost cutting and inevitably, job losses and higher unemployment. I read recent newspaper articles which show that the number of new headcount positions across industry generally peaked some months ago and is now falling dramatically, while the same articles predict unemployment in the UK to rise to over 2 million.

It may be that some sectors, like Hi Tech, do not see such effects so rapidly. Much of their revenue comes from capital spend rather than operating costs and so maybe that is still healthy? It shouldn't be - as capital raising and availability is one of the major consequences of the credit crunch. In fact borrowing in general for overhead funding should be harder. So why is the Hi Tech market apparently bullet-proof as we experience marked slow down factors like rising fuel and energy prices which affect the cost of manufacturing and transportation of Hi Tech goods?

Head in the Sand Management

One of the prevailing factors that led us to the Credit Crunch was 'Head in the Sand' management at banks and finance companies. No Black Swans in the system were required, it was common sense that all the assets could not rise harmoniously and endlessly - there had to be a debit somewhere, and we certainly got it. The same management will survive and talk of new financial models as if they learnt a lesson but ultimately it will be people like us who pay the cost of it through mortgages, loans and general lending products.

And so in the Hi Tech sector. Perhaps the apparent buoyancy of the Hi Tech recruitment market suggests a 'Head in the Sand' syndrome within management of these firms - a belief that they have not yet experienced a slowdown in revenues and so they may believe they will be immune to its effects? It would be interesting to see what such managers think and understand their logic.

Certainly, as the dollar-pound-euro exchange rates ease, US companies are going to feel a little more bullish about Europe and its possibilities. There has been a strange logic prevailing for the last year that says while the dollar rate is high, such companies did not want to employ local European staff as their salaries in dollar terms were often far in excess of equivalent jobs in the US or even of the hiring managers. Yet the same firms seem to be equally happy to pay agencies fairly huge sums to do some 'Market Testing', which usually involves a short term project at quite a substantial premium to the market rates. It has certainly been a curious time.

If you judge the general market for jobs as shrinking due to the almost non-existent Recruitment Supplements in the quality papers, the Hi Tech market seems to be getting stronger and stronger as new adverts appear on Linked In and Job Boards by the minute, new email alerts and now even text alerts. It seems business is not slowing down in the Hi Tech market - on the contrary, it appears to be booming. And recruitment is at the forefront as only a week or so ago Michael Page rejected a £1.3bn bid for its business, clearly reasoning its price will rise in the current market rather than shrink.

So is this a 'Credit Crunch', 'Economic Slowdown' or 'Recession'?

Between all the doom-mongering, reactionary talk, and alarmist commentary then laissez-faire management, Black Swan random event theories and economic cycles there must lie the answers to the questions of what is it we are experiencing, how far will affect us and for how long? It would be helpful to business planning for most of us although I would advocate a policy of Prudence. Some questions on LinkedIn recently have asked what should you do in slowdowns or recessions - gear up or cut cost? Knowing what we are in would help answer that question because the two schools of thought have merit but I would suggest the art of execution is all in the timing.

For those companies who cut their cloth, pull in the reins or chop out unprofitable business to focus on core, may well be in the middle of these activities when the upturn arrives and so they actually magnify the effect of the slowdown and often irreparably damage some of their future earnings by missing opportunities. While those companies who carry on gearing up suddenly find a massive whole in their finances and jeopardise the entire business - rather like the banks have done.

Common Sense Prevails

The most sensible route is to try and gauge the market. If you are going to gear up - think about what areas of product, service or expertise are actually more needed in recessionary times and put more effort in those areas. If you are going to cost cut, be sensible about which areas you damage and try to do it one action rather than instigating a 'death by a thousand cuts' which you see so often as management misread the situation and thought a few cuts here and there suffice. It ends up in demotivating those who stay and that produces inertia and inefficiency of its own accord.

For those companies wishing to expand into Europe from outside, I would definitely avoid talking to recruiters - they do not care whether your business survives or not. Ultimately, in my business my aim is to work with my clients so as to make my services redundant to them at the earliest opportunity. This means testing the market is not about putting a toe in the water it's about achieving results against which you can make sound investment decisions for the future. So define those milestones carefully so that achieving them will tell you what you want to know and above all, work with a professional company that has a track record of understanding what emerging businesses need in order to be successful in Europe. It isn't about just getting a few sales, it's about selling in the professional image of the parent, attracting good business, representing the company in the press, at events, seminars, workshops and driving the KPIs to achieve the results. You want it exactly as if you were doing it yourself and that requires the most important element - trust.

If this appeals - we should be talking.