Is global recession coming to an end???

The global slump has reached its low point in the business cycle. Asia’s economies are looking rosier and brighter, buoyed by a spectacular rebound in China, where output grew at an annualised rate of some 16% between April and June. This is obvious good but the picture is still not clear. The boost from restocking will be temporary. And a big source of demand—government stimulus—is unsustainable. Across the globe governments have, rightly, stepped in to counter the economic slump. In America an increase of 12 percentage points in the budget deficit has cushioned the slump in private spending. Around 75% of China’s growth this year will be state-directed, either through public spending or officially induced lending. Governments can prop up economies temporarily, but rising budget deficits are not a route to sustainable growth. Eventually burgeoning debt will limit the room for fiscal manoeuvre. A solid global recovery demands healthy and balanced growth in private demand. Unfortunately, that still seems far off.

Global Economic Storm to Massive Public Debt

The worst global economic storm since the 1930s may be beginning to clear, but another cloud already looms on the financial horizon: massive public debt. An interesting article published in 'Economist.com'. Find the synopsis of the article.

Across the rich world governments are borrowing vast amounts as the recession reduces tax revenue and spending mounts—on bail-outs, unemployment benefits and stimulus plans. New figures from economists at the IMF suggest that the public debt of the ten leading rich countries will rise from 78% of GDP in 2007 to 114% by 2014. These governments will then owe around $50,000 for every one of their citizens.

Open-Book Management Principle

This is the unconventional idea carried in 'The Economist' that firms are most effective if their accounts are left open for all their employees to see as and when they wish, at the same time as the employees are taught to understand better the full financial picture. Traditionally, only a handful of senior executives are made to feel responsible for whether a business makes money or not. Open-book management attempts to extend this feeling of responsibility to everybody in the organisation.

It is described by John Case, the man who claims to have invented the expression, as the idea “that companies do better when employees care not just about quality, efficiency or any other single performance variable, but about the same thing that senior managers are supposed to care about: the success of the business”. It spread the burden of P&L responsibility—the responsibility for the profit and loss account of a business unit that is generally given as a reward to rising managers—to everyone in the organisation. With open-book management, the idea is that everyone has a certain amount of P&L responsibility.

What natural and economic disasters have in common?

The title seems to be very interesting....isn't it?

The parallels between financial crises and natural disasters—such as earthquakes or forest fires—suggest that the economy, just like complex natural systems, is inherently unstable and prone to occasional huge failures that are very hard or impossible to foresee. Scientists and other proponents of this school of thinking are bringing new ideas grounded in complexity theory to economic forecasting, strategic planning, and risk management. This trend may have profound implications for policy makers, economists, and corporate strategists alike. Please read this article published recently in Mckinsey quarterly.

Credit Crisis to Recovery

There is an excellent article published in ‘The McKinsey Quarterly’ on recovery of the companies from credit crisis. As companies shift their attention from fighting the crisis to getting the most from the recovery; these are the key points:

One has to understand what they should expect as normal after the crisis has fully passed and to set appropriate performance targets.

A weak economy makes it easier to implement unpopular operational changes and divestitures: companies have more leverage over suppliers, unions and regulators are more cooperative, and employees understand the need for change. When the economy strengthens, these advantages will quickly vanish.

An intense focus on reducing costs and working capital will leave many companies incapable of responding to a rapid pick-up in demand. Can they respond without either bringing back high costs or cutting the quality of their products?

Businesses that may emerge from the recession at a competitive disadvantage could find a quick and effective solution in joint ventures with companies in a similar predicament.

Growth requires capital. To finance growth, CFOs should prepare a battle plan—including ways to line up new equity, as well as bonds and new debt—that can be activated if necessary.

Take advantage of the buyers’ market for talent and other resources as it costs less in the current market.

One has to understand and know what risks a recovery might bring. Risk management and contingency planning are typically better at highlighting day-to-day issues than at anticipating major shifts.

Velocity (v) = Frequency (f) × Wavelength (λ)

We all know that this is a very famous equation in Physics for finding out the velocity of sound wave. I find it a very interesting equation as it has a great application in our professional life as well.

In my thirteen years plus working experience, I had heard people saying very often “our frequency is/is not matching” or “our wavelength is/is not matching”. I differ from these statements in a great way. I do not understand what our frequency/wavelength matches or not matches means. It does not matters whether our frequency/wavelength matches or not matches, what matters is that the velocity should match in order to move forward or to go to the next level.

Let me explain my theory of understanding in details. What is frequency? It is number of vibrations in unit time in terms of Physics and in professional life it means the responsiveness shown to changes or the adaptability to new concepts. You will find that the young professionals are more flexible and quick in this. So frequency (f) is higher for young professionals. So I think that frequency differs from person to person with respective to age group.

What is wavelength? According to Physics, it is the distance travelled by the sound wave in unit time. In professional life it means farsightedness or one’s capability to see the future. You will find grey haired people having more farsightednesses due to their experience. So wavelength (λ) is higher for experienced professionals.

What is velocity? In terms of Physics, it is the speed at which the sound wave travels and in professional life means going ahead or moving to the next level at a pace. I think we should not be bothered whether frequency (f) or wavelength (λ) matches/not matches; but what is important is that their product that is velocity (v) should match. It should be a combination of young professionals whose 'f' is higher and experienced people whose ‘λ’ is higher as then ‘v’ which is a product of ‘f’ and ‘λ ‘will be higher which companies will be looking for.

So I think the right statement to make is “our velocity is/is not matching”.

Will we call it foreign investment or neocolonialism?

I came across an interesting article in Economist and I feel that the issue should be brought into limelight. Everyone should be aware of this fact and I want all your views on this before it gets too late.

Rich countries are acquiring huge farmlands in poorer countries for importing food crops to their countries to tackle the crisis. The government in countiry like Ethiopia leased lands to the investors in Saudi Arabia. The investors is spending $100m to raise wheat, barley and rice on land leased to them and are exempted from tax in the first few years and may export the entire crop back home. Now the interesting fact is that, the World Food Programme (WFP) is spending almost the same amount as the Saudi investors for providing food aid to the Ethiopians as they are suffering from hunger and malnutrition.

Investment in foreign farms is not at all a new thing. But several things about the current trends are new. One is its scale. A big land deal used to be around 100,000 hectares (240,000 acres). Now the largest ones are many times that. So I leave it to you now...will we call it foreign investment or neocolonialism???