Economies the world over are nose diving and situation has been getting bleaker by each passing day. Facing the worst recession in the recent times, most of the big corporate houses have gone for massive revamping, including down-sizing staff strength, cutting down on fringe benefits to employees, cutting down on other expenses, freezing on any capital outlay etc.
In such gloom, how does one survive? Is there no solution to this recession? When will this gloom end?
The answers to all the above questions lie in the fundamentals of Economics. The entire economy floats on the balance of demand and supply. Any fluctuation in one is bound to impact the other. However, for the entire economy to function smoothly, the factors of demand and supply cannot be left alone to function. For some products, the demand-supply theory works independent of any interference. But, for some products, the theory behaves erratically and it becomes critical for inducements to smoothen the erratic behavior. These erratic behaviors & inducements become necessary in difficult times like recession.
Let's take the example of two diverse products: Motor Cars and Wheat. While wheat is a food item and is a commodity that will never lose any slump in demand. The only impact the demand-supply theory has on Wheat is in the pricing of the product. If the demand is higher than the supply, prices will do up and vice-versa. The product however will continue to be produced and consumed no matter what is the condition of the economy.
At the other end of the spectrum is Motor cars. This is a product which is mostly touted as a luxury, rather than a necessity. Therefore, the impact of economic conditions have far-reaching effects on this product, far higher in magnitude than they have on products like Wheat. Of course when the economy does not have any spikes, the demand-supply theory has an impact on the pricing of the motor cars, but when the economy is facing recessionary pressure, the survival of the very product can become questionable.
Today's economy has become far too complex than it was during the times of Keynes or Adam Smith when most of the basic tenets of Economics were issued. Today, each product is inter wined with other products in an economy and the economy of one nation is inter wined to the economy of the world. So, any impact on one product in any part of the world can have repercussions on the world economy. That is precisely the reason why today the entire world is facing its worst ever economic debacle.
The chain started when the housing mortgage bubble burst and banks & financial institutions lost millions of dollars. this resulted in contraction in funds availability. This in turn had a negative impact on businesses and general people. While some businesses found it difficult to get additional funds for expansion or new ventures, many others found it difficult to meet working capital requirements. This in turn propelled businesses to take stringent actions like saving every penny and cutting down on costs, including reducing staff strength. This in turn had a highly negative impact on general people. Because of the spreading gloom and imminent unemployment, people blocked their expenditures. This had a dual effect on the economy. While the products in the "necessity" brand did not face grave danger, the products in "luxury" brand took a real hit. This in turn had more businesses shutting down and more people getting unemployed.
In such a scenario, economy can be revived by increasing any one of the three spending components: Consumption, Investment or Government expenditures.
Governments the world over have been taking the third component seriously with the hope that it would create employments and induce positive sentiments in people to loosen their strings. But the desired effect is yet to be seen. It is predicted that the Government spending would have the desired effects but would take time, maybe a year or so.
If the sagging economy has to be restored faster than that, recourse has to be taken with the other two factors as well.
It is here that small businesses and outsourcing come into play. During these gloomy times, a small business has to survive first to see the positive effects of Government spending. And this is where outsourcing helps. With the technology having advanced to a level where distance does not matter, one has to look at options of cutting down costs and surviving, and then generating surplus funds to spend, which combined with others' spending would have positive impact on the economy.
A small business shall look at the various options available today to cut down cost. If until yesterday overheads were higher because of in-house operations, it would make sense to outsource them and reduce them further to reduce the pressure on revenue. For a hotel/restaurant or for a garage, accounting is an overhead that can be easily outsourced and costs saved, for an accounting firm, data entry can be outsourced.
While taking the decision for outsourcing, the businesses have to strategically devise their policies so as to take the best advantage of resources available the world over. Abundant availability of certain resource at one place needs to be evaluated with the rules & regulations governing that place as well as with the political stability of that place in order to ensure that outsourcing does not fail because of external factors. Other factors that need to be taken care has already been discussed, including data security, communication compatibility etc.
Thus, instead of looking at outsourcing as a problem, it would be in the interest of businesses and countries to look at it as a tool to beat recession!
Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest growing outsourced accounting service provider in India. Steve has over 10 years of expertise in audits, accounting (both US & Indian GAAP), payroll and tax preparation services. For details on services provided by APT Services, log onto http://www.aptservicesonline.com
Article Source: http://EzineArticles.com/?expert=Steve_S_Walker
In such gloom, how does one survive? Is there no solution to this recession? When will this gloom end?
The answers to all the above questions lie in the fundamentals of Economics. The entire economy floats on the balance of demand and supply. Any fluctuation in one is bound to impact the other. However, for the entire economy to function smoothly, the factors of demand and supply cannot be left alone to function. For some products, the demand-supply theory works independent of any interference. But, for some products, the theory behaves erratically and it becomes critical for inducements to smoothen the erratic behavior. These erratic behaviors & inducements become necessary in difficult times like recession.
Let's take the example of two diverse products: Motor Cars and Wheat. While wheat is a food item and is a commodity that will never lose any slump in demand. The only impact the demand-supply theory has on Wheat is in the pricing of the product. If the demand is higher than the supply, prices will do up and vice-versa. The product however will continue to be produced and consumed no matter what is the condition of the economy.
At the other end of the spectrum is Motor cars. This is a product which is mostly touted as a luxury, rather than a necessity. Therefore, the impact of economic conditions have far-reaching effects on this product, far higher in magnitude than they have on products like Wheat. Of course when the economy does not have any spikes, the demand-supply theory has an impact on the pricing of the motor cars, but when the economy is facing recessionary pressure, the survival of the very product can become questionable.
Today's economy has become far too complex than it was during the times of Keynes or Adam Smith when most of the basic tenets of Economics were issued. Today, each product is inter wined with other products in an economy and the economy of one nation is inter wined to the economy of the world. So, any impact on one product in any part of the world can have repercussions on the world economy. That is precisely the reason why today the entire world is facing its worst ever economic debacle.
The chain started when the housing mortgage bubble burst and banks & financial institutions lost millions of dollars. this resulted in contraction in funds availability. This in turn had a negative impact on businesses and general people. While some businesses found it difficult to get additional funds for expansion or new ventures, many others found it difficult to meet working capital requirements. This in turn propelled businesses to take stringent actions like saving every penny and cutting down on costs, including reducing staff strength. This in turn had a highly negative impact on general people. Because of the spreading gloom and imminent unemployment, people blocked their expenditures. This had a dual effect on the economy. While the products in the "necessity" brand did not face grave danger, the products in "luxury" brand took a real hit. This in turn had more businesses shutting down and more people getting unemployed.
In such a scenario, economy can be revived by increasing any one of the three spending components: Consumption, Investment or Government expenditures.
Governments the world over have been taking the third component seriously with the hope that it would create employments and induce positive sentiments in people to loosen their strings. But the desired effect is yet to be seen. It is predicted that the Government spending would have the desired effects but would take time, maybe a year or so.
If the sagging economy has to be restored faster than that, recourse has to be taken with the other two factors as well.
It is here that small businesses and outsourcing come into play. During these gloomy times, a small business has to survive first to see the positive effects of Government spending. And this is where outsourcing helps. With the technology having advanced to a level where distance does not matter, one has to look at options of cutting down costs and surviving, and then generating surplus funds to spend, which combined with others' spending would have positive impact on the economy.
A small business shall look at the various options available today to cut down cost. If until yesterday overheads were higher because of in-house operations, it would make sense to outsource them and reduce them further to reduce the pressure on revenue. For a hotel/restaurant or for a garage, accounting is an overhead that can be easily outsourced and costs saved, for an accounting firm, data entry can be outsourced.
While taking the decision for outsourcing, the businesses have to strategically devise their policies so as to take the best advantage of resources available the world over. Abundant availability of certain resource at one place needs to be evaluated with the rules & regulations governing that place as well as with the political stability of that place in order to ensure that outsourcing does not fail because of external factors. Other factors that need to be taken care has already been discussed, including data security, communication compatibility etc.
Thus, instead of looking at outsourcing as a problem, it would be in the interest of businesses and countries to look at it as a tool to beat recession!
Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest growing outsourced accounting service provider in India. Steve has over 10 years of expertise in audits, accounting (both US & Indian GAAP), payroll and tax preparation services. For details on services provided by APT Services, log onto http://www.aptservicesonline.com
Article Source: http://EzineArticles.com/?expert=Steve_S_Walker
No comments:
Post a Comment