Once the recession ends (and it will end), something interesting will happen. Some companies will emerge from the downturn in a better position than their competitors and start to outperform them. What sets these strong performers apart? Our work with companies suggests two factors: a commitment to innovation and a drive to become immersed in emerging growth markets.
Investing in new initiatives during a brutal downturn isn't easy. While cost-cutting is often the norm, the mistake companies make is thinking short-term, having the savings flow directly to the bottom line, rather than reinvesting a portion into long-term opportunities. Without investments in innovation and new markets, growth will stall even as the economy rebounds.
Similarly, Makita's lithium-ion battery products demonstrate the value of innovation based on customer needs: the company's hand tools have more power, less weight, higher efficiency and are more compact. Without customer feedback, companies simply cannot develop the type of products that will sell in the marketplace.
Paula Zilka Colbert
The lesson from successful companies is that innovation must be a priority, no matter the economic outlook. Innovation is a fundamental component of any viable business model, and often involves big leaps, not incremental adjustments. Skimping on innovation or only making small changes to existing products is a recipe for decline in market share and profit margins.
A focus on high-growth emerging markets is another mark of companies that survive recessions better than their peers. Emerging markets have several advantages over mature markets. First, they take time to stabilize and determine market leaders, because there is less brand awareness, hence less brand loyalty. Second, the demand usually outweighs the supply, allowing for better profit margins. Firms that implement a strategy with exclusive rights within a geographic region and distribution channel can generate quick revenue and premium profits, while capturing long-term market share. Small-tools manufacturers with a sales force and manufacturing facilities located in emerging markets (i.e. Danaher, Makita and Snap-on Tools) are riding the market decline better than those focused solely on North America and Western Europe.
BRIC countries (Brazil, Russia, India and China) are long-term growth drivers, despite recessionary conditions. With competency hubs, like technology in India or manufacturing in China, infrastructure development continues, and the governments are looking for partners to help grow the business base. Some manufacturers are increasing market share through acquisitions, like Snap-on Tools, which purchased Zhejiang Wanda Tools in China. Others, like Makita, are doing it organically through the expansion of sales offices and manufacturing capabilities in that region. Either way, for long-term success it's critical for a company to have an active presence in emerging markets.
A focus on mature markets can be a successful business strategy if a company is developing new products, has a strong sales force and has instituted lean or Six Sigma practices to remain cost-effective. But if a company only updates standard models while focusing on mature markets, it has limited growth potential.
Taking the right steps now can prepare any company for a rebound once the economy recovers. A focus on innovation and emerging markets can put companies one step ahead of the competition and position them for sustainable growth.
Carla Zilka is founder and principal advisor and Paula Zilka Colbert is a senior advisor at NexGen Advisors, a global business restructuring and transformation firm.