With skyrocketing unemployment in the latter part of 2008 and more expected layoffs in 2009, we need to prepare for the worse and focus on the long haul. Let us take a look at how this will affect the United States Economy and the companies that compromise it.
In economic recessions, innovation and change slows as convergent behavior takes place. Don’t expect companies to have big financing budgets for research and development and don’t expect too many proprietary technologies and product line expansions to emerge any time soon. The goal of companies will change from product offerings to product effectiveness and efficiency. Businesses will have to rely on their core competencies to get through the economic crisis and improving them so they are better than competitors in their industry. In the third quarter of 2008, the GDP fell a half of a percent with even worse negative projections in the forth quarter. Businesses are trying to cut costs as much as possible. One of the biggest costs for businesses is human capital. Layoffs are inevitable, but the cost of losing employees may be greater than its worth in the long run. Downsizing in effect decreases the size of the business (unless there is someway to compensate for the lost of work from layoff employees). This further adds to the negative GDP. Even though there may be great demand for some products, companies will not have the infrastructure to create a supply to meet demand. To survive, many companies will need to consolidate. When companies consolidate you end up with duplicate departments performing the same tasks. Obviously, it is pretty pointless not to mention costly to have twice as many people to do the same amount of work. These consolidated companies will have to layoff a significant number of their workforce resulting in more unemployment to survive. The alternative to consolidation is outsourcing which is just as detrimental. Oftentimes outsourcing means off shoring. People in foreign countries will get paid money that would have otherwise been stimulating the United States economy from American workers. Outsourcing and Consolidation will be common trends as the state of the economy becomes worse.
Growth is essential to getting out of a recessing economy. Companies that are able to perform well in the recession will be the victors at the end of the day. The future of the United States economy and for that matter the global economy, does not promising as the worst is yet to come.