Germany, the largest economy in Europe and the fourth largest in the world has officially entered recession, screamed the news headlines not long ago. The threat of recession has been looming large ever since the world emerged from the global covid-19 pandemic. The continuing Russia-Ukraine war has only added to global economic woes.
The IMF (International Monetary Fund) had predicted that recession will strike only in Germany and Britain in Europe in 2023. This prediction held true as Germany saw a decline of 0.5% in its GDP in the fourth quarter of 2022 and again a decline of 0.3% in the first quarter of 2023 as it succumbed to the pressure of high inflation.
The economic stability of a country is heavily dependent on the goods and services it can produce, armed conflicts, health crisis, market trends, and consumer confidence. These are also the many reasons that can lead to a recession. Here is an in-depth look to understand the concept of recession and how and why economies succumb to it.
Economics defines a recession as a business cycle contraction that occurs when there is a general decline in economic activity. In the world of business, however, recession is defined as a period of contraction in two consecutive quarters. The main reasons behind a recession could be a financial crisis, an external trade shock, an adverse supply shock, an economic bubble burst, or even a large-scale natural disaster. Recession and its effects are most commonly seen in the GDP (Gross Domestic Product) of a country, income, employment, industrial production, and wholesale and retail business. When any economy is threatened by a recession, its government usually responds by adopting expansionary macroeconomic policies that include increasing the money supply and decreasing interest rates or increasing government spending and decreasing taxation.
Causes for a Recession
The exact causes of a recession are not always possible to understand. However, a deeper insight into what are the causes that can trigger a recession can help understand the recession better.
Causes that shock an economy, be it a country or the entire globe, like a war or a health-hazardous pandemic can cause sudden and unexpected disturbances in the supply or demand of certain products and services
Major, and, often unexpected, stock market crashes can cause an economy to suddenly collapse as big money is suddenly lost. This can push an economy into a recession, very similar to the Great Depression
Changing fiscal policies of any government, like raising or lowering of taxes to influence an economy can also trigger a recession. This also includes the monetary policy of any government
When any industry grows at a rapid pace, it creates a bubble, which, when crashes leaves devastation which can trigger a recession. The prime example of this housing loan bubble that triggered the 2007-2008 recession
Investors making risky investments during an economic boom and then cutting back on spending in anticipation of a downturn are also psychological factors that can have very real consequences and trigger a recession
What causes an economic recession? – Richard Coffin
Characteristics of a Recession
Earlier, an economic recession was determined solely based on the GDP of the economy it affected. However, over time the determining factors that characterize a recession have broadened to include various other factors. Some important characteristics of a recession are –
A decline in the real GDP of an economy for two consecutive quarters
A drop in high-value retail sales and a decline in even essential purchases
Even with a general definition and understanding of recession, it takes different shapes and forms. Based on the factors causing a recession and their recovery path, recession can be broadly classified into a few basic categories.
Inflationary Recession
Commonly known as a ‘boom and bust’ recession, it basically means that the economy expands at a much faster rate than planned. Such an economy faces a recession due to inflation. The government supervisory body, in an effort to contain the over-expansion, implements measures like increasing taxes, decreasing government expenditure, or even increasing interest rates. This leads to a general limiting of expenditure as consumer focus shifts to conservation and debt clearance leading to a ‘bust’ or a recession.
Balance Sheet Recession
Just as the name suggests, this occurs when an economy is overextended due to debt. As debt increases, spending patterns shift and reduce in an effort to clean up the balance sheets. This leads to a stagnant economy leading to a recession.
Depression
This is a recession in its severest form when a country’s GDP decline is in excess of 10%. The greatest example of this is the Great Depression of the 1930s.
Supply Side-shock Recession
This kind of recession occurs when the domestic or international supply chains are disturbed due to global events like wars, natural disasters, or even a public health crisis. If the supply chains are restored and the supply is replenished, these types of recessions do not continue for a long time. However, such recessions can last for a few years if the supply is not replenished and restored. It can also bring about a change in the way the product is utilized.
Conclusion
There is no guaranteed way to predict a recession. However, keeping in mind the various causes and how they apply to any current economic scenario of any country, can help in understanding the chances of an impending recession. There are many ways and means by which an individual can prepare for a recession like building savings, becoming debt free, keeping to a budget, and also keeping the personal resume current. It can also help to learn a new skill that can be a huge help in case unemployment strikes.
Recessions are an economic reality. The severity of it depends on multiple factors. However, history teaches that most recessions last for a span of approximately one year. It helps to know how recessions can trigger and what they can impact. The more one knows the better one can prepare.
FAQs
What is recession?
Economics defines a recession as a business cycle contraction that occurs when there is a general decline in economic activity. In the world of business, however, recession is defined as a period of contraction in two consecutive quarters.
What are various types of recession?
Recession can be broadly classified into a few basic categories-
Inflationary Recession
Balance Sheet Recession
Depression
Supply Side-shock Recession
What could be the main reasons behind recession?
The main reasons behind a recession could be a financial crisis, an external trade shock, an adverse supply shock, an economic bubble burst, or even a large-scale natural disaster.
The discipline of computer science first emerged in the late 1950s and consistent and constant research and upgrades resulted in the advent of the World Wide Web as the world entered the new era of the internet. The revolutionary effect of emerging technology on culture and commerce included near-instant communication by electronic mail, instant messaging, voice-over-internet protocol (VoIP), video chats, discussion forums, blogs, social networking sites, and online shopping sites. The importance of this technology was felt in the nineties as many companies sprang up with business ideas around technology.
It was after the 2000 dot-com bubble crash that these technology companies thrived and grew to dominate the market with little regulation. The year 2013 was when the term ‘Big Technology’ entered into mass consciousness. ‘Big Tech’ became popular in the year 2017 due to the investigation into the role that technology companies played in the 2016 United States elections. The term also refers to the tech giants that currently dominate the global tech market. These are the five largest American tech companies – Alphabet, Amazon, Apple, Meta, and Microsoft. These companies are also called the ‘Big Five’.
These companies are leading players in their respective technology fields that range from artificial intelligence, cloud computing, consumer electronics, e-commerce, home automation, online advertising, self-driving cars, social networking, software, and streaming media. With a market capitalization of anywhere between USD 1 trillion to USD 3 trillion these companies are among the most prestigious employers in the world.
Sudden Growth Spurt and Over Hiring
The technology industry has seen unprecedented growth in the last three decades increased multi-fold during the global covid-19 pandemic. Global lockdowns forced companies to overnight scale up their remote working options and find effective alternatives to in-person meetings and conferences. This resulted in tech companies responding with quick over-hiring as product needs evolved rapidly.
Examples of such quick responses to product needs by different businesses include Google, which changed its video conferencing platform Google Meet to accommodate more participants, and Meta changed Whatsapp’s video conferencing facility. These changes required specialized manpower that included product managers, developers, UI/UX designers, etc leading to companies hiring additional staff. Unfortunately, these companies foresaw such a high demand continuing and went on a hiring spree that led to over-hiring.
Sunder Pichai wrote in his letter that he sent to employees after he announced the termination of 12,000 employees – “Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today.”
The Current Reality
The tech industry has seen more than 200,000 job cuts, since the beginning of 2022, a majority of which have come from the ‘big five’. The one major reason being cited for these layoffs has been theslowdown of the global economy and the impending threat of a recession. Of course, over-hiring during the boom has also caused companies to downsize in order to maintain the company’s bottom line during this slowdown.
Fund managers and early investors in successful technology companies also increase pressure to make quick and productive decisions to counter the slowing economy. Altimeter Capital, one of the investors in Mark Zuckerberg’s Meta wrote a letter to Zuckerberg stating – “Like many other companies in a zero-rate world – Meta has drifted into the land of excess – too many people, too many ideas – too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes.” Similarly, Sunder Pichai received a letter from the Founder and CEO of TCI Fund Management, Christopher Hohn stating – “I believe the management should aim to reduce headcount to around 150,000, which is in line with Alphabet’s headcount at the end of 2021. This would require a total headcount reduction in the order of 20%.”
Another big reason is that many investments into new initiatives are proving to be unprofitable. Some examples include Amazon’s robotics division, Microsoft’s virtual reality and metaverse division AltspaceVR and Meta’s Substack competitor called Bulletin.
CIO of Bridgewater Associates, Ray Dalio said – “What’s happening is that a number of these investments by big techs have negative cash flows. That means that they didn’t have earnings that will support those prices. And in many cases, they just didn’t have earnings. And they relied on either borrowing money to make up the gap or raising venture capital or private equity money.”
Dan Ives, MD of Wedbush Securities, an investment firm, further clarified – “Big Tech has been having fun up to this point but clearly they are going to see significant cost cuts, headcount cuts as well. I think over the next six to nine months as the recession is at the doorstep, time will get tough. I think this dark storm will pass but you cannot think of these tech companies as isolated from this. I think there’ll be a massive rip in them as well.”
What do these Layoffs Mean?
Even though tech layoffs have been dominating news headlines recently, the US economy has added 223,000 jobs. Even though Microsoft laid off 10,000 employees, they have, since 2019, added almost 80,000 jobs. Amazon hired 300,000 people last year, even as they laid off 18,000 employees.
What this essentially means is that the tech sector is maturing and now hiring people who can help improve the business’s bottom line. Tech businesses are reducing engineering and operational roles while reallocating their hiring budget to business-related roles that focus on maintaining healthy cash flows for the company.
Conclusion
Although it is likely that tech lay-offs will continue in 2023, the sector is growing and many companies within the sector will continue to hire. It might be to an employee’s benefit to invest in personal and professional growth and narrow efforts towards opening opportunities with the growing companies.
FAQs
Are tech companies laying off?
More than 106,000 workers in U.S.-based tech companies (or tech companies with a large U.S. workforce) have been laid off in mass job cuts so far in 2023.
Which tech sectors are laying off?
In 2023, the workforce reductions have been driven by the biggest names in tech like Google, Amazon, Microsoft, and Meta.
Why is the tech industry laying off?
There are several factors contributing to tech layoffs, including the economy, inflation, higher interest rates, and overhiring.
What is happening in Ukraine is heartbreaking and makes us realise how fragile our system and everything is. How easily we can be deprived of our daily routines and how we must be prepared for this from the start. Many people have lost their homes, their belongings, and their jobs.
The conditions are horrifying in Ukraine. Losing everything is scary. One must be fully prepared from the beginning if one wants to be safe during tough times, especially when it comes to jobs. These recent events have opened our eyes and made us realise the importance of recession and war-proof jobs.
During difficult times such as wars, epidemics, depressions, and so on, recession-proof jobs are ones that are largely unaffected even if all other industries are shutting down or losing employees. With the recent pandemic strike and now the happenings in Ukraine, people are shifting their interests towards these types of jobs, which provide a guarantee of employment and support no matter what.
This article will define recession, its causes, and provide examples of jobs that are both recessions- and war-proof.
Simply put, a recession is a period of time when the total global economy experiences a decline. During these times, people lose their jobs, companies go out of business, and there is an overall rise in unemployment. A recession lasts for several months till the situation gets better. The average citizen suffers the most from the recession, as a result of unemployment, rising prices, and a lack of support from higher authorities.
What causes a Recession?
There are many causes of a recession like deflation or loss of customers’ confidence in a company, but the major cause is economic shock, which can be due to natural disasters, terrorist attacks, pandemics, or wars. We have just faced a recession due to COVID-19 and now due to the Ukraine-Russia situation. Due to these types of events, a recession can happen and thousands of people can lose their livelihoods, that is why there is always a high demand for recession-proof jobs and businesses.
Following are some examples of recession-proof jobs and businesses:
1. Food and Beverages
Food Business
One thing that is vital for humans is food. If there are no food industries making food and beverages, then a humane society can not function. That is why even when there is a pandemic and everything in the world is shut down, the food industries are still booming and all the employees are there working. Food for eating and beverages for drinking is not something that can be marketed as unnecessary and put aside during tough times as everyone needs it to be alive.
2. Services in the Medical Field
Healthcare Services
People get sick and different diseases require medical attention, thus there will always be a demand for healthcare services. Survival in these difficult times will be impossible if medical assistance is unavailable.
Even during a recession, healthcare services will not be interrupted. People require medical attention the greatest during a recession. As a result, the medical business will never diminish. Doctors, nurses, and chemists are all in high demand during such times.
3. Renovation and Repair Industry
Repair Services
The renovation industry is always needed, no matter what the situation is. Because some things can only be fixed or installed by professionals. For example, if your phone breaks and needs to be repaired right away, it is an emergency that must be handled properly and fast, especially in times of war or epidemic. A mobile phone repair service is the only option.
Repairing electricity, installing a security system, and upgrading your home for increased safety or to accommodate weather changes all necessitate knowledge and abilities. And after a war, reconstruction of everything that was destroyed due to the war is required. That is why, in difficult circumstances, the renovation and repair industry is critical.
4. Cleaning Services
It’s critical to have the finest health possible through difficult times so that you can confront anything that comes your way. And keeping yourself and your environment clean is the best way to stay fit and healthy.
We, as humans, live in a world where personal hygiene is extremely important, which is why cleaning businesses will never fail or go out of business since people will always buy it. Cleaning materials are a necessity, not a luxury.
5. Baby Products
Baby Products
Parents cannot make compromises or sacrifices when it comes to their children. That is why, even in the face of adversity such as war or a pandemic, the need for infant products will never dwindle.
Parents cannot experiment with the items they use on their newborns since they require the highest care and delicate products. If they do, it may result in significant health concerns. As a result, baby products such as diapers, baby food, and baby soaps will always be sold and purchased by the general population.
6. Child Care
As previously said, parents cannot make concessions when it comes to their children’s health and well-being. As a result, healthcare for children and those who work with them will always have a career because it is one of the needs in difficult times. Children, who are the most vulnerable, require the most medical attention during a recession, like wars, etc. As a result, child care is extremely important and will continue to exist.
7. Consumer Goods
Even in times of war or pandemic, people require basic necessities such as sanitary napkins, toothpaste, laundry detergent, and a variety of other items to be healthy. Whatever happens, these things will continue to be sold, and the people who work in these businesses will continue to have livelihoods.
8. Services for Death and Funerals
During COVID-19, there was a surge in demand for funeral services. The funeral sector is the one that blooms the most during any recession, especially during wars and pandemics. Funeral homes are what people resort to when they have to say goodbye to their loved ones because no one can avoid death, and many individuals lose their lives during these difficult moments.
9. Senior Care Takers
Elderly Caretakers
Tough times like a pandemic or a war can be extremely dangerous for the elderly. And during these times the demands for senior caretakers such as nurses, cooks, cleaners, and other support staff get really high. That’s why it can be a great opportunity for people looking for a job that can pay even during a recession.
10. Hospice Workers
The majority of people die in difficult circumstances. Unfortunately, this is the case, but specialists must be available to care for those who are nearing the end of their life. Hospice workers are professionals who care for people who are nearing the end of their lives, which might be due to a terminal illness or old age.
Whatever the situation, people still need to be educated. Two of the most powerful instruments for overcoming the financial crisis are education and knowledge. Humans, as individuals and as a civilization, must learn in order to survive and contribute to the growth of their community. As a result, teachers and educators in all areas are valued highly and are unlikely to lose their jobs during a recession.
12. Public Transport Workers
Public transport is the best way to save money, especially during times of recession. Thus, public transport workers will always have a job and they will be even higher in demand. Even if the economy goes down, the professionals like bus drivers, train drivers, train conductors, and many more, will have their jobs.
13. Body Shops & Auto Mechanics
Even though there will be fewer personal automobiles and vehicles on the road, they will need to be repaired. What if you have to travel urgently, perhaps during a war or pandemic? The cars must be in good working order. That is why the auto mechanic position will not be eliminated.
14. Pharmaceutical Technicians and Pharmacists
Medicines are needed by all age groups. No matter what’s going on in the world, that is why individuals related to the pharmaceuticals field will never lose their job as their job is vital and plays an important role in a recession.
15. Law Enforcement
Law Enforcement
There will always be a need for police officers, detectives, federal agents, and other law enforcement officers because no one can take their place. Particularly during a recession, those with specialised skills in these sectors will be in high demand as the crime rate might increase.
16. Workers in the Correctional System
People working in prisons, parole boards, and other offices won’t be losing their jobs either, as their services are important too. Even in a recession, letting the prisoners out will only increase the problems.
17. Public Utility Workers
During a recession, staying connected to your loved ones and the outer world is the only thing that can reduce stress. As seen during the COVID-19 pandemic, one way to keep calm was to stay connected to your loved ones through the internet, phone calls, texting, etc. Different sources of entertainment are also important to keep your mind busy and distracted for a while. And these services are possible because of the individuals working in these fields. That’s why these jobs are never going anywhere.
18. Judiciary Workers
Courts will operate no matter what and the people employed there, like judges, lawyers, clerks, sheriffs, etc. all have their jobs intact and won’t lose their job. Even though some courts were closed for a while due to COVID-19, that was to control the contagious disease. Despite that, courts are always operating.
19. Firefighters
FireFighters
Accidents like fires will happen, and they cannot be predicted. So, in order to control that and save lives, a profession like a firefighter and all jobs related to this field will continue to exist even in a severe recession.
20. Insurance Professionals
Insurance Brokers
Health insurance is crucial to most people, and they will keep it even in a recession, so there will always be a need for insurance brokers and professionals in this industry. Not only is there health insurance, but there is also automobile insurance, which is required to legally keep your car on the road.
Actuaries help businesses cut extra expenses and keep the business running during a financial crisis. Individuals in this field will have their jobs as their services will be needed most by both private and government companies.
22. Social Workers
Social Workers
Social workers will be needed most during a recession as more and more people will be looking for support. Many people lose their homes and their livelihoods during a recession, which is why social workers and their services are needed.
23. Mental Health Experts
Mental Health Expert
During a recession, the normal population gets affected the most. That can lead to some serious mental stress that can cause problems, which is why mental health experts are needed during these times. Substance abuse also spikes due to these conditions, so the demand for experts in these areas can get high.
24. Divorce Attorneys, Mediators, & Arbitrators
Financial difficulties and stress can cause couples to split up and compel them to make difficult decisions. According to studies, the stress induced by a recession causes a high rate of divorce and separation among young couples. As a result, there will be a demand for divorce attorneys, mediators, and arbitrators to complete all of this work.
25. IT Workers
Even during a recession, there will always be a demand for IT workers because the entire world has become digitised and technology is now the driving force behind it. To keep the websites, applications, and other things working, all of the technicians, programmers, and developers will be needed.
26. Bankruptcy Attorneys & Staff
Attorney
During a recession, there is a high rate of bankruptcy. Financial crises are unavoidable. As a result, employees in this profession will not lose their jobs, as there will be a high demand for their services due to the high rate of bankruptcy filings.
Conclusion
Wartime situations demonstrate the need of being prepared and have a plan in case things go wrong. Having a job in a war-proof business can provide financial security and perhaps save your life and that of your family. As a result of recent events, more people are looking for recession-proof jobs, which can aid them during a downturn.
FAQs
What industries do best in a recession?
Grocery stores, Funeral services, Educators, Healthcare, Insurance, and Attorneys are some of the industries that do not get hit by the recession.
What are the top recession-proof jobs?
Attorneys, Child Care, Elderly care, Law enforcement, Firefighters, and Educators are some of the top recession-proof jobs.
What investments are recession-proof?
Gold, Bonds, and Cash are some of the top recession-proof jobs.
Businesses run on the three basics, Men, Money, and Machinery. If you are in a situation, facing loss. You will want to keep your head above the water. Devise a good strategy. Take some steps to look for what it is that has got your head into deep waters.
What is it that has made you stand in this position of loss?
You can analyze a lot of factors and make certain important decisions now.
What is it that you can let go of?
Is this important to you right now?
Can this help you improve?
Cutting this off will help you get out of this position?
Is it effective?
How does an organization cut down costs and increase their revenue?
Cutting down costs on activities that do not profit businesses means also cutting down the number of men in that sector. For example, if there is no longer a need for you as an organization to focus on the clerical department. You will have to eliminate the people working there, which will efficiently reduce the cost. It includes shrinking of a business or a part of it to enhance the overall performance.
The decisions you make have to be realistic and achievable. So, Lets look at What is retrenchment strategy and the companies that employed the retrenchment strategy.
To shift focus on activities from where revenue is generated and hence increase profits or simply because the operation, project, the service, product or the product line going on in the organization may not align with the core of the business.
To eliminate unnecessary costs that incur.
To ensure financial stability in the organization.
Who employs the retrenchment strategy, and where is it used?
The organizations use it on a linear or a collective basis. It is used in
This is also applicable to line extensions, operations, and projects that are being carried out in your business. First, let’s take a look at the three main types of retrenchment strategies:
1. Turnaround strategy
It is also called management measurement. The turnaround strategy is used when a business wants to improve its performance and decrease negative trends.
This strategy is used when the business might be facing:
A decline in the market shares.
Decrease in profits.
The issue of spending more money as an organization during a specified period.
Worsening debt-equity ratio.
Negative cash flow.
Decline in sales.
2. Divestiture Strategy
The divestiture strategy is adapted for when the turnaround strategy fails to yield results for a business. The divestment strategy analysis mainly the profit and profile factor. In an organization, the departments, products, services, or divisions are analyzed. Keeping in mind one question: Does this profit us? If not, then the company will let go of it.
This strategy is used when the company might be facing problems like:
The business started or acquired does not match the core values of the company.
When a tech upgrade is needed and the company is unable to do so.
It is struggling to survive.
The company might be running a business that is not profitable to the company.
3. Liquidation Strategy
This is the arrival of a business at its last stage. When no other options are available, the company sells all of its assets. As ugly as it might be, it involves total shutdown of a firm and will attract negative reactions as it also leads to consequences majorly including unemployment, of the people who worked there. Which also creates a bad reputation for the company.
To understand this more clearly, let’s take the Tata group as an example. It is a highly diversified entity with a range of businesses under its umbrella. A lot of which did not align with the identity of their core business.
The businesses that Tata ran for a specified time were soaps, detergents, pharmaceutical companies, and cosmetics. All of which were identified as non-core by the Tata group.
TOMCO (Tata Oil Mills Company) was divested and sold to Hindustan Lever Limited. The company was sold to Hindustan Lever, as it was non-competitive and would have required substantial investment for them to sustain it.
Tata’s Merind were divested to Wockhardt.
Adapting a retrenchment strategy might also be a company’s response to a significant reduction in demand for the product, product line, or the service it provides. Which would also include dropping off from the market.
Here are the Pros and Cons of Retrenchment Strategy:
Pros
It can layer, simplify, and flatten the organization’s structure.
Prove, cost-efficient, and improve performance.
Cons
It will create a negative image and reputation of a company.
Criticism and backlash from society.
Companies That Employed the Retrenchment Strategy
A list of 10 organizations that have adopted the retrenchment strategy for various reasons, overall enhancement and to run the organizations in their companies efficiently are:
Making one’s startup recession-proof is not a quick switching activity. It is a process. Ignoring it on regular days isn’t the ideal way. During the downturn of the economy, it might be too late to control or even preserve the existence of the business.
This ‘R’ word is always a nightmare to business owners be it big or small. However, if the mechanism against recession is designed wisely, a business can be running smoothly, whatsoever the conditions might be.
Here’s the enchiridion to a recession-proof startup. Hard work counts along with a witty application of needed aids. Here’s the one-stop solution to make your startup recession-proof at any time and every time.
Cutting off unnecessary expenses is always a plus for businesses. Look for ways to reduce the round expenses along with operational costs. New product launching should be held back for favourable situations only. Unless needed urgently, new employment shouldn’t be entertained.
Investing in new products, for “experimenting” is not a positive aspect while making your startup recession-proof. To enable the smooth running of a business even during a recession period, cost controlling, is very important.
Find Costless ways of advertising
Cheap or costless ways of advertising is again a savings-friendly method. Guerilla marketing is one of such techniques which is cost-beneficial yet effective. For example, If an ice cream shop opens in town, they give free ice creams to their first ten buyers for the first week. This doesn’t hamper their profit much as there will be way more customers than usual in order to be one of the first ten. However, there are more ways to advertise without sinking a penny.
Clearing off debts on time is one of the very significant factors, affecting the cost management of a business. Avoid opting for high payoff debts in the first place. Such debts slow down the ability of the service of the startup to meet the debt itself. Debts should be paid off immediately or they should be lesser in the count and lower in amount.
Staying in good communication with investors and stakeholders are very important too. The business or any operation that is not running in profit should be sold.
Build a Goodwill in the existing customer base. Invest in bigger and regular clients than investing in matters to attract new customers. Allow discounts to regular best customers. When they will receive the best experience and end results from you, they will be interested to work along with more and will be a source of advertisement to attract new customers.
Have a Clear objective
Having a clear objective is very important to build your business recession-proof. You either focus on cost leadership or quality differentiation. You choose anyone and don’t hang in the middle. This will enable you to hold on to your customers even while there’s an economic recession. This displays and retains loyalty.
Especially for smaller startups, there’s no need of being everything at once. Find your specialization and master it to thrive in even the worst market situation. This is because if you build a good customer base, you’ll still have your business running because of them even during the economic downfall.
Make/Build Durable products
Startups should focus on necessity, durability and eligibility. Since startups are replicable businesses, they aspire more to follow them. They should be durable, and day to day usable. To make sure even during the recession period of economy, your product should have its demand intact. The products should be durable too otherwise they cannot gain customer’s confidence.
Don’t add/purchase extra or unnecessary products and services
Diversification is not the right way. Adding extra products and services to your offering doesn’t make it any different. It just increases the wastage of money simply. Startups must promote unique and different products not unique and different products’ additionals. Begin with a useful and unique product in the first place.
Invest wisely in adaptable technology
A wise investment in adaptable technology saves a lot of hard work and unnecessary expenses. Like an online meeting with a client can easily save a lot of expenditures. If a single machine can replace numerous labourers, it should be put to use immediately. This would save cost when there’s a high demand for labourers and their cost is high, it will hardly bother you!
Hire a Financial Planner
Hire a financial planner to track your monetary activity very well. A professional can help you and your business with cash flow, expenses and savings so that your business finance is in your control even during a recession period.
Development Should be your Priority
Development should always be your priority. When business is strong, most people leave it loose waiting for instances of downfall. No matter how strong a business is, ways of development should always be monitored. Development designing controls the future prosperity of one’s business. Also when a business is slow, action plans should be implemented to restore the conditions.
However, startups can never be made 100% recession-proof. Business is all about ups and downs. Such measures can ensure the survival of a business through hard times of recession and maybe ensure profit-making out of such times to some extent. The startup owners analysis and experience are also the keys to a recession-proof startup.
FAQ
What products are recession proof?
Nutrition products, Home and cleaning essentials, Inexpensive entertainment, Pet care essentials, Food and beverages and baby products are some products which are recession proof.
What is the best recession proof business?
The food and beverage industry is one of the most recession proof industries due to the fact that everyone still needs food and drinks to live.
What companies suffer most in a recession?
Retail, restaurants, Hotels, Automotive, Oil and gas, Sports, Real estate, and many others Industries see heavy declines during times of recession.
Needless to mention, Coronavirus has affected every aspect of human life. To contain the spread of the virus, many precautions are being taken at different levels. Many countries like India have declared lockdown to cope with the situation. While the delivery of essential services has been allowed, the supply chain is still struggling to cope with the security measures. India’s 21-day lockdown may have thrown up an opportunity for online grocers to shine, but the rest of the industry sectors is drowning in the Covid-19 tsunami.
But beyond this, the real economic impact from the coronavirus pandemic will come in the weeks and months to come. Many large companies are also helpless in this time, yet they are trying to manage things. But this pandemic has left small businesses & startups with no more option but to downsize & layoff.
Layoffs and downsizing in the startup ecosystem are set to accelerate as businesses take a hard look at high operational costs and dipping demand in an uncertain environment made worse by the Covid-19 pandemic. Also, India has banned entry of all foreign nationals till May 17 with exceptions, such as diplomatic visa. This means that international firms have to put their business plans on hold.
Coronavirus have some far-reaching consequences – besides killing human beings, this deadly virus can result into unprecedented economic recession. However this will have more impact on startups than on bigger firms. Last couple of quarters has seen startups laying off thousands of employees.
Indian startups and SMEs(small and medium-sized enterprises) have begun evaluating their options to cut spending as demand for their products and services has taken a massive hit due to the Covid-19 outbreak as startups are finding it difficult to raise funds.
Nearly, 71% of businesses have seen reduced demand. The firms are also looking to cut spending on marketing and advertising, tech infrastructure, commercial rentals and employee costs to survive during this tough time.
Layoffs increased in Startups since COVID-19 Outbreak
Many sectors are greatly affected due to COVID-19. The sector, especially startups, is likely to see more layoffs if the virus outbreak continues to cause havoc. In this, travel industry, startups, IT firms seem to be the first casualty. For India’s venture capital industry, 2019 was a milestone year with $10 billion deployed into overall startups, that saw a 55% jump from 2018, according to Bain & Company, highlighting how the industry grew amid global economic uncertainty.
But now this situation is taking another turn; layoffs have already started happening. Rituparna Charkraborty, co-founder, Teamlease Services, a staffing firm, told that as demand slows down, it will impact startups and might result in layoff. She explained that unlike bigger firms, they don’t have deep pockets and have to be frugal.
Travel Startups
India’s biggest travel portal: MakeMyTrip has decided to lay off 350 employees as its business has been affected severely due to the Covid-19 pandemic. MakeMyTrip has told employees that MMT has analysed impact closely and has spent considerable time figuring out the path to business recovery. Founder Deep Kalra and CEO Rajesh Magow sent out a letter to all employees informing them about the layoff.
Kalra and Magow have writtten in their letter, “What’s evident is that the impact of COVID-19 crisis is going to be long drawn for us. It’s unclear when traveling will become a way of life, as it was pre-COVID-19. We are living through extraordinary times that have impacted individuals, communities, businesses, countries and our world at a magnitude unknown before and there is no let-up in sight.”
MakeMyTrip promised to offer support to laid-off employees compensation including Mediclaim coverage for individuals and their families till the end of the year, leave encashment, gratuity, retaining the right to exercise part of RSUs as applicable. Employees can keep the company laptops and will be provided outplacement support apart from salary payments as per their notice periods.
At the same time, MakeMyTrip’s associated companies like GoIbibo and Redbus can fire 60% of their contractual employees due to decreasing demand. There are 650 such contractual employees in these three companies. Majority of them are working in customer service and backend support.
Travel & Hospitality service Startups
Airbnb also plans to lay off nearly one-fourth of its employees. The 25% of the company includes nearly 1,900 employees who will be laid off. According sources, the news would be broken to employees by CEO Brian Chesky.
CEO of Airbnb,Brian Chesky stated in his memo, “Airbnb’s business has been hit hard due to COVID-19, with revenue this year forecasted to be less than half of what we earned in 2019. We are collectively living through the most harrowing crisis of our lifetime, and as it began to unfold, global travel came to a standstill.”
Chesky told that prior to the layoffs, Airbnb had 7,500 employees. Airbnb will halt projects related to hotels, a transportation division and luxury stays for some time. But Chesky has assured that laid off employees would get some facilities from company’s side.
Chesky said that U.S. employees laid off will receive 14 weeks of base pay plus an additional week for every year they worked at Airbnb. The company will also provide 12 months of healthcare for laid off U.S. employees. He also mentioned that May 11 will be the last work day for impacted Airbnb employees in the U.S. and Canada.
Similarly, around 5000 Oyo employees will be laid off across the world due to coronavirus outbreak. Oyo Hotels is laying off staff in the U.S., China and India as the company tries to find its way to profitability in turbulent times.
Oyo expanded rapidly after its founding in 2013 and reached a valuation of $10 billion but investors have soured on money-losing businesses after WeWork’s meltdown and SoftBank has pushed portfolio companies to prioritise profitability.
The travel and hospitality service company TravelTriangle has laid off about 50% of its workforce in the past 10 days. “TravelTriangle has fired about 250-300 people since March 20,” said one of the sources. Impacted employees are from operations, marketing, customer support and business development functions.
In addition to this list, corporate travel planning company TripActions, that was valued at $4 billion last year, laid off 350 employees via Zoom. The reports state the layoffs consist of about one-quarter to one-fifth of the total company. The company said in a statement, “We’ve cut back on all non-essential spend and made the very difficult decision to reduce our global workforce due to pandemic.”
Online Food Delivery startups
On May 18, Bengaluru-based food delivery startup Swiggy announced that it will lay off 1,100 employees and shut down some of its businesses as the coronavirus continues to take its toll. The core food delivery business has been severely impacted and will stay impacted over the short term.
Co-founder & CEO of Swiggy, Sriharsha Majety stated, “While we are very fortunate to have raised capital just before Covid-19 hit and have sufficient runway today, it is incredibly important to prepare for worse scenarios in the macro environment and make sure we are protected.”
Swiggy will give at least three months of salary to all impacted employees. For every year spent by the employee, they will be paid an additional month’s salary. Along with this, Swiggy plans to provide medical insurance for impacted employees until 31 December, 2020, as well as career transition and access to free learning on Linkedin for upskilling. Moreover, it has allowed the staff to retain office laptops and communication allowance for the next three months.
Similarly, Gurugram based Food delivery platform Zomato decided to layoff 520 employees which is 13% of its workforce. Also it will temporarily cut salaries of the rest as the Covid-19 pandemic and resultant nationwide lockdown has hit its businesses, Zomato’s Founder & CEO Deepinder Goyal said in the email on May 15.
Deepinder Goyal said in his mail, “Our business has been severely affected by the COVID lockdowns. A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg. I expect the number of restaurants to shrink by 25-40% over the next 6-12 months.”
As compensation, the laid-off employees will receive half of their salaries along with health insurance for the next six months or till they find another job. Goyal also said that the company will provide impacted employees outplacement support to find jobs.
Cab Services Startups
Uber, American ride-hailing Mnc, announced on May 6, that it will lay off 3,700 employees which is about 14% of its total workforce. Also CEO Dara Khosrowshahi will forgo his base salary for the rest of the year as COVID-19 has crushed the travel industry because of lockdowns to stop the spread of the virus.
Uber has been hit hard by the coronavirus pandemic. Uber’s global gross bookings are down by 80%, according to reports. The company is set to lay off up to 700 people that is about 25-30% of its overall workforce in India as per sources. Uber has over 2,000 employees in India. The decision has been almost final and likely to be announced when lockdown will get lifted.
On May 18, Uber’s CEO, Khosrowshahi told employees Uber will lay off an additional 3,000 employees and close 45 offices globally. As part of the layoffs, Uber is expected to pay up to $145 million to employees via severance and other benefits, and up to $80 million in order to shut down offices, according to a filing with the SEC.
CEO of Uber, Dara Khosrowshahi said, “We are looking at many scenarios and at each and every cost, both variable and fixed, across the company. We want to be smart, to move fast, to retain as many of our great people as we can, and treat everyone with dignity, support and respect.”
On May 20, Indian ride hailing unicorn Ola said that it will lay off 1,400 staff which makes about 35 % of its workforce due to the uncertainty caused by the coronavirus pandemic. Ola’s CEO Bhavish Aggarwal said in a note to employees that COVID-19 has led to a drop of 95 per cent in Ola’s revenues in two months. The impact of the crisis will be long-drawn for Ola. Every affected employee will receive a minimum financial pay of 3 months of their fixed salary.
Similarly, other Cab service companies are also facing the heat as more people avoid taking public transport and cabs and have started working from home. Pravin Agarwala, co-founder of The Better Place, a blue-collar management firm, said cab aggregators are already witnessing drop in demand and this drop would go up to 30-40 % if the same situation continues.
Drivezy, a self-drive car rentals platform, has also cut part of its workforce to stay afloat, according ET’s report. Moreover, B2B platform Udaan has cut back on ground staff over the last few months at its pharmaceuticals and fresh division, according to four employees at the firm.
Scooter Rental Startups
Electric-scooter startup Bird said it is laying off nearly a third of its workforce to survive damage done to its service by the coronavirus pandemic. Bird has already paused shared scooter operations in many markets around the world and drastically cut spending and is now “laying off” 30 % of its workforce, founder and chief executive Travis VanderZanden said in a memo to employees.
In the same way, scooter sharing app Bounce has begun laying off hundreds of employees across functions and levels. At Bounce, the job cuts are across verticals and levels, operations staff, call centre, and technology and product according to reports.
Number of Layoffs is likely to Increase more due to Covid-19
Startups are Terminating the Hiring plans
Apart of layoffs, some of India’s top companies have also stopped hiring plans and are moving talent internally. Meanwhile recruitment firms have announced that processes of hiring have dropped by 50%, as interviews are being cancelled. Meanwhile recruitment agencies are informing that Indian startups also have cancelled upto 50% of all hiring and interviews with layoffs going on parallel.
Bengaluru-based firm Rupeek, which operates an online marketplace for gold loans, has terminated a human resource contract with Aasaanjobs, a recruitment marketplace for blue and grey-collar jobs. This will allegedly indirectly impact 600 jobs. Rupeek told it won’t renew the contract with the human resource contractors and reduce the number of outsourced staff in the current economic environment.
Rupeek said in a statement. “Considering current business and economic environment, we had to take the unfortunate decision of not renewing our contract with our human resource contractors & the consequent reduction in the number of outsourced staff. We regret the unfortunate timing of this event. To protect their interests, we are offering a generous severance package over and above contractual dues.”
Kamal Karanth, co-founder of Xpheno, a staffing agency said, “Almost 50% of ongoing interviews, new requirements, on-boardings have stopped for the last two weeks now, particularly in the IT sector.” He also added that close to 25 captives opened in India last year and hired close to 5,000 people. However, this number is likely to come down as the coronavirus has made the execution a challenge.
According to experts, most firms have delayed the hiring process by 4-6 weeks. Appraisal hikes may also see a 2-3 % drop as well this year. In addition, with sectors across under stress, performance pressure will also be high, leading to more layoffs, said the experts.
Due to this laying off process going on all over the world, the United States, Europe, China and India are experiencing slowing economic activity that analysts predict will likely last through at least two quarters. India’s stock market has already taken a beating over the last week, and the pressure has now trickled down to private markets as well. India’s GDP growth slowed from 2.5% to 5.3% since the crisis began.
To add to that, the coronavirus outbreak has emerged as a new threat to the global economy and Indian manufacturing. India is currently in its fourth week since the first batch of Covid-19 positive cases were identified. The startup ecosystem in India has taken a major hit and entrepreneurs are trying to figure out how to run their operations by cutting costs in trying to stay afloat.
Humankind is now facing a global crisis due to Coronavirus outbreak. Perhaps the biggest crisis of our generation. If the growing novel coronavirus outbreak becomes a long lasting pandemic, it could result into fundamental changes in the economy, politics and the workplace. With the increasing number of COVID-19 cases growing worldwide, business leaders are scrambling to deal with a wide variety of problems, from depressing sales and supply chains to keeping employees healthy and making sure they can continue working. Many companies are taking precautions to contain the spread by asking their employees to work from home. But down the line, the impact on future might be more severe as the impacts of such major pandemics can be felt well beyond the sheer death toll. A truly global infectious disease event like COVID-19 can be every bit as transformative for the future as a global war or economic depression.
The decisions & steps people and governments take in the next few weeks will probably shape the world for years to come. They will shape not just our healthcare systems but also our economy, politics and culture and every other aspect of human life. We must act quickly and effectively. We should also take into account the long-term consequences of our actions. We can already see the companies laying employees off resulting into growth in unemployment. When choosing between alternatives, we should ask ourselves not only how to overcome the immediate threat, but also what kind of world we will inhabit once the storm passes. After getting past this storm, we will inhabit a totally different world.
Recession is likely to Occur
Many economists suggest that recession is bound to happen considering the ongoing threats and situation in which businesses are shutting down. After the pandemic, the recession is certain to follow, which is going to threaten the efforts or way to shape the future of work. This will certainly lead to many questions like how to create good jobs, reduce poverty and redefine relationships and structures to narrow the enormous income inequality that overshadows the state’s wealth and success. Economists say it is harder to predict the bottom and how long it will take to climb back.
The coronavirus will have a silver lining if it serves as the effective for constructive changes such as way that the sudden forced reliance on telecommunication is already having an impact. There are two sides to the globalization coin. On the positive side, the cross-border flow of people, goods, money and information creates new wealth and opportunity. On the negative side, it can worsen global relations, enable international terrorism and cross-border crime and allow for the rapid spread of disease. If we see, in spite of having both positive & negative outcomes, there are more negative & worse outcomes than positive ones arising due to Coronavirus outbreak.
The Unemployment rate is increasing fast due to Lay-offs
Impact on Future
Considering a long term impact of novel coronavirus, smaller businesses, companies or startups will be hit harder than large ones because of their limited access to credit and less cash in the bank. The chief U.S. economist at Morgan Stanley, Ms. Zentner quoted, “There will be a swath of small businesses that simply won’t be able to survive this crisis.” Similarly, Gabriel Mathy, an assistant professor at American University, has said, “We can see employment falling much faster than G.D.P. This will probably be the world’s first recession that starts in the service sector.” The chief U.S. economist at TS Lombard, Steven Blitz expects that the unemployment rate will rise from 3.5% in February to 10.6% by April.
As of March 6, 2020, Amazon, Facebook, Google and Microsoft have all encouraged employees to work remotely where the virus has been identified. Offering remote work is an easy option for these large corporations since they have built the infrastructure to support it. Considering reports given in today’s job market, 85% of employees report a desire to work remote. Also, providing employees with the opportunity to work remotely will also allow companies to attract top talent. Due to communication platforms like Zoom, Slack, Zoho, etc., it has become really convenient to work from home. Due to this fact, some experts are predicting that remote work will increase in future also. Business travel has become crucial part of any business. When you take into account travel’s impact on global health, the workforce may not rely on travel as heavily in the future. Crisis like this has inspired innovators to create new technology for businesses. So, in future, instead of spending money on travel & stay at hotels, companies would consider alternatives such as artificial intelligence and advanced machinery to solve issues before sending employees abroad. So, it is predicted that that there will be increased reliance on technology and less on travel in future.
At the same time, we will need to work towards eliminating problems such as social and economic differences caused by globalization. If failed to do so, we might see countries turning increasingly inward with a mindset of narrow-minded nationalism. We must hope that this recession due to Coronavirus outbreak will not be as big as Great Depression of 1929.
Roshni Tamta
