Strategy in Recession Spending or Not to Spend

Topics: Recession, Financial crisis, Late-2000s recession Pages: 14 (3524 words) Published: August 27, 2013

In recession, spending / investment will gain more profit when economy are recovered Objective
The purpose of this research project is to study the effects of investment or spending of the Hong Kong organizations during economic recession and try to prove that their profit will be increase higher than others which are less spend in recession when economy are recovered.

Introduction
In past 10 years, Hong Kong has faced 3 times of economic recession. In 2003, Hong Kong faced SARS impacted the GDP in 2003 Q2 drop to -7.5% & finally turned back to positive GDP until 2004 Q1. In 2008, United State’s financial crisis turned to world-wide financial crisis. Hong Kong started to recorded negative growth of GDP until 2009 Q4. Now we are facing the downtrend of GDP due to the Europe’s national debt crisis. Our HKSAR Financial Secretary forecast Hong Kong’s GDP growth is 1–3% in next year, which down from over 6% of 2011. During the economic recession time, most of the companies show defensive posture, try to minimum their spending to keep them survival. However, some companies take these changes to increase investment & spending. They believed that during the economic recession, they can get a better opportunity for investing & spending, they can use less cost to expend their business as many others are in the defensive position. As the result, they will gain much more growth when the economy recovery is come.

Literature Review

Tellis and Tellis (2009) & Apaydin (2011) shown the definition of economic recession is two successive quarters of negative growth in gross domestic product (GDP). Economic recession are times of adversity for firms in which large banks fail, insurance companies tress, industrial goods’ sales plum, consumer demand shrink, retailers go bankrupt, and requests fir bailouts skyrocket (Apaydin,2011). In these ‘hard times’, managers are searching for competitive advantage strategies aimed at, not growth, but survival itself (Apaydin, 2011; Hunt, 2009; Duncan, 1972). During economic recession, process of decreasing demand for raw material, products, and services, including labor is observed. A lower demand for labor leads to a smaller disposable income, which, in turn, further results in a decrease in demand. In effect, recession is a demand-push inflation in reverse: decreasing demand and generally a slow moving or shrinking economy. Such an environment normally requires strategies to stimulate consumer demand, but at the same time makes consumer reluctant to spend (Apaydin, 2011; Shama, 1978). With start of a recession, managers often respond by severely decreasing orders for raw material and supplies, because they fear that sales figures will lead to bloated inventories and financial losses. Taking severe measures such as reducing orders can deepen a recession even more (Apaydin, 2011;Werner, 1991) These behaviors will let the economy go further down.

Also some organization may start to lay-off employees, or offers voluntary severance package & try to cut-out some “fat” inside the organization. However, as Apaydin (2011, p105) states, lay-off employees will resulted in declining in service quality. The traditional result for offering voluntary severance package to employees is – the wrong people leave. Those talented employees leave were critical to the ongoing strategic initiatives and, when they leave, knowledge, engagement and innovation walk out the door with them. Morale among survivors plummets. Some if the leavers have to be replaced while others, who are not as critical to the mission (and without good options) remain to face the possibility of involuntarily termination (Newman & Farren, 2009). As James (2009) mention that retaining staff will improve the long-term profitability and success of the firm. Following these helpful guidelines will help to create a culture where the staffs do not to leave. So as to increase the employee retention & result in maximize the...

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