Where to earn cash in times of economic woe.
Governments around the world are announcing the advent of a recession. At the time of writing, economists in Japan are saying that we’re already in one. The meltdown happened so quickly that many companies are still trying to come to grips with what the changes mean for them.
Just a reminder about how dramatic the change has been; in the four months from June 26 through October 28, the Nikkei 225 Average fell an incredible 49 percent! The October low was the lowest the Nikkei has been since 1982. At the very least this qualifies as a once-in-a-generation event.
So where now? A forest of trees have been sacrificed to analysts and pundits predicting that this will be everything from a V-shaped recession, to an L-shaped one, to a long slow one circa 1990s Japan. Does it really matter? The fact is that we’re all in for some serious belt tightening, and plenty of people are going to lose their jobs unless they and their leaders can figure out what the economy needs during a recession.
Looking back to the height of the bubble, many foreign bankers became worried about stocks overreaching and triggering a recession. Fears were soon realized, everyone braced for the worst. However, surprisingly, after the stock market tanked, it stabilized and people learned to cope and get on with the business of earning a living. What became important for companies was value-for-money and they needed to cut costs. For many SMEs, the early 1990s were probably the best period of growth of that decade.
The reason for growth was simple. Large companies, who in Japan are usually the top of the food chain, had been so enamored with their own importance that they would only do business with other major or brand name companies. However, with the onset of the recession they were forced to go out to the general market and find the best deals—even though the services and products were often coming from tiny unknown firms and more heinously, gaijin-run ones. Business was good.
It can be expected that much the same thing will occur this time around, but as foreign-run companies are now common place, Japanese majors will be moving to the next step-up the evolutionary ladder; off-shoring, wider ranging technology and IP tie-ups.
In 1989, the bubble was in full swing, I remember reading a book called “The Great Depression of 1990,” by a gentleman called Ravi Batra, then a professor with the Southern Methodist University in Dallas, Texas. While the Depression he predicted was spot on for Japan, it was 18 years too early for the US and is only just now starting to play itself out the way he predicted. Besides the issue of whether he was any good at predicting world events, what really stood out was his analysis of what happens to public demand in a recession or depression, and the fact that some businesses actually do well during these periods.
He named three sectors that always do well in hard times: 1) Education—people try to improve their attractiveness in a more competitive job market, 2) Medicine—people get sick from the stress of trying to cope, and 3) Repair businesses—since those on tight budgets learn to get things repaired rather than dispose and consume. Actually, with the ubiquity of the PC and Internet, the good Professor could have added one more industry to his list: 4) Escapism. By this we mean any form of electronic entertainment—the new-order opiate for the masses, and comparatively much cheaper to indulge in.
Once again, Japan is at an economic crossroads, and perhaps it is time to start reapplying Dr. Batra’s philosophy to our various businesses. JI