November 24, 2008

Global financial crisis. My ears have gone numb after hearing these three words in the most inappropriate of situations. It seems that entire Indian corporate sector, whether they are really being impacted by liquidity crunch or not, has been gripped by this global meltdown virus. I checked with a few friends from various sectors and was surprised to know that these days global financial crisis is the talk on every table from boardroom to cafeteria. This panic mongering is understandable if there is some connection between the company's business and the global financial crisis as is the case with IT, BPO, Banking, Realty, and such related sectors. But if there is none, why break one's head along with heads of the employees?

On a closer look, this panic is not unjustified. Four years of economic boom gave a sense of everlasting prosperity in the minds of corporate honchos. In the economic wonderland they forgot about the laws of business cycles. It seemed that the merry go round is meant for eternity. And with this sense of irrational exuberance, many irrational decisions were taken. With the economic slowdown in sight, suddenly reality has started biting and stupidity of some of the decisions taken in during economic exuberance is looming in front.

Here is a snapshot of such rash decisions based not on merit but on assumption that India will always wallow in unprecedented economic prosperity:

One company, a strong market leader in domestic market, suddenly gets an urge to conquer the whole world all at once and decides to enter dozens of markets (some on the back of acquisitions) on the hopes of funding the global aspirations on domestic cash cows. A logical and measured response would have been to win a continent before spreading wings to other continents. Instead the company decided to spread its wings too far too soon and without the financial muscle power or the talent with global expertise. Now when heat is on, there seems to be a burning sensation on the back!

One company was so happy with the economic boom that it started hiring like maniac. Positions were created at will, sometimes with just hazy ideas about what the people in these positions would do, in the vain hope that more people would bring more business. Suddenly, there were too many people and too little work. Something that was done earlier by one person was being done by a couple of people. A classic case of 'work expands to fill people available.' And when economic slowdown is in sight, suddenly manpower cost seems too high and cost cutting in every sphere, whether justified or not, is the new rule of the town!

One company got so engrossed in the magic of economic boom that it started diversifying in unrelated sectors, that too without necessary expertise. It even lacked serious commitment. Entire diversification was based on a hope that the magic of economic boom would convert every stone into gold. When the economic virus is threatening to strike, the core business is feeling the heat and suddenly cash seems to have developed a bottle-neck!

Look around and such cases of irrational exuberance during boom time are scattered across corporate arena. Global liquidity crisis may not hit India as hard as these seemingly economic goldmine turned monsters can.