By Andrew Hupert 

A common refrain among young entrepreneurs in Shanghai is: “If we can just get through this, we’ll come back even stronger”. I have one simple question: Why?

Sure, there are specific situations were a recession has enabled one company to leapfrog a competitor or lead an industry consolidation. Sometimes clever business leaders accidentally discover new products or methods, and sometimes market fundamentals shift to give the advantage to an existing business model. But these tend to be exceptions to recessionary economics – not rules. If you are just slogging along, hiding in the bunker and waiting for the fog to lift – you may emerge to find that your business is weakened, your model outdated and your shop is staffed badly. Furthermore, there’s a great chance that your best remaining people will leave and take better positions at other firms once the firing freeze thaws.

How can you tell if your China business is vulnerable to post-plunge competitive threats?

Recessions can be lethal, but they can also be shock therapy for some entrepreneurial organizations. Before we talk about how to make the most from the inevitable economic recovery, let’s take a quick look at how to gauge how well your outfit is handling the downturn.

Warning signs that you aren’t positioning your China business for a leap-frogging recovery.

1. You’re surviving solely on cost-cutting.
Your spending reductions have been reactive and/or opportunistic, and you have been operating on the assumption that whatever you can do to maintain SOP (standard operating procedure) is optimal. There have been no significant changes to your pre-recession business plans. Whether you know it or not, you are relying on post-recession revenue skyrocketing while costs remain stable to get back to your old projections. Cost cutting is great, but you need more arrows in your quiver.

2. None of your significant competitors have gone out of business.
Your industry is either ruled by a few key players with deep pockets, or your competitors have control of their cost base. This scenario has the potential for danger, since it is very possible that YOU are the high-cost player in your industry. Service industries are particularly flexible when it comes to expenses, and can keep operations on life support for prolonged periods. This is great if you are one of the industry leaders who will benefit from a return to the pre-recession status quo. If you were just working your way out of the red when the slowdown began, however, you will find that you are still at a competitive disadvantage even as the rest of the economy starts picking up speed.

3. Others have moved into your space.
This is another big problem for the service and B2B entrepreneur. As sales slow at the beginning of a downturn, marketers and sales managers start to widen their search for potential sales. This can take the form of new product development, broader territory or customer base (targeting your existing client list with a potential substitute) or offering a wider range of products & services. This may be headline news, or it may be a quiet, creeping trend.

4. Your HR policy is perceived as harsh and nasty.
You have fired opportunistically, or have trimmed headcount through attrition. If you (or your top people) are the kind of managers who tell remaining employees that they should feel lucky to have a job, there is a good chance that your top staffers will take advantage of new changes in fortune once the economy turns around. This is particularly problematic if your recovery starts after other parts of your industry or sales-chain. Upstream suppliers, competitors and downstream customers will all be looking to beef up their teams when business picks up – and the first place they will look is your shop.

5. You have blamed all of your problems on “The Global Recession”
If you do it then your team does as well. Blaming the recession may be correct – but it isn’t right. It sends the wrong signal to your team, your suppliers and ultimately your customers. If you allow The Recession to become the boogie-man then you are passing up the opportunity to rally the troops and make hard changes. Now is the time to plan and implement smart changes – even if they threaten your deepest assumptions about business in China. The last thing you want to do is create a dream-world where everything will be bright and rosy once the evil Recession Monster is slain.

Andrew Hupert, China Solved

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