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The Great Recession is over – now what?

Fred McKinney
The Great Recession is over – now what?

Fred McKinney, Ph.D., is president and CEO of the Greater New England Minority Supplier Development Council.

According to the National Bureau of Economic Research, the Great Recession that began in the second quarter of 2008 was declared officially over at the end of the third quarter of 2009. This recession was dubbed “Great” because it was deeper than the previous 10 post-World War II recessions, but was shorter and was not as deep as the Great Depression. But whatever you choose to call it, this recent economic downturn did plenty of damage. In fact, several markets including the bellwether labor market and the important housing market continue to show weaknesses that are not close to being what most economists would consider normal.

Yet now it is time for corporations and Minority Business Enterprises (MBEs) to shed the bunker mentality and prepare for the coming expansion. Back in early 2008, I predicted in this column and elsewhere that the economy was going into a recession and made a series of recommendations MBEs should follow to survive. One of those recommendations was to prepare for the coming expansion, even as we were headed into the recession. Now that we are coming out of the recession that can best be described as a tepid recovery, MBEs and others should be preparing for long-term growth and expansion.

 It is most likely the case that the strategies that helped you survive the Great Recession will not be the strategies that help you grow in the coming expansion. During a downturn, credit and sales dry up, and everything seems to slow down. Consumers spend less and save more. Corporations put on hold projects that had been previously approved. Payment terms seem to get extended. Cash becomes even more valuable as a negotiating tool.

One exception might be that workers who remain on the job work longer hours and harder trying to fill in the gaps left by workers who were let go. In this environment, all firms big and small, react by conserving cash, reducing inventories, postponing investments and generally just trying to survive.      

These survival strategies are necessary and appropriate, but even when implemented were not sufficient to keep every business in business. The Great Recession contributed to a significant increase in business bankruptcy. Business bankruptcy increased from 25,900 in 2007 to 58,700 at the peak of the Great Recession in 2009 and declined slightly to 58,300 in 2010.

The number of bankruptcies will most likely remain higher than the pre-Great Recession level for at least a couple more years. The silver lining in this cloud is that surviving companies can expand by identifying the customers of those who did not make it or will not make it.  

Surviving companies are looking to expand their markets by acquiring weaker companies and those that are destined for closure. But this is not the only change that surviving companies should be considering in this nascent recovery. MBEs also need to look at building capacity. This obviously has risks associated with it because you are doing this largely in anticipation of future demand. I recommend that calculated risks to grow capacity are appropriate when supported with hard research about future market opportunities.

MBEs need to look very carefully at local, national and global market conditions in order to determine where they should be fishing for customers. Not all regions of the global economy were hit equally, nor will all regions rebound at the same time.

MBEs need to know where the growth is taking place regionally and by industry. For instance, during a recession consumers cut back on household durables and on the purchase of cars. As we come out of recession, consumers will be replacing cars, refrigerators, microwaves, TVs and other durable good purchases which were postponed during the crisis. MBEs need to target these areas of expected growth.  

It is also most likely that where the global economy is and is going will not be the same as the pre- Great Recession economy. While the Great Recession had its origins in housing and financial markets, it is not these markets that will lead us out of the recession. Furthermore, the economy that we are becoming is not the same as the pre-Great Recession economy.

One important difference is that speculative excesses in housing and financial markets will be slow to return as entrepreneurs and corporations attempt to return to business basics. The economy we are heading into will in the early stages of the recovery be based on operational cash flow and less on speculative projections. It has become a “show me the money” economy.

This change in entrepreneurial attitude will mean that companies will become more integrated into a global network of suppliers and customers all searching for value. MBEs can no longer afford to believe that they can comfortably ignore the advantages of sourcing and selling globally. MBEs must look at strategies that link them to similar MBEs and others in different geographic markets in ways that leverage expertise and relationships.

For example, we must have a thousand certified MBE corporate gift companies across the country.  Why won’t some of them combine forces in ways that do not relinquish local autonomy by generating greater profitability through increased buying power and superior marketing effectiveness?  

The same holds true for IT staffing firms, law firms, computer resellers and others. Entrepreneurs who make these changes will thrive in the coming expansion.  

The Great Recession is over and it is time for MBEs to come out of the bunkers and claim their piece of the global economy. MBEs today have greater skills, financial experience and superior quality networks than any generation of MBEs in history. There is no reason why MBEs cannot and should not lead the expansion of the United States and global economy.