US crisis, global crisis and opportunities

Although many observers believed that U.S. recession had begun in the early months of 2008 (Quinn, 2008), US financial crisis was officially triggered by the subprime mortgage collapse on September 7, 2008 and caused shock waves in international markets and a serious influence on economic development. The crisis seems to be a tsunami that hit Europe first then headed for Asia, Latin America and other locations in the world. Global stocks plunged as U.S. crisis spread. Many countries experienced their worst market declines. Dow Jones dropped below 9,000 for first time in five years on October 09, 2008 (Thomasson & Kearns, 2008). In Europe, on October 06, the Paris CAC 40 index finished down 9%, its largest one-day loss ever; London's FTSE 100 dropped 7.85 percent, its largest single-day drop since 1987 (Sullivan & Cody, 2008). The Tokyo stock market suffered its darkest day since 1987 as the Nikkei 225 Stock Average plummeted 11% on October 16, 2008 (Rial & Chua, 2008). Because of steep plunge, some stock exchange markets were even forced to suspend trading, such as Russia’s MICEX exchange, Bucharest Stock Exchange and Indonesia Stock Exchange on October 8, 2008 (Lesova, 2008).

Despite negative effects of the global crisis, there are still opportunities. According to Kishore Mahbubani – the dean of the Lee Kuan Yew School of Public Policy, Singapore's former Ambassador to the United Nations and former President of the United Nations Security Council, the turmoil may turn out to be a source of optimism for Asians. “Actually, the effect of the crisis in the United States could be the opposite. The crisis could in fact lead to a change in the mindset of foreign investors in favor of emerging economies”. Thereby investors would see the benefits of doing more business in Asia.

In his tutoring session for IBC course project, my teacher Sheridan Tatsuno also mentioned that foreign investors will have a tendency to increase the investment in China because of U.S. crisis.

In Latin America - the traditional 'backyard' of the United States, while many others will likely suffer from the crisis, some people are searching for a chance in the gloomy period. Mexican tycoon Carlos Slim, one of the world's richest men, said Latin America's markets can be part of the solution for the northern giant at times of crisis and that they are going to become important for the economy of the United States (Sardon, 2008).

"In the past, developed countries had reserved and financed developing countries, while today developed countries, especially the United States, are being financed with resources from developing countries," Mexican billionaire Slim said. That is why he thinks Latin American and other developing countries could help the U.S. through the crisis (AFP, 2008).

The crisis is seen by James Rooney, chairman and CEO of Market Force Company, as a golden opportunity for Korea to become a force in the global market. He indicated that U.S crisis will cause the slowdown in China's exports to the U.S. and make China to boost its domestic market to offset losses from exports. It will be an advantage for Korean economy (Kim, 2008)

The crisis that swept through the world is not over yet and the international consequences will be deep and lasting. Although the Wall Street crisis is seen as one of the biggest threats to most of the world, the situation could change depending on how we react to this. Entrepreneurs should take advantage of the “bad time” to change the position of their business in national and global economy.

References:

AFP (2008, September 30). Mexican billionaire says China should lead crisis rescue. AFP. Retrieved on October 30, 2008 from http://afp.google.com/article/ALeqM5icguECdnrk259WcIOS_N0phnHkQQ

Kim, J. (2008, October 6). US Crisis Golden Opportunity for Korea. KoreaTimes. Retrieved on October 31, 2008 from http://www.koreatimes.co.kr/www/news/biz/2008/10/123_32224.html

Lesova, P. (2008, October 8). Russian stocks plunge again, trading suspended. MarketWatch. Retrieved on October 30, 2008 from http://www.marketwatch.com/news/story/russian-stocks-plunge-again-trading/story.aspx?guid={648BD3E7-9B66-4E79-9413-16530266BC32}

Quinn, J. (2008, January 7). US recession is already here, warns Merrill. Telegraph. Retrieved October 30, 2008 from
http://www.telegraph.co.uk/finance/economics/2782147/US-recession-is-already-here%2C-warns-Merrill.html

Rial, P. and Chua, K. H. (October 16, 2008). Asian Stocks Tumble on Recession Concerns; Nikkei 225 Plunges. Bloomberg. Retrieved on October 29, 2008 http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aT4Eb5Cdztf0

Sardon, V. (2008, October 3). Latin America sees silver lining in US crisis. TheEarthTimes. Retrieved on October 30, 2008 from http://www.earthtimes.org/articles/show/235200,latin-america-sees-silver-lining-in-us-crisis--feature.html

Sullivan, K. and Cody, E. (2008, October 7). World's Stock Markets Plunge. Washington Post. Retrieved on October 29, 2008 from http://www.washingtonpost.com/wp-dyn/content/article/2008/10/06/AR2008100603167.html

Thomasson, L. and Kearns, J. (2008, October 9). U.S. Stocks Tumble, Sending Dow Below 9,000; GM, Insurers Slide. Bloomberg. Retrieved October 30, 2008 from http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a7Tx3juml8Ys

Growing Pains and Entrepreneurs

To many entrepreneurs, growth is the ultimate success that compensates for their effort and money. It is also a key indicator that goods or services delivered are accepted by the market. Besides, growth simultaneously creates new challenges that the venture has to face. When growth becomes painful, it is a signal of malfunctions in the process of organizational development (Flamholtz, 1990). It is the time when human resources and/or operational structure cannot catch up with the organization’s expansion, and the downfall occurs. At this point, the entrepreneur has three choices: Learn to deal with business growth effectively, sell out, or ignore the problems until the business is forced to close down (Denalli, 1993). The latter two options would most unlikely be selected, the entrepreneur is left with the need to recognize growing pains and manage the growth.

The organizational growing pains mentioned in the article “Growing pains: How to make the transition from an entrepreneurship to a professionally managed firm” (Flamholtz, 1990) are very common and easily experienced by most working people. I would like to introduce an example from my previous experience at an IT company called First Consulting Group (FCG). A web-application project had been estimated to be completed with a team of ten in six months. After three months, it was concluded to need seven more months before the product delivery. Because of underestimation and lack of planning correctly, people were often pushed very hard with heavy workload. Those who worked twelve hours per day began to complain about “overload” and had the feeling that “there is not enough time in the day”. That problem resulted in excessive pressure on employees. To deliver the product on time, the company was forced to hire new people who had to work immediately without adequate training. After the rush, members hired hastily and under pressure would become idle resources. That company spent too much time dealing with short-term crises – “putting out fires”. In late 2007, there was a rumour about the merger of FCG and another company. While senior management had not officially informed, employees experienced a considerable amount of anxiety. They did not understand where the firm was headed and felt insecure about their place in the firm after the merger.

To avoid the problems accompanying rapid growth, organizations must have an infrastructure that will absorb the growth. “Anticipation of bigness” is the term that best describes the effective solution in this case (Hambrick & Crozier, 1985). Those firms must envision themselves as larger; acquire the needed skills and processes before they are actually necessary (Hambrick & Crozier, 1985).

Flamholtz (1990) points out the ten most common organizational growing pains which are only the symptoms of breakdown in the process of organizational development. It is imperative to identify the causes of the malfunction and the solutions, which help entrepreneurs to avoid and deal with growing pains. In highly recommended article “Stumbles and stars in the management of rapid growth”, Hambrick and Crozier (1985) do mention fundamental challenges facing the managers of rapid-growth firms (Instant size, a sense of infallibility, internal turmoil and frenzy, extraordinary resource needs) and how successful firms solve the problems.

Gerber, author of the best-selling The E-Myth: Why Most Businesses Don't Work and What To Do About It (Ballinger Publishing Co.), says: "Business development is crucial, and businesses that don't do it are doomed to fail. High-growth businesses simply fail with a flourish." (Denalli, 1993). A steady rate of growth is necessary to keep everything at a highly stable level. Equipped themselves with theory and reality-based experience, the organizations should stop surviving and start growing with the awareness of the growing pains ahead.


References:

Denalli, J. (1993). Keeping growth under control - managing company growth. Retrieved 2008-10-04 from http://findarticles.com/p/articles/mi_m1154/is_n7_v81/ai_14009418

Flamholtz, E. G. (1990). Growing pains: How to make the transition from an entrepreneurship to a professionally managed firm (pp. 53-72). San Francisco: Jossey-Bass Inc.

Hambrick, D. C., & Crozier, L. M. (1985). Stumblers and stars in the management of rapid growth. Journal of Business Venturing, 1(1), 31-45