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US economy bottoms out
With the
economy in a critical stage, it is hard to envisage a return back to the
glorious days of 1990s in the immediate future, writes
Mohan Babu
Currently, along
with the war in Afghanisthan, one of the most talked-about topics in the US is
the state of the economy. First the bad news — it has become official that the
economy is in recession. Next the good news: according to the National Bureau of
Economic Research (NBER), a panel of economists considered to be the arbiters of
the nation’s boom and bust cycles, the nation has been in recession since early
March. What this means is that we have already started seeing the economy
bottoming out. The day this was announced, November 26, the stock market,
instead of going down, reacted buoyantly by moving up in the hope that the worst
may be behind us.
End in sight?
One of the pressing questions in everyone’s mind is that when the recession is
going to end? Though the NBER doesn’t forecast a bottom for the current
downturn, economists say the recession could likely last into next year. How
deep and how far is anyone’s guess, but people are bracing themselves for
anything, hoping the worst is behind them. Of course, by all indications, we
might have already seen the bottom, especially with the news of layoff’s and
joblessness tapering off. As I mentioned in an earlier article, even Indians in
the US were not spared during the current downturn. Some lost jobs and had to
return back to India. It has been a learning experience for most of us.
There is indeed
some indication that there is light at the end of the tunnel, albeit a fuzzy and
bleak light. There are still unanswered questions of what, when and how we will
see the trend reverse and I will not even hazard a guess. But one thing is
certain; we are seeing the economic climate thaw. Most corporate executives are
already taking the current economic woes in their stride. Companies, reconciled
to the current economic conditions, have already started budgeting for the next
year. The budgets are extremely conservative, but are giving an indication that
the worst may be behind us.
Opportunities
in disguise
It is a fact that most non-essential business spending has come to a halt.
Along with business spending, IT systems and projects have also come to a
grinding halt. Most companies across the US are only spending on projects that
are ‘critical’ to the operations, shelving non-essential projects. The
nice-to-have systems and technical upgrades are out of the door. Needless to
say, overtime and spending on R&D is being discouraged. Interestingly, some
smaller companies, especially those with cash reserves, are bargain hunting,
using the down economy as an excuse to hire DBA’s, systems analysts and
web-programmers cheaply. They are rebuilding their antiquated systems and
streamlining the operations.
There is a
pent-up demand, especially in companies with large IT houses, for new system and
software upgrades and projects that can enhance and add-value. However, that
pent-up demand is being controlled and will find an outlet the moment the
economy turns north. One or two quarters of profits and growth will see a
renewed focus on IT spending.
Will things
get back to normal?
By reading this far, if you are visualising a rebound, back to what it was in
the late nineties, you must be kidding yourself. The growth we saw in the late
nineties had a number of things going for it. It was the period when the fear of
Y2K reached hysterical levels, prompting governments (state and federal) and
Fortune 500 companies to spend enormous amounts of money in Y2K readiness. This
was also a period that saw the dot.com and Internet mania sweep across the
country (and the world). Instead of trying to understand the real value that
these technologies afforded, companies perpetuated a gold rush by spending
billions of dollars in trying to compete with their Internet cousins. Without
these two factors, it is hard to envisage a return back to the glorious days of
1990s.
However, this
does not undermine the need for IT systems and solutions that can add true
business value and solve the needs of business users. There will be a renewed
demand for world-class systems and software that can solve and show business
leaders a real Return on Investment (ROI)
For Indians and
Indian companies, this latent demand translates to opportunities waiting to
happen. A number of large Indian software houses are already starting to
consolidate their operations, focusing on building on their strengths. Now is
the time for Indian companies to invest in some world-class PR (public
relations) and marketing. If we get the message out that India is still a
top-notch supplier of software and services, which can be done cheaply, we will
kill two birds — get the word out on the street (in the US) and position
ourselves for a rebound. Companies with cash reserves should start building
goodwill with their down-and-out clients in the US by reducing margins and even
working on a cost-basis. Their clients and customers will remember this gesture,
especially as the economic growth and the latent projects become a reality.
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