The Chinese Dragon catches its breath

China's trade data for March has unveiled a mixed picture of growth in the world's second-largest economy.

Exports grew by a more-than-expected 8.9% during the month from a year earlier, indicating that global demand may be picking up.

However, imports grew by 5.3%, down from a 39.6% jump last month, raising fears about slowing domestic demand.

European markets are crucially important to China and these latest figures have allayed fears that with European economies in a fragile state Export growth would suffer.

The uncertainty in the global economy in recent years has resulted in a shift in China's growth policies.

Faced with a slowing global demand for its exports, Beijing has been trying to boost its domestic consumption in a bid to sustain its high pace of growth.

Authorities have been easing monetary policy in an attempt to spur demand.

The Chinese central bank has already reduced its reserve ratio requirement, the amount of money that banks need to hold in reserve, twice in the past few months, in a bid to boost lending in the country.

Analysts said the weak numbers may prompt the bank to take further measures.

Hidden dangers – be on your guard

 

The Chairman of the US Fed Reserve Ben Bernanke has stated that "even as we make progress on known vulnerabilities, we must be mindful that our financial system is constantly evolving and that unanticipated risks will develop over time,"

In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

For example I have worked in trading environments where totally unrealistic profit target have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is!

If your company is bucking the trend in these difficult times it may well be that you are implementing a winning formula.

However history tells us that it is often a prudent course of action to look under a few stones – just in case.

A distinct lack of commercial realism

I was approached by a “start up” company operating in the field of renewable energy.

 The initial telephone conversation sounded promising so I arranged to have a preliminary meeting. I met the “management” at their offices in a prestigious block in The City – so far so good. 

We then got down to discussions and it all went rapidly downhill – these people had a vision of being the London HQ of a large energy trading company. The only problem was they hadn’t thought through exactly what they were trying to do, far from seeking an assessment /appraisal of their business they were in fact looking for someone to turn up and present them with a business plan for a niche role in an industry in which they had no previous experience, product or usp. 

As a Consultant I am quite used to explaining the harsh realities of the business world to companies that are already operating and finding it tough. However this was quite a different case – these people though that by putting a name board on an office building in The City this would fast track them to a listing on the FTSE 100.

 

Needless to say apart from providing me with an insight into a commercial Never Never Land this particular assignment was not one to fly.

However I am still on board for serious projects!

Customer service – achieving the right balance

The old adage the Customer is always right has come in for a fair amount of scrutiny recently and there are many times when plainly the Customer is in the wrong.

Notwithstanding it is of paramount importance to the sustained growth of any business that the Customer is kept onside.

The key requirement that any Customer wants is to feel that his/her business is valued and appreciated.

In business securing the deal is only the start of the process and the repeat order very often stands or falls with the after sales service (or lack thereof).

Simple but effective measures such as ensuring all contracts are performed efficiently and within due time and that any complaints are handled promptly and with courtesy will go a long way to building and maintaining long lasting relationships.

We have all encountered the difficult Customer with whom it would be easier not to deal. However, in these difficult times there are many who would willingly take this “problem” and revenue off of your hands.

Avoiding ostrich management

How often do we see that by ignoring obvious problems the Management and Shareholders of troubled organisations subsequently end up asking “why did that go wrong?”

It is simple, a large number of companies fail to address problem issues early enough to avoid an oncoming crisis.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding exercise or the launch of another product range destined to fail for the above reasons.

Problems ignored rarely go away. Timely intervention can avoid the need to conduct a messy post mortem.

Diversification – sometimes it turns round and bites you

Without doubt one of the most difficult challenges a business faces is diversification. Very often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.
The first step is examining why the current business model is not working. This requires an honest appraisal from the Management in respect of their performance.

Then the areas of diversification have to be closely considered, very often people plunge into businesses in which they have little knowledge or experience and the results pretty quickly show up these deficiencies.

Thirdly one should always respect geography it may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy it can equally provide another drain on an already embattled balance sheet

Who’s getting a free ride?

In this current climate more and more Customers are actively delaying payment to Suppliers. Slow payers monopolise profits and starve creditors of much needed cash. Accordingly policing of receivables is critical.

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft). I have seen this situation spiral out of control so that in a worst case scenario the Supplier is forced to keep “supporting” the errant Customer for fear of realising a bad debt. Think of the parallel to the current Greek situation – it is a slippery path.

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond? Have you considered the damage that is being done to your company’s financial position?

Ask yourself “who is getting a free ride?”

It may well be that you conclude that an overall appraisal of your business is overdue - this is where I can help.

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you get back in control.