Playing it hard ball

Any company who supplies the major supermarkets is left in doubt as to the considerable power and ruthlessness of these organisations. The revelations that Tesco employed a variety of strategies to reduce their purchasing costs are not recent phenomena. Be it payments for prominent display of products, changes to bar codes or retrospective rebates there is no shortage of bullying tactics which are brought to bear.

When Premier Foods tried to renegotiate prices in light of rising commodity prices Tesco responded by delisting products such as Hovis, Mr Kipling and OXO which saw Premier Foods lose £10 million over a 3 month period.

Against the current economic backdrop supermarkets facing increasing competition from the discount retailers are constantly looking for ways to boost their bottom line.

Particularly over the past year we have seen companies trying to extend their payment terms by all manner of means– some fair, some foul.

In addition to this many are revisiting “rebates” from their suppliers. Suppliers will be asked for a 0.75% rebate if their sales grow by 10%.

Earlier reports have suggested said the rebate would rise to 5.25% if sales grew by more than 50%.

Amongst suppliers there is always a battle to secure sales but there also has to been a commercial realism.

If by securing so-called “prestige” business the overall operating margin carries a disproportionate return then it becomes a question of commercial realism.

In such situations it may well be argued that such business is best left to others.

 

What’s lurking round the corner

Events of the past week have shown just how vital it is that Senior Management set clear defined operational and reporting procedures.

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 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.

 

The price of denial

 

How often do we ignore the obvious and subsequently ask ourselves “why did that go wrong?”

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 campaign or the launch of another product range destined to fail for the above reasons.

The operating style of many doomed companies can be likened to Nero’s pastime of fiddling whilst Rome burns.

The workshop of the world

 

For a few decades in the 19th century British manufactured goods dominated world trade.

Most mass manufactured items were produced more efficiently and competitively in Britain than elsewhere.

At the height of its imperial prowess Britain also had the commercial, financial and political power to edge out rivals at home and abroad.

In some industries, most notably textiles, massive changes took place in technology and in the organisation of production causing dramatic productivity growth. This in turn brought a steep decline in prices

For other sectors more modest organisational improvements coupled with greater specialisation and the employment of cheap labour brought similar, though less dramatic, results.

An unprecedented range and variety of products thus came within the grasp of a new mass market both within Britain and overseas.

Fast forward just over 100 years and all of the above factors can be applied to the Chinese economy.

But just as with Britain after an unparalleled boom there is a period of pausing, analysts have now concluded that the Chinese government's target of achieving 7.5% growth this year may be missed.

New export orders are contracting, suggesting external demand for China's exporters remains weak.
The true picture is that not only is China's export sector slowing down, but its manufacturing sector is also slowing down. That means the trade surplus is almost gone.
After a decade of spectacular growth the Dragon is now pausing to catch its breath.

 

Back again the usual suspects fear and greed

After a substantial rally in the Global stock markets we have recently seen some turbulent trading and wild price swings.

Whilst some commentators remain bullish the recent spate of economic news from China and the Eurozone have clearly unsettled some operators.

Now is the time to remain focussed and consider the implications for your business.

Just as was evidenced during the credit crunch crisis in the summer of 2008 there is a question mark over the manner in which the banks will respond to the current inputs.

The problem for the banks is that because of the legacies of their previous mistakes they are effectively stifling their customers businesses as they look to batten down the hatches and strengthen their own balance sheets.

It will remain difficult to gain support from the banks in the coming months therefore it must be the absolute priority to keep a strict rein on your finances – make sure that your Debtors Book is strictly controlled and ensure that Stock turn and inventory levels are well policed.

With their houses still far from in order, the banks will undoubtedly remain conservative in their approach to lending, so the order of the day is work within your current limits and maximise your profits.

 

Europe’s strong man under pressure

 

Global stock markets endured a torrid time last week with stocks falling to levels last seen a year ago.

Once again the Eurozone was the focus of market attention with the German economy facing particular scrutiny.

Germany is Europe's biggest single national economy, and until now has been faring far better than almost every other Eurozone member.

However recent data makes for gloomy reading. Germany saw a 5.8% drop in exports during August the biggest monthly decline in over 5 years. . At the same time the German government cut its own economic growth forecasts to 1.2% for both 2014 and 2015.

These statistics are fuelling concerns that Europe’s biggest economy is heading into recession.

A German recession could sap business confidence across the Eurozone even further, and would hit the other Eurozone members more directly if their exports to Germany fell.

Elsewhere, data from the rest of the Eurozone continues to paint a grim picture.

Whether you turn to Europe, to the United States of America, to other places as well, there is a level of uncertainty that is sapping confidence.

 

The overhead monster is a hungry animal

 

The UK offers a very attractive market for companies wishing to export their products. Counter party risk is identifiable and can be successfully managed.

However one barrier may be the perception of high operating costs.

international real estate adviser Savills claims the typical combined cost of renting housing accommodation and leasing an office for a team of office executives for 12 months in London has sky-rocketed to almost £74,000 per employee. This figure reportedly sets London apart from other major global cities such as Paris, Tokyo and New York.

There is no doubt that to commission and run a UK operation can prove a costly commitment. The lists of outgoings such as rent, communications, staffing costs are daunting, particularly in a start up situation where income streams are lagging far behind these costs.

This is where we can assist you, as an established independent company, we have experience of representing overseas organisations in marketing product into the UK.

In addition to opening up new markets for your products and services we can also police the all important areas of logistics and payment of your invoices.

An introduction to our activities can be seen on our web site www.glbconsulting.co.uk or alternatively why not contact me at gordon.blackburn1@btinternet.com to arrange a meeting to discuss how we assist you in entering the UK market.