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Financial crisis: Do we really have a reason to panic?

August 2, 2009

Is it possible to make much more profit than revenue – and that in the time of crisis? Yes, it is. Is it also possible to generate positive cash flows reporting decreasing revenues? – It is also possible, let’s learn, how to manage it.

Last time I visited an investment seminar, which has given me some inspirations. One of the issues mentioned was the financial crisis. The lecturer has given us an interesting definition of the financial crisis saying that financial crisis is a situation where money was lost – which has actually never existed. This definition does have much sense, doesn’t it? And that means: No money = No loss! What then? Profits which can be generated? In the crisis times?

“Last year was the worst economic performance in the 55-year history of the Fortune 500 list of America’s biggest 500 companies”, the US finance magazine Fortune reported in April 2009. And one year before we could read about a man who earned USD 3.7 billion with the subprime crisis and whose name is John Paulson (information given by The Magazine Monthly Trader). Just like the Chinese philosophy yin-yang tells us, every medal has two sides, also the crisis produces them both: losers and winners.

Frankfurt am Main

However, people are worried due to financial crisis, many of them even panic. One rock climber said that the one thing you learn from this activity is: those who panic, die on the mountain. You do not just sit on the mountain (and worry). You either go up or go down, but do not just sit and wait to get clobbered. If you go down and survive, you can come back another day and try a new challenge. You have to ask the question, what we can do not just to survive but to turn this into a defining point in history?

Have you heard about an investment bank (I will not mention the name at this point) reporting a dramatic decrease in sales revenues and a huge increase in profit? How have they managed that? Well, they have got government assistance amounting to USD 10 billion which has given them the possibility to report USD 3.5 billion profit. Winner or loser? – What could have happened if they had not got the government grant? They probably would not be able to overcome this crisis…

How does it affect the outsourcing industry? Let’s once again use the Chinese wisdom and learn how the Chinese do that. They do not have a word crisis in their language but they use two words to describe crisis: danger and opportunity. And they really can convert danger into opportunity: According to the statistics provided by the second China International Service Outsourcing Cooperation Conference, in the first five months of 2009 the number of newly-established outsourcing companies in China stood at 1,057, bringing 246,000 new jobs and generating a profit of $3.52 billion, which is a 13.2 percent increase year-on-year. The contract amount stood at $2.3 billion, with international outsourcing services taking 82.4 percent, a yearly increase of 45 percent. China also reports huge economic growth rates (in the crisis time): The GDP growth amounted to 6.1 percent in the 1st quarter 2009 and achieved 7.9 percent in the second quarter.

Crisis in Chinese

According to one research report provided by Gartner, more companies are expected to turn to outsourcing as they perceive it to be a faster, better, and cheaper business option – especially in times of financial crisis.

Good news for outsourcing vendors: The companies will definitely not stop spending money. They will only change the way they spend them. They want to save funds, which means, they want to get more for the same amount or to spend less. And they will for sure also try to minimize the risks, using multisourcing as an option to diversify their vendors and/or geographical destinations or establishing shared service centers. Shared services are actually the best opportunity to avoid the risks connected with letting work done by a third party and making use of advantages outsourcing (or more precise: insourcing) offers.

Does not matter if you are an outsourcer or an “outsourcee”, you are familiar with the sale-and-lease-back concept, aren’t you? It is a possibility to get some assets out of the balance sheet, selling them to a third party and then leasing them in form of an operating lease. If not a profit, then at least positive cash flows can be realized on this transaction in the current period. And the rental expenses are then shown on accrual basis, affecting both: the current and the future periods, which are expected to be better than the current one. Companies which need improvement in their short-term cash flows sometimes use this possibility, too. This option also provides better capital ratio, which obviously improves the company’s financial standing. Win-win situation for a buyer and a vendor, isn’t it?

What about leasing of immaterial resources, as personnel for instance: people’s skills and qualifications? The crisis time has definitely brought boom for companies specializing in personnel leasing, especially white-collar manpower. Right now a lot of companies feel that they should not hire but outsource work as they do not want to assume long-term liability at the moment. The advantage of personnel outsourcing is that companies using this option do not have to bear the risks connected with regular employment, as gratuity, disability, health insurance etc. The nature of many businesses is also that they work on project-related or season-related basis, which means: they do not need permanent staff but what they need are flexible, qualified, specialized human resources, available within a short-term period.

Will you be the winner or the loser of the financial crisis? The answer is obvious. Therefore: Use the opportunities the crisis offers you – before you say: “The crisis is over, and I have wasted it (and will have to wait for the next crisis…)”.

Magdalena Szarafin
http://www.szarafin.info

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Written by Magdalena Szarafin · Filed Under Articles 

Comments

One Response to “Financial crisis: Do we really have a reason to panic?”

  1. Shahnawaz on August 3rd, 2009 2:34 am

    But outsourcing can help save money and time. My company, AmicorpBpo, (www.amicorp-bpo.com) provides outsourced finance services and accounting services. There is a need and an interest for small companies to pay money to get outsourced services, especially in today’s economy.

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