UK: Economic recovery - too soon for cheers.

UK: Economic recovery - too soon for cheers. - Management Today comments:

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Last Updated: 31 Aug 2010

Management Today comments:

One of the major computer companies of the 1990s is likely to be the Japanese Nippon Steel group. Judging by the adverts for its range of portable computers that have appeared in the weekend supplements, this is a racing certainty. One can hardly imagine a British industrial company diversifying into computers in such a bold manner.

But the ability to identify new niche markets, attack them quickly and in massive force will be the overriding priority for Great Britain plc in the '90s. Sadly, few seem to be properly equipped for such a challenge, as our annual MT250 profits league table highlights (see pages 32-42). Far from looking for new markets, the main priority of Britain's boardrooms appears to be retrenchment as profits collapse from the heady days of the late '80s. Investment decisions are also being hacked back, by as much as 20% in some cases.

Some businessmen detect the first glimmer of light at the end of this particularly nasty recessionary tunnel, with business optimism well up in recent surveys. They will be further lulled into a false sense of security by the sight of inflation and interest rates falling hand in hand.

Will it be business as usual, a return to the rip-roaring '80s, fuelled by a heady expansion of the housing market and easy credit? If so, the UK could so easily return to the morass of inflation, balance of payments crises and the like in three years' time.

Few decision makers appear to be thinking long term about what sort of recovery will emerge. When the Governor of the Bank of England recently suggested some timely reforms to the housing market to prevent a credit explosion, he was shot down by the Chancellor.

The Government believes that the harrowing experience of the past two years should prove a salutary lesson to housebuyers, who will, it is argued, be wary of saddling themselves with so much debt in the next housing upswing. Unfortunately, people have short memories, which would be a tragedy after all the sacrifices that the British people and British industry have had to endure recently.

But change in our attitudes, both as businessmen and consumers, must come. Second-rate, slapdash and shoddy work or management will be a recipe for disaster. No industry is safe from the onslaught of competition in this "unforgiving" decade.

Even the few industries where Britain has what Harvard's Michael Porter calls "competitive advantage" are going to be hammered as never before. The difficulties that ICI is experiencing in its world markets may be a foretaste of what our much vaunted chemicals industry as a whole will experience. The prized pharmaceuticals industry, led by Glaxo, Wellcome and Fisons, is almost certain to face a severe squeeze on the home and export market as governments progressively tighten up on the cost of drugs to their health services. Aerospace is now under pressure as never before with the defence downturn and a pause in civil aviation traffic.

It's not a pleasant picture, but we may all be in danger of deluding ourselves that after a few more months of pain everything will be rosy again. Unfortunately, now that we have entered the pre-election period, the usual electoral promises have started, which tends to reinforce the view that problems will simply disappear with a cross on the ballot paper.

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