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Mon, 27 April 2015 07:31:51
Sri Lanka firms find ways to battle tough times
27 Jan, 2013 11:19:18
Jan 27, 2013 (LBO) - Sri Lankan firms can ride out tough times by maintaining a lean culture, grabbing opportunities that are present in such periods and becoming more responsive to customer needs, top executives said.
"Whether you are in tough times or not, it is important to have a lean culture," Hilmy Cader, head of MTI Consulting, told top executives at the LBR-LBO CEO forum in Colombo on 'Tough Times – Tough Strategies'.

"Smarter companies do not get carried away through good times."

Cader said his firm's years of consulting both in Sri Lanka and abroad had shown there were two types of companies.

'Cut and Chop' firms which panicked and started cutting costs and headcount and 'Trim and Fit' companies which took a long-term planned approach.

Cader said firms tended to keep adding brands, channels and price points during good times, but many would not add real profits.

In 2012 Sri Lanka's economy slowed to an estimated growth of around 6.5 percent down from two years of 8.0 percent growth as a credit bubble, worsened by central bank credit (money printed to keep rates down) fizzled itself out after hitting the balance of payments.

The exchange rate fell, inflation spiked and interest rates also rose as the state finally allowed credit markets to correct themselves.

The global economy was also weak, with demand especially from Europe falling for Sri Lanka's exports.

In a crisis, working capital became important, with liquidity becoming critical irrespective of profitability, Cader said.

Mahesha Ranasoma, head of Dipped Products Plc, a top glove exporter said buyers wanted lower costs in tough times and competition became tougher with suppliers in lower cost base countries, like Vietnam or China where economies of scale were greater.

Buyers wanted extended credit in tough times while the producer wanted the opposite. But if there was a close relationship with customer where their needs are understood, firms can retain customer, he said.

"What we have found is that the more you get closer to the customer in terms of understanding what their strategy is going forward, and where you could collaborate to align your strategy to there is strength," Ranasoma said.

"For example in tough times as much we want to reduce our working capital, they want to reduce their working capital."

If the company can reduce the minimum order quantity in favour of a lower volumes but more frequent ordering the need of both parties can be met, Ranasoma said.

He said looking at strategies of suppliers were similarly important.

Asanga Ranasinghe Director, Unilever Sri Lanka said in tough times, firms have to 'reach down' to customer affordability. His firm was the pioneer in the use of 'sachets' products in small packets.

"The consumer still wants to use a strong brand. The strategy to make the brand available is the lowest possible price point," he said.

He said there are always opportunities for brands to 'reach up' to consumer segments.

"Even in rural Sri Lanka you would find young girls are using face wash," Ranasinghe said. "They have realized that they have to wash their face with the best product that is available.

"We would think that in rural homes, ladies would be using soap to wash their face. It is not so. Reaching up is also an opportunity even in tough times."

Cadre said there was a lot of management waste. He said excess management hurt productively and in fact continued to reducing productivity of others in the organization.

Jonathan Alles, deputy chief executive officer of Hatton National Bank technology such as the internet and increasingly mobile telephony was changing the way banking services could be delivered.

Alles said banks had to be ready for spikes and troughs cycles. When the downturn came, bad loans tended to go up.

"Some of these spikes hurt you a lot," Alles said.

He said banks had to be ready to meet changing circumstances and shareholders expected steady performance.

"You need to have your 'plan A's, 'plan B's and 'plan C in as to what you will do in different economic situations," Alles said.

In 2010 and 2011 was huge growth in the top line, 2012 was mainly concentrating on managing the balance sheet, having quality asset portfolio and structuring the portfolio to have the right margins

"The entire model changed," Alles said. "It also changed within a period of three to four months."

Cader said firms also had opportunities to acquire assets, including human resources and advertising on better terms during downturns which could used as a foundation for the future.

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