The Three Rs make for a bumpy road

The world is learning a new set of Three Rs – refinance, regulation and rate volatility. COLIN BENJAMIN

By Colin Benjamin

The world is learning a new set of Three Rs – refinance, regulation and rate volatility. The difference between the US Fed cutting rates to 2% while we wait for our RBA to decide on a further rise next week reflects the bumpy ride ahead for business and marketing plans trying to set a course for the coming year.

At the same time we have the US Government bailing out more than a million homeowners facing foreclosure due to the failure to rein in the financial speculators. 

The great news is that the bumpy ride is being protected by central banks that will do anything to ensure a safe landing for the very banking institutions that are now scrambling to reposition themselves for the end of the recession. We’re also receiving some cushioning from a new round of apparent regulation of the short sellers and the refinance of private equity mergers and acquisitions. This can only mean that by the third quarter of this year we will again have growth opportunities in the service industries and for those who are going green.

Over the next three months, small and medium business will face considerable pressures from their banks to get in as much cash as possible before the end of the financial year. The continued growth of the Chinese economy coupled with the impact of years of under-investment in skills training, is going to place considerable pressure on retaining quality staff.

The good news from the US Federal Reserve’s overnight decision to cut rates by 25 basis points to 2% is that it appears that they have now decided that a further collapse of the US dollar and pump priming for their November elections may not be justified, with at least two Fed members continuing to oppose the majority view that the worst is yet to come.

This means that not only have we have reached the bottom of the big dipper ride referred to in earlier blogs, but we have now hopped on to the dodgem cars and are about to be buffeted (no, not Warren) by the twin forces of rising costs and reducing customer demand.

For the remainder of the year we will see financial institution profits rise, major investments in infrastructure projects based on longer-term investment in the social good and a renewed focus on social inclusion rather than social exclusion in all government policies.

In Australia, we will have Treasury Secretary Ken Henry and his new pupil (Treasurer Wayne Swan) talking tough about the need to make us all pay for the success of the nation in building a record surplus. Lindsay Tanner will setting out to carve a few billion off the expenditure side while ensuring that every one of Kevin’s promises can be met before 2010.

The federal budget will be an exercise in driving down commercial growth in the higher- end domestic consumption sector and deferring any expenditures that can enable payments to be made to the bottom end of the household sector that has faced a 39% rise in the price of bread and oil prices.

So what does this mean for SMEs? First, it means that it is still vitally important to stay close to our customer base and identify their forward plans to reduce the impact of a volatile market on our costs of doing business.

Next, it means reducing lines of business that are capital intensive without having firm forward orders.

Third, it means building a platform for global markets and links via the internet to agents and advocates that can expand with the growth of the BRIC economies that are continuing to provide the consumer demand around the globe that is offsetting the domestic British, US and European economies.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.

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