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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Corporate Strategies during Low-growth

Corporate Strategies during Low-growth

KIM Keun-Young

Sept. 26, 2012

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Originally released in August 2012

There is a growing consensus that the world economy, which has steadily recovered since the 2008 financial crisis, has entered a low-growth period in the wake of the global fiscal turmoil. Unlike V- or U-shaped economic trajectories which imply growth will recover to pre-crisis levels in one or two years, the L-shaped economic path heralds a prolonged recession with long-standing, structural changes. The current global economy is in an L-shape, a harbinger of tougher times for businesses. Surviving the current L-shaped recession demands corporations to confront problems head on by enhancing their competitive advantage with two fundamental business strategies: differentiation and low-cost.

The first component of differentiation is development of new business through focused innovation. Innovation is essential to the future growth of a business. Still, it is highly risky and securing liquidity needed to cushion the effect of a failed innovation attempt is difficult particularly in a low-growth period. Thus, the key is to raise cost-efficiency through focused efforts in select areas. The second element is establishment of a strong presence in emerging markets based on customized products and services. Despite the slowed growth, emerging markets are rising in importance in comparison to advanced markets. The last is increased market share in key business areas. This is important because market share determines performance in a low-growth period when new demands decline and companies are forced to steal customers from competitors. Businesses need to push for M&As before their rivals alter situations to their advantage when opportunities are abound to make profitable purchases at a low pric e.

Costs can be reduced on two fronts: production and marketing. To cut production cost, business models should be transformed into low-cost structures. This transformation is essential in attracting consumers who are more price-sensitive and tend to strictly limit spending due to a strained budget. In a low-growth period, an aggressive marketing campaign would be effective, but it puts cost pressure on companies. Thus, marketing methods that can touch the hearts of consumers are the right answer.

A prolonged recession requires corporations to maintain disciplined optimism, and to have a long-term perspective in order to survive. Uncertainties during a recession create difficulties for businesses in making decisions with confidence and they are easily enticed to copy others' strategies. However, to put themselves a step ahead in the competition, companies need to go back to the basic. Lastly, when times are bad, it is more important for management to maintain close communication with external and internal stakeholders, including employees in a transparent manner.

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