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European Recession Grips Electronics Firms

As Europe's recession drifts into its record sixth consecutive quarter, the electronics industry must continue to negotiate a bumpy economic road.

The euro zone economy contracted during the first quarter of the year, making the slump the region's longest in the postwar era and longer than the 2008 downturn that dragged down much of the world, according to reports from The Wall Street Journal (subscription required) and Spiegel Online.

The gross domestic product dropped 0.2 percent in the euro area and 0.1 percent in the 27 European Union countries, according to data from Eurostat. In March, seasonally adjusted industrial production grew 1 percent in the euro area and 0.9 percent in the EU27. Industrial production fell 1.7 percent in the euro area and 1.1 percent in the EU27 from a year earlier.

With no recovery in sight and increasing concern that austerity measures have backfired, high-tech companies will have to take a hard look at how they map a route forward. Many of those doing business or based in Europe, including Philips, Siemens, and ST Microelectronics, have been talking about the downturn's impact on their balance sheets for several quarters. (See: Earnings: Dark Clouds Hang Over Europe’s Bellwethers.) There have been the usual counteractive responses: layoffs, reorganizations, shuttering facilities, management changes, etc.

Now that those measures have been exhausted, there's a growing recognition that companies have to dig their way out of this — pretty much on their own. Proposals coming from economic ministries or the EU collective don't seem to convey enough confidence in being able to stimulate an economic turnaround anytime soon. And companies can't really walk away from Europe, even if the promise of growth in markets like Africa or South America offers glimmers of hope for bottom line security. Europe still generates 17 percent of the world's GDP, the WSJ said.

Even though most companies know this, there are few real-life examples of companies moving beyond this slowdown. There's always talk that a downturn is the best time to invest in research and development. Innovating your way out of the recession was once a mantra, wasn't it? But there's little solid evidence that this is happening on the wide-scale basis that's needed right now.

Evolutionary business
McKinsey & Co. suggested in a press release for a 2009 report that “businesses can align themselves with the evolving behavior of their customers during the recession and position themselves for economic recovery.”

The tactics suggested in the report (dated perhaps, but still relevant) include a deep-dive analysis of consumer spending habits to see where and how much buyers are cutting back and understanding how consumers replace products. It's not a stretch to say that some of the suggested tactics could be applied to supplier-customer relationships in European high-tech sector or to any supply chain relationship.

What I'm really waiting to see is for a company to take a bold step forward and do something that doesn't involve the same reactionary, recession-sidestepping strategies. Most safe standbys have already been done, and they haven't really worked. Come on. Surprise me with your best climb-out-of-this-mess solution.

12 comments on “European Recession Grips Electronics Firms

  1. Tom Murphy
    May 28, 2013

    First, thanks to Jennifer for putting these thoughts out there.  Very good blog!
    Second, the fact that it takes some companies six quarter to respond to a deepening recession is pretty pathetic.  When I look at companies like Apple or Amazon or Samsung, I know that they  make changes DAILY in their strategic direction and supply chain to adjust for subtle day-to-day differences.  If you make such changes over the course of six quarters, then — no matter what has happened in those six quarters — you are already doing everything you can.

    Why is that an alien concept in Europe?  Or am I being unfair?

  2. prabhakar_deosthali
    May 29, 2013

    The lethargy is taking corrective actions by the Europian companies , may be basically due to the generation gap – a huge one – between the age old Europian comapnies like Philips or Siemens  and the neo-age  US and Korean companies like Apple, Amazon or Samsung.

    The neo-age companies are paranoid ( sometimes almost maniac) in nature of their management and are ready to burn mid-night oil every day to keep their business machine well oiled to tackle the ups and downs .

    The laid back nature of Europe's lifestyle goes into the slow reaction times of the businesses there while reacting to the crisis situation

    This is my opinion based upon my experiences while on some short business assignments in Europian countries.

    So, may be, a management haul-up is necessary to bring about the new working styles in these companies

     

     

     

     

  3. darrenbabb
    May 29, 2013

    I'm somewhat at a loss to understand why restructuring according to demand continues to be a common strategy across all industry sectors.

    Businesses need to take more risk supported by banks and sharehlolders alike.

    Accountants need to realise that rolling the dice with investment and acquisition wherever possible rather than cutting back is another option. These one trick ponies are reducing some once highly skilled and innovative companies to skeletal reflections of past glories, perhaps I will be bold enough to suggest this also bears reflection upon the Eurozone's strategy of continuing austerity – it's getting us nowhere.

    Surely investment in Research and development is the platform on which to create new demand. Whats needed now throughtout the supply chain are innovative value for money products  and services.

    Clearly the demand for high volume, low margin products and FMCG has all but diminished and may never fully recover. Global markets are still beating a path to nowhere in search of a return to the good old days, The model is bust and there has to be a a cumulative acceptance followed by a sea change in commercial strategy supported by Government investment.  

     

    Darren Babb

  4. ahdand
    May 29, 2013

    My personal belief is that the electronic firms will not get affected that badly since we need the electronical items in most of our day to day work. So new things should come up and the consumers will buy them at virtually any price.

  5. Himanshugupta
    May 29, 2013

    @Darren, you raise a very valid point and i agree that a company should be robust to deal with recession with cutting down the employees or the production. To make company more adaptable to recession, management needs to think on long term goals which can beat the short term recession. These goals can be RnD which usually take a backseat when the market is booming and there is little insentive to spend too much on RnD. Companies can also give employees more flexibility during recession to work on personal project or upgrade skills. I know that these things are easier to say than to do but we need a radical approach to deal with recession.

  6. Tom Murphy
    May 29, 2013

    Darren: At the risk of touching off a debate on global economic policy, let me say I thoroughly agree with your conclusion that “austerity is getting us nowhere.”  Actually, I think it's worse than that. Standing still in today's world is losing ground — and that I think is the very reason that Europe's economy is continuing to recede, or more properly, erode.   The less you invest, the less return you will get on your investment and, if the economy is shrinking, you will only lose money anyway.

    It would be a bold move, but I believe both the US and Europe must go 180s degrees the other way and invest like crazy in their futures. 

     

     

  7. darrenbabb
    May 30, 2013

    Tom: I completely agree with your comments, probably the most sensible blog I've read in some time, I was beginning to think the worst….

    Thank you. 

  8. ahdand
    May 30, 2013

    Yes electronics will not die at any crisis since without electronics there will be nothing left for us and to do the work we do need electronical items. It may not be needed directly all the time but atleast indirectly it will be needed.     

  9. FLYINGSCOT
    May 30, 2013

    Very few companies are bold enough to invest in R&D during hard times and instead they focus on cost cutting.  I believe the best companies should invest for the future and use their cash mountains and breathing space to develop more exciting new products to sell after the recession is over.

  10. Hailey Lynne McKeefry
    May 30, 2013

    It's sobering stuff wtih no easy answers. However, as a contractor for many years, I learned that you always have to be pushing for new business and new models…and i think that's true here. The temptation will let fear override everything, and a sense of desperation and hopelessness to set in. Organizations have to keep steady and hang on. unfortuneatly, there are bound to be some casualties while we wait.

  11. Wale Bakare
    June 9, 2013

    I agree with you, good summary though. I also think some Europe big guns key rolling the effect of change as well needed. While the privates and governments collaboration might be very pertinent in area of manufactring to boost employment.

  12. ahdand
    June 11, 2013

    @daren: Same here. I was wondering what went wrong and did I read the wrong blog.   

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