|
Knowledge@Wharton is an online business publication presenting business news, analysis
and research to corporate executives, entrepreneurs, policy makers and academics.
Beginning with this issue, the Wharton Alumni Magazine will run selected excerpts from
Knowledge@Wharton. For complete versions of these and other articles, visit this free site at
http://knowledge.wharton.upenn.edu
Finding Business Opportunities in an Uncertain Economy
The global economy was declining
long before September 11. Since then,
it seems to have gone into a tailspin,
marked by volatile stock markets,
sagging consumer confidence, and
widespread layoffs. Most companies
are trying to figure out how long it will
take for the economy to turn around,
and what they can do to stay alive until
then. In an effort to answer these questions,
Knowledge@Wharton teamed up
with CNET News.com in San Francisco
to organize a panel discussion of
leading business executives from the
U.S. and Europe. The discussion featured
Beth Kaplan, managing partner
for venture capital firm Axcel Partners;
Andrew Heller, CEO of Heller Capital,
a private equity organization; Sir Paul
Judge, chairman of Isoworth, a manufacturer
of beverage-dispensing systems
in the United Kingdom, and a consultant;
and John McCartney, deputy
chairman of Datatec, a global provider
of Internet-related products and services.
Charles Cooper, CNET
News.com's executive editor of commentary,
moderated the discussion. The
following is an excerpt:
Cooper: The global economy was
already weakening before the suicide
attacks of September 11. In Silicon
Valley, we believe the recession had
started months ago. Can you give us an
overview of how your business was performing
before September 11 and how
it changed as a result of the attacks?
Kaplan: The businesses in our portfolio
had been doing fairly well. We have
been investing in technologies that
focus on improved productivity. We
have found that our customers — while
they are still slow in making purchase
decisions — are looking for solutions
that help them improve labor productivity
and reduce costs. We see a major
opportunity in the consumer and
retail sectors.
Cooper: Some indicators pointed to a
sharp decline in economic activity in
the immediate aftermath of the attacks.
Did that happen in your case?
Kaplan: We focus on the mass retail
sector — so we have products and
services that cater to grocery stores,
convenience stores, and so on. And
such outlets, we think, are going to fare
extremely well in the current environment.
What we are seeing, though, is a
slowdown in decision making. Capital
budgets are under high scrutiny. We
see managers having to try harder to
justify capital investments and taking
more time to make decisions. Project
managers and even division heads can't
make decisions any longer; very often
the CEO gets involved. We have one
customer that went through 10 layers
of decision-making authority, with the
ultimate authority resting in the chairman's
office.
Heller: My portfolio companies are
very small. They were doing well
before September 11, and they've
continued that way. They're all non-cyclical
businesses. I've been extremely
fortunate.
Judge: The beverage-dispensing
company, Isoworth, was affected by
the slowdown in growth in the U.S.
beverage industry, but my consulting
businesses were holding out quite well
– one of them deals with technology
transfers from North America and
Europe to the Far East. There's a lot of
interest in that area. As the economy
softens, people look for new opportunities.
Our best business is one in
California, a hotel in South Lake
Tahoe. That has been booming, I
guess, because Californians don't wish
to fly long distances.
McCartney: Our businesses are related
to designing, building, and installing
large data networks around the world.
They were slowing well before
September 11. We're a large partner
of Silicon Valley designers and manufacturers,
and the slowdown in their
business has been reflected in markets
around the world. The biggest change
since September 11 is the slowdown in
decision making. When you're talking
about $100,000 or multimillion-dollar
networks, the level of authority required
to approve such expenditures
has now been heightened. Customers
are also taking more time to make
decisions, and they are scrutinizing the
productivity paybacks more carefully.
That has slowed everything down, and
this slowdown affects companies as
well as economies.
Cooper: If the slowdown spreads
across the economy, it could have a
deadening effect on business both in
the U.S. and abroad. How do you
get around that?
McCartney: I don't know that there's
anything you can do to "get around"
that in the very short term. I believe
that in this country and in most major
markets around the world, we'll see a
dramatic slowdown when fourth quarter
numbers begin to come in, and
probably also early in the next year.
One thing that could well happen is
that the recession's trough will deepen
as a result of September 11. The economic
reaction to the attacks could
result in a steeper decline in economic
activity, but the recovery may be faster
as well because people will get refocused
on managing their businesses
and their lives. There's a very strong
chance that we will see economic
recovery faster than we would have.
This could happen sometime in the
second half of next year.
Kaplan: One thing that will happen
is that corporations, regardless of their
size, will now focus on fewer priorities.
They will go back to what really matters.
In recent years, many companies
made investments in technology that
may not have been related to their
core mission. Now we will see these
companies refocus on areas that are
vital to the advancement of their business
mission. . . .
To read the rest of this article, visit http://knowledge.wharton.upenn.edu/ss_112101.html
|
