While it is still unclear as to whether or not the U.S. is in the midst of a recession or merely an economic slowdown, what is clear is that certain sectors have been hit harder than others, rendering the issue largely irrelevant. The subprime mortgage crisis continues to impact the country, while the manufacturing sector struggles with lower consumer demand and competition from abroad.
Warren Buffet maintains that the U.S. is effectively in a recession while the New York-based Conference Board, a private business group, indicated that the U.S. may yet avoid a recession. Nevertheless, the reality is, most Americans are feeling the effects.
South Florida has an increasingly diversified economy, which may help it ride out the possible recession hitting the rest of the country. A weak dollar means the region can expect to continue to attract tourists according to some reports. Nevertheless, consumer confidence in Florida is at a 16 year low and mortgage foreclosures during the first quarter were the fourth highest in the nation.
The reality is that while some sectors in South Florida will weather the economic crisis better than others, many sectors, as well as consumers, will not. Florida has thousands of small manufacturers who are already feeling the pinch. Consumer spending is down which is impacting retail, restaurants and entertainment.
The financial sector will likely manage just fine and while the tourism industry is expected to be able to pull in tourists with a weak dollar, some travelers, not simply Americans, are opting to stay home, given the economic impact in their own countries. Canada, a major contributor to the tourism industry in Florida, is feeling the impact of the U.S. recession. Ironically, a weak U.S. dollar hurts many sectors in Canada, which is primarily an exporting nation. The U.S. is Canada’s largest trading partner. With weaker U.S. demand, a weak U.S. dollar, and competition from cheaper producing countries such as China and India, Canada is feeling the pinch. Many Canadians are opting to stay home rather than vacation in South Florida or take a cruise from Miami to the Caribbean.
In spite of the economic crisis, and in spite of the obvious impact on businesses, many organizations continue to be focused on sales, struggling to minimize the impact on revenue. Lower consumer demand combined with foreign competition along with rising costs in raw materials and oil means that sales are either falling or flat while costs, particularly Cost of Goods (COGS) are rising. The result is a rapid increase to bottom line costs! Margins are being squeezed to the point that many organizations are in the red and some are facing bankruptcy.
The solution is to rapidly decrease bottom line costs. How? It is critical that organizations avoid impacting their core business. Cutting core expenses can make a business anorexic. The result is to cause the business to die slowly. Cutting labor, pulling out of markets, shelving new products, and cutting back on research and development will ultimately weaken the organization, by cutting productivity and retarding the ability to respond to competitive threats and changes in the marketplace. Slowing development will mean missed opportunities and ultimately contribute further to the organization’s demise.
Organizations need to look to areas in the business that can be reduced without negatively impacting revenue or productivity. Quite simply, the majority of companies have no strategy to effectively manage and reduce non-core expenses. These areas, while not as large as core expenses, tend to yield the best results for cost reduction. They tend to be relatively painless and the lessons learned can be applied to core areas.
About MGPS
MGPS specializes in reducing non-core expenses. These expenses tend to be indirect, hidden and scattered throughout the organization. MGPS identifies hidden costs and develops and implement efficient processes to drive out unnecessary expenses. The result is increased cash flow and greater profitability. Visit us at www.mgps.com and find out how well your company manages expenses.
Contacts:
Philip Moorcroft, 416-921-9953
pmoorcroft@mgps.com
www.mgps.com
