Academic journal article Economics, Management and Financial Markets

Changing the Market Strategy by Cost Management

Academic journal article Economics, Management and Financial Markets

Changing the Market Strategy by Cost Management

Article excerpt

1. Introduction

Due to the events of the past five years, the "crisis" has already become the discussion topic of everybody. Macroeconomic estimates for the foreseeable future are not in the least optimistic, amplifying even more the general fear of what tomorrow may bring. We cannot however overlook the fact that the macroeconomic indicators are nothing more than the cumulative effect of microeconomic players - whether individuals or companies. Similarly, the macroeconomic cycles are dictated by the statistical patterns of behavior of these private entities individually. No matter how pessimistic the financial analysts may seem as far as the Romanian economy is concerned and no matter how large the pressure on the government apparatus should be, the ones who will have to strive to survive will be individuals and companies.

2. The Necessity of Optimizing/Consolidating the Company in General

Theory aside, how will the macroeconomic stability influence the behavior of individual players? Despite all these confusions and uncertainties, there are some basic and constructive steps that companies in Romania can follow and that have the potential to lessen the impact of the crisis:

1. Profit versus Cash. Let us not mistake "Profit" for "having money." Because of the crisis of the banking market, it is recommended to pay more attention to the ability of companies to maintain an adequate liquidity level in order to survive these difficult months or tens of months. Liquidity management will be essential for maintaining operational independence. Many companies have difficulties not because they fail to be profitable, but precisely because they lose sight of the essential and fail to secure an adequate level of liquidities and to therefore pay their debts on time. That does not mean that companies should not pay attention to issues of profitability, but that this year the difference will be made by the company's ability to turn this profit into cash.

2. Cultivating business relationships. The management of the working capital will become an essential tool for survival. The management of the relationships with suppliers and customers will prove essential for the business of companies in the context of cumbersome loaning conditions. The ability of companies to adapt and control the inventory and the cash conversion cycle will help to delimit the "winners" of this crisis.

3. Reorganizing the inefficient units. Under external pressure, companies can no longer afford the luxury of maintaining their investments in segments which do not operate efficiently or are not part of the basic activities. Companies will be put in the position of choosing between "sacrificing" and "bearing the cost of' preserving strategic units that only have the potential of bringing long-term profit, and "giving up" on any other segments that are not part of their long-term strategy. As a result, the process of rationalization will be inevitable. Moreover, we will probably be witnessing a series of consolidations of industries, as companies will be focusing their efforts on developing core business segments.

4. Careful planning of investments. In the context of higher prices and smaller commercial credits and in that of a more difficult access to this form of financing, companies will become more reluctant regarding investments. The strategy of expanding through mergers and acquisitions should be planned much more carefully and requires a solid foundation in terms of projections and synergies associated with each transaction. Furthermore, a realistic and detailed management plan for the post-acquisition integration of the company will become an essential part of the transactional process.

5. Financing methods. Given the lack of liquidities and the credit market changes, which are the viable options for a company to get financing? Injections of capital or attracting borrowed capital are the traditional financing methods, but their cost has increased significantly in the recent months. …

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