Custom «Recession» Essay Paper

Recession is one of the most dreaded periods within the global business arena because of the challenges it creates and the repercussions. Finding a holistic and conclusive definition of recession has always been very difficult and various definitions have so far emerged. In understanding of the more complex definition and characteristics of recession is would be important to come up with a simpler definition that provides an overview of what recession entails. According to (Wiegand 18) recession is an economic period where the value of goods and services in a country's economy continues to depreciate for more than six months. The definition is vague but the general realization is that recession involves good and services and the depreciation of their value over time. However, the definition still fails to capture some important economic aspects concerning depression. In the United States the private owned organization called the National Bureau of Economic Research (NBER) is solely responsible for informing the government and other stake holders of whether recession is occurring or not. The perception is that although recession is mostly spoken of very few people understand recession. The strategy employed by NBER is to look for the opinions of over 1,000 university researchers with regard to such aspects such as "manufacturing sales, personal income levels and unemployment levels" (Wiegand 18). According to (Lester 169), the best way to define recession is "two successive quarters in an economy where an economy shrinks rather than grows." Lester continues to outline that instead of using the word 'declining' when referring to growth during recession it is better to use the word 'negative' because it seems to capture the net results of growth. When declining is used it implies that all businesses are experiencing the decline. However, even during recession there are some companies that continue to experience positive growth and apparently seem immune to the recession. The paper will basically look at the business organizations that are usually referred to as recession proof that continue to show resilience and register positive growth despite the tough economic times (Gaughan 87).

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HISTORICAL PERSPECTIVE OF RECESSION

Recession is a term used in the economic circles and when seeking to understand the current recession it is important to look at the past recessions in order to establish whether recession can be traced to a particular economic system. In addition, the historical perspective is bound to bring out some trends and dynamics in the economic systems that are related to recession. There is a general realization that most countries that face recession and where the situations develop to a full depression, most countries manage to recover. Recession and recession are very two related factors because when recession worsens it develops to depression.

2.1 Federal Government

The federal government has always had control over the economic system and trends in the United States. The federal government establishes the control in various ways which include: "bank security, exchange regulations, banking regulations, progressive taxation systems, and targeted government expenditure" (Farago 19). The control of the government over the economy was particularly evident in the last century where the government acted to modulate economic dynamics with the aim of protecting the interest of citizens and ensuring that banking institutions did not take measures that would plunge the country into a recession.

2.2 The Great Recession

Prior to the great recession there were several factors that placed the federal government in a tight situation when dealing with the effects of the depression and seeking ways to rescue the country. During the period of the great depression the government undertook some drastic measures to rescue the country from the tough economic times. According to Farago, the gold standard system was one of the factors that prevented effective management of the recession prior to the great depression. The great depression is still perceived as one of the toughest economic moments in the history of the United States.  According to (Mankiw 461), during the period the GDP plunged to 27% in only four years and unemployment rose by 3%.  During the four years the prices of goods and services also fell by 22%. The period was not confined to the United States alone because other countries in Europe and Canada also experienced the same economic challenges (Farago 46). The circumstances that led to the great depression are still a debated aspect by economists but various aspects still stand out. Economists agree that the circumstances created a situation where the supply of money greatly decreased and consumers began withdrawing their money from banks. With the reduced supply of money consumers were less confident to purchase goods and therefore the prices of goods fell significantly. Since businesses were not able to make profit as before, most of them were forced to take drastic measures to ensure that they do not collapse completely. The happenings on the Black Tuesday only indicated severe shortcomings in the management of the monetary system in the United States and the laxity of the federal government. The period prior to Black Tuesday was characterized by a boom in the stock business and most people invested their money in the stocks. The general realization was that most Americans preferred to invest in the stocks due to the high amounts of returns involved and the fact that it did not require a lot of input in terms of labor. One only needed to have money to buy stocks from various successful companies. However, on the fateful day of Black Tuesday the stocks suddenly fell and such an occurrence had never been witnessed before. As panic spread across the business arena people began to withdraw their stocks for fear of further loss. The fall in the stock prices significantly reduced the purchasing power of most households. People loss confidence in the economic system and begin withdrawing their monies from the banks and the consequence are that the amount of money circulating in the economy significantly reduced. According to (Tucker 244), the major reason for the widespread and high rates of unemployment is that most businesses closed their doors while some reduced the number of people they employed. Tucker points out that there is significant evidence to support the industrial production had already fallen. The gold standard system and the assumption by the government that the recession would end automatically led to drastic effect eve after the recession because many people had lost their jobs, businesses had closed and the government had lost significant (Sherman 123).

PAST RECESSION PROOF BUSINESSES

The great recession was a stressful and even totally period for most businesses. However, this does not mean that all businesses were stressed because there are businesses that survived the period while some even emerged better. There are businesses that managed to take advantage of a time when most businesses were busy panicking, cutting down supply and reducing employees, and thrived during the period. The general realization is that the circumstances during the recession were created by psychological perception of consumers. For instance, when consumers felt that they could not trust financial institutions any more they withdrew their money; when consumers felt that companies were not advertising their products effectively they sensed lack of confidence in the products by those companies and reduced their purchase of those products (Degen 130). However, companies that survived ignored the panic that spread across the business arena and proceeded to market and advertise their products as a way of increasing the demand for their goods. The general realization was that although there was the reality that the economic situation was tough consumers needed some assurance that things would get better soon. Therefore, consumers tended to associate themselves with products that gave them the assurance. Companies that intensified in marketing and advertising thrived while the companies that reduced on advertisement and marketing fell and even some completely closed. Advertising became one of the sole determinants of whether a company thrived or declined. Consumers are very sensitive of the products that they purchase and when they perceive loss of confidence in a manufacturer they will quickly withdraw their loyalty to the products by the manufacturer. The companies that thrived during the recession employed various strategies to ensure that they stayed in business and were cushioned from the tough economical times.

3.1 Panic Avoidance

The first strategy was that the companies turned a blind eye on the state of events and this helped them in avoiding the panic. It should be however understood that the companies did not just sit back and do nothing but that the companies decided to employ apparently unconventional means. Most companies fell or closed down because they anticipated the worst and not because they were actually compelled to do so. For instance, some companies decided to cut back on the number of employees in anticipation of reduced demand for their goods and not that they had actually experienced reduced demand. The consequence was that such companies created situations where the number of goods they produced reduced. The perception by the public was that such companies were destined to fall and the quantity of goods purchased from such companies also reduced. The strategy was seen among all the companies that survived the recession (Clugston 43).

3.2 Intensification of Advertisement and Marketing

The second strategy employed by companies during the period was the intensification of advertisement. Advertisement is one of the major ways that companies show consumers that company is confident of its products. In addition, it is through advertisement that companies show consumers that they are important for the business success of the companies. Most companies were geared towards reducing their expenditure and one area they targeted was reducing advertisement. Companies such as Proctor and Gamble and Chevrolet intensified their advertisement thereby increasing the confidence that the consumer had in their products.  The general perception is that instead of the companies falling they actually thrived and actually established competitive advantage over their rivals.

MODERN RECESSION

Although times are changing quite quickly and the dynamics in the business arena are also changing there is a general realization that economic systems go in cycles and recessions are inevitable occurrences. Most economies and businesses in the contemporary world are instead concentrating on ways to take mitigate the effects of recessions if not take advantage of the circumstances created by the recessions. The general realization is that however much an economic system takes measures to stabilize; there are certain unperceived events that will drive the economy to a recession almost immediately (Knoop 103).  For instance, prior the September 11 attacks on the twin towers, NEBR has predicted that there would be a slow economic growth for the rest of the year. However, when the attacks occurred the stocks fell to a record low since the great depression (Farago 85). The falling of the stock markets has always been the major prediction of a looming recession because it impacts on the wealth of consumers. When the stock market falls and the wealth of consumers reduce, the consumers tend to reduce or postpone their purchase of certain products. When this happens the demand for goods and services reduce and the price of the goods and services fall significantly. Most companies in retaliation postpone their development ventures, reduce their production and cut back on labor (Irvin 244). Such is that characteristic of modern recession. The general realization is that recession is significantly related to the consumer purchasing power is bound to automatically lead to a recession. The federal government can employ various strategies to prevent such occurrences or even mitigate the consequences but the general realization is that recession cannot be totally eliminated.

4.1 Causes and Effects of Modern Recession

Although most recession are characterized by aspects such as reduced purchasing power of consumers, reducing willingness to invest and unemployment. The general realization is that each recession is unique in its own sense and has varied causative factors (Hall 18).

The recession witnessed in 2001 was as a result of the year 2000 non-compliant fear that was spread across the business world. The fear was that the computers manufactured before he years 2000 would not be able to adjust to the dates and would therefore be rendered useless. Therefore, most companies ventured in the high scale purchasing of computer equipments in preparation. Companies in the software and hardware industries recorded increased sales during this period and there was actually a boom in business. However, in 2001 a recession ensued because most of companies had already purchased enough computer equipments and the computer companies recorded reduced sales. Therefore, when it became apparent that profits of computer companies will fall people withdrew their stocks from those companies and as a result the stock prices of those companies significantly fell. Most companies in the computer industry therefore went bankrupt because they had no enough capital to steer development and the sales were also significantly low. In such a situation it can be said that the cause for the recession was out of control for most companies and that most companies failed to anticipate the future market trends effectively. The consumer stock owners in this perspective also played a significant role in worsening the recession because they panicked and sold their stocks at lower prices (Feinberg 21).

The 2006 recession was also caused by different circumstances. The drop in the house prices caused panic among homeowners who had taken loans with various banks. The fall in the price of homes was preceded by a period when most financial institutions had significantly invested in real estate. Most financial institutions had therefore provided credit facilities to home owners with little security of how they would get their money back in case the home owners failed to offset the loans. Home owners were not also able to resell their house due to fear of losses and most mortgage companies closed due to the ensuing panic. The greatest losers were banks because interbank lending also reduced as few banks were willing to assist the affected financial institutions (Turner 96-103). The result is that some banks filed for bankruptcy because consumers had lost confidence in those and because that banks had lost a lot of money in unpaid loans. The situation quickly spread to other sectors of the industry because the purchasing power of consumers had been significantly affected as some consumers lost their homes, some filed for bankruptcy while some were unwilling to spend their money on good and postponed purchasing household good. The situation that began with one sector of the economy which is the financial sector quickly spread to other sectors because the purchasing power of consumers had significantly been affected (Hynson 38-43).

MODERN RECESSION PROOF BUSINESSES

Recession has been periods in economic history of businesses that is always perceived negatively because it presents hard times. However, just like the recession in the 1920s some businesses have continued to survive the tough economic times while other has continued to thrive against the tough economic times. Businesses that demonstrate resilience during recession are commonly referred to as recession proof businesses in the business circles. Such businesses have continued to establish an amazing competitive advantage during the tough economic times. Just like businesses in the 1920s that were able to survive and even emerge in better financial positions current businesses that are recession proof employ some unique strategies that enable them to survive (Montiel 153). Furthermore, there is expertise, technological knowhow and research initiatives that have tackled various aspects of recession and it should be obvious that a majority of companies understand recession. There are various businesses that have been cited by business experts as being recession proof due to various attributes.

5.1 Retail Industry

Most franchise businesses are always known to provide essential household goods that attract buyers even in the tough economic times caused by recessions. During recession consumers have a tendency of buying only the most necessary goods and services while avoiding luxuries as a way of cutting back on expenditure. Therefore, companies that sell groceries and foodstuffs have higher chances of surviving than other companies. Wal-Mart is an example of a franchise company that has taken the advantages of franchising to establish competitive advantage even during recession. Through the concept of franchising and engaging in the sale of a wide range of goods, the company has continuously managed to offer relatively lower prices as compared to other retailers. During recession most consumers are looking for every way that they can use to save money. Retailers that offer goods at lower prices become favorable. The lower prices therefore tend to attract consumers.

Other franchising retailing companies such as IKEA that deal with household furniture has even come up with recession survival tips due to the experiences they have had. IKEA proposes that the first consideration during recession is to be keen on the balance sheets and identifying areas where the company can significantly reduce cost without affecting business. Companies should always look for ways to reduce costs and during this time vigilance is a must. Unlike other companies that reduce employees, IKEA advises against the reduction of employees. Employees are part of an organization and understand that the company is going through hard times and sticking by them means that they might appreciate by working much harder and improve the productivity of the company. IKEA also proposes that this is the time to single out bad clients and avoid them. Bad clients include the ones that want to take goods on credit and spend forever in offsetting the credit and the suppliers that don't keep their promises with regard to the time of supplying goods. IKEA outlines that time is money and during recession time wasting can be a detrimental factor in the business well being of a company (IKEA).

5.2 Food Industry

Food industry is also another area that has companies that survive recession. Food is an essential commodity and any business within the industry is bound to survive the effects of recession. McDonalds is an example of a business in the industry that has continued to survive recession. Various attributes and strategies employed by the food outlet have ensured that it does collapse under the pressure of recession. The food at McDonalds is relatively cheap and consumers prefer anything cheap during recession. In addition, the food offered by McDonalds is easy and convenient and is favorable under the circumstances created by recession. During recession people become very busy because they want to maximize on profits and reduce expenses. Therefore, most people do not have time to cook at home or go to fancy restaurants. Furthermore, McDonalds ensured that it intensified its campaign ventures during the recession period both to fight bad press and to appeal to consumers. For instance, "The Go Happy Meal For Adults" campaign. Apart from the fact that food is an essential the undertakings by McDonalds also ensured that it managed competitive advantage (Yoga Dork).

Burger King which is the major rival of McDonald is a company that demonstrates that businesses in the food industry can be recession proof. The company was started during a recession in 1954 and has continued to thrive. During the recession when most companies were closing or considering closure other entrepreneurs were thinking of establishing successful businesses. The main problem with most business people is that during a recession they don't realize the subtle opportunities it holds for them.

5.3 Movie Industry

Although watching movies might be considered a luxury there is the realization that the move industry not only managed to survive through the recession, but also emerged even much stronger with higher profits up by 20% being recorded I January this year as compared to last year. The explanation behind the observation is that during depression people do not completely do away with entertainment but opt for cheaper forms of entertainment. Attendance in movie theaters increased even as recession intensified. Netflix registered increased subscribers by up to 600,000 earlier this year. The explanation is that during recession most consumers prefer to stay at home and the most convenient form of entertainment at home is watching movies. In addition watching movies at home is also cheaper (Huguenin) (Huguenin).

5.4 Gaming Industry

The video game industry also experienced increased revenues due to the same reasons as the movie industry. Video games can be played at the comfort of people's home without having to spend additional money on fuel or other expenses. In addition, the internet gaming is also convenient and cheap because players can engage in the games online (Andersson 23). A marketing research firm called the GDP announced that the US video game industry had experienced increase in sales by up to 20% in January 2010. Globally the increase was 11%. The general realization is that during a recession there is always tension and consumers look for cheap and convenient forms of entertainment (Huguenin).

5.5 Health Care Industry

The health care industry perhaps has one of the most recession proof degrees as compared to other industries. Even without additional strategies to ensure that they stay in business; players in the health care industry continue to thrive (Cheng 85). The explanation behind this observation is that consumers cannot postpone sickness and say that they will treat it later or even forego treatment altogether. When an individual is sick it is inevitable for them to get treatment. In fact one can even say that there should be an increase in sales during depression because tension flare and people are more prone to depression more than ever. Therefore, all businesses within the health care industry should be recession proof. A company like Pfizer fared very well during the recent recession and was even able to purchase Wyeth at 68 billion dollars. The purchase was made in a period where organizations in some industries like finance industry were filing for bankruptcy (Huguenin).

5.6 Tobacco and Alcohol Industry

The tobacco and alcohol industry can also be identified as recession proof. There is actually a general tendency for people to smoke and drink too much alcohol when they are stressed or under pressure. Furthermore, most players in the industries have established worldwide markets that promise them cushioning even when the recession in the United States is causing business ripples (Huguenin).

6.0 CONCLUSION

Recession is defined as a period of six months or more where the price for commodities continues falling. Recession is largely linked to the purchasing power of consumers because it determines the price of commodities as dictated by the laws of demand and supply. There are very many causes of recession and each recession is unique with regard to this consideration. The general realization is that anything that affects the purchasing power of consumers negatively is bound to result to recession. Some of the effects of recession include the reduction in the amount of circulating money in the economy as most consumers will prefer to stay with their money at home. The reduction in purchasing power of consumers implies that the demand of goods will reduce and hence the price for the goods. Recession also leads to increase in unemployment as most company will concentrate on reducing expenses by reducing the number of employees. However, since the Great Recession there are companies that have demonstrated resilience by surviving the tough times brought by recession while other have managed to beat all odds by emerging even more business successful. Some of the factors that make some businesses recession proof are related to the nature of the businesses or even the strategies employed by managers in those businesses. Businesses within the health care industry are recession proof by virtue of their nature while retail businesses must employ strategies such as offering low prices to keep the demand going.