Lessons to draw from slowdown

After undertaking cost optimisation measures in the form of mass layoffs, global giants are now resorting to shutting down new businesses across the world. Amazon, this week, announced to close its wholesale distribution business – Amazon Distribution – in India. This became the third business unit in India to face the axe. Earlier, Amazon has decided to shut its food delivery business, Amazon Foods, by the end of the year. It is also closing its edtech business, Amazon Academy.

As the global economy shows signs of slowing down, many multinational corporations are abandoning many futuristic initiatives or loss-making new ventures. For instance, initiatives relating to self-driving cars are slowing down. Ford and VW-backed 'Argo AI,' the autonomous vehicle technology company, announced last month that it was shutting down. The company, which was once hailed as the leader of autonomous driving systems, failed to attract other investors as technology and automobile firms go slow on autonomous driving area. So, an impending slowdown has forced global companies to look at the business models more accurately than before.

And this is happening globally with India being no exception. Many leading edtech startups in India closed down new centres as they wound up expansion plans. Though this phenomenon is low in case of established firms, they are also slowing down on business expansion plans, especially in untested new areas.

As we are on the verge of entering into new year, experts see little change in sentiments. Companies are likely to continue reducing their headcount till they achieve optimum level based on present business environment. Similarly, the whole focus is going to be on those areas which give quick return on investment than those having a long gestation period. Amid such tepid growth prospects, the first half of 2023 is likely to be no different from this year.

However, there are also silver lines emerging from the current slowdown. Most technology firms including giants such as Google, Meta, Microsoft and others have got it wrong in gauging the demand environment. The Covid pandemic-induced demand surge had convinced these big players that such demand was sustainable. These firms had not projected that normalcy would bring down demand for digital products all around. Therefore, this is likely to remain as a lesson for global corporations for short to medium term planning. Similarly, over-hiring has emerged as a big problem area for startups, IT services firms and global technology firms among others. To fulfil new demand, companies had onboarded staffers on their rolls. Now, many of these employees are facing the wrath of cost optimisation moves. This is painful for both staffers and companies. Going ahead, we should expect companies to be more judicious in their manpower planning because, hiring and firing will create long-term damage on their reputation.

For an emerging economy like India, the hyper growth and associated hype had led many people to believe that any business can run focussed only on growth. But the slowdown has put profitability back on the table now. Hopefully, India Inc will not let go of a good crisis without learning these critical lessons.