Business Analysis and Decision Making

Business Analysis and Decision Making

British economy, like any other economy undergoes the four phases of the economic cycle. Three of these phases do not attract public attention as ‘recession’ does. During the recession, the economic growth reduces and even reverses. In this period, firms respond by laying off their staff among other feasible reactions. Periods of recession are characterized by reduced output, job cuts, and reduction in the gross national product. Similarly, the consumer’s demands reduce sharply as there is a sharp decrease in consumer’s disposable income.

Recession times are extraordinary in nature and therefore call for extraordinary solutions; the government, various regulatory agencies, and individual firms are required to come up with viable solutions for recession. Some firms and agencies view recession as an opportunity and utilize it to achieve recovery and even ascent to higher economic heights.

Britain has gone through a number of recessions in its history.  During times of recession, various sectors of the economy such as agriculture, manufacturing, and service sectors are adversely affected. Each recession is unique in its nature and its effects on various sectors are different. The intensities of these effects also differ with the sector. For example, during the recession of 1973, the agricultural sector was adversely affected. Farmers and their workers experienced rough economic times. On the contrary, the industrial and manufacturing output grew.

Britain economy is also experiencing deindustrialization. Deindustrialization is experienced by large economies in which the percentage of national output that is derived from manufacturing and construction declines relative to the percentage obtained from the service sector. This occurs as the service sector develops and the growth in the manufacturing sector declines. Despite this, manufacturing sector in Britain has developed steadily despite the even higher rate of service sector. This sector has it importance in job provision and production of consumer products. Therefore, it has also been targeted during recessions to reduce its (recessions’) adverse effects.

During the period between 1980 and 2000, Britain encountered two recessions. Each of them was unique in nature and had been caused by different factors. The recession of 1980, lasted for approximately two years.  The causes of this recession were many and varied. Some economists believe that it was caused by the government’s monetary policy that had been implemented to restrain inflation. This recession ripped companies’ income by around 35%. Additionally, the unemployment increased to 124% from the previous 5.3%. It took around 18 quarters for the GDP to recover to the beginning of inflation.

The next decade was not spared by recessions either: another major recession was experienced between 1990 and 1992. This recession took around one and a quarter years. The inflation was lower than the previous one as it was 2.5%. The cause of this recession was the savings and loans crises that had occurred in the US in 1990. This recession was marked by a record budget deficit of about 8% and reduction of companies’ earnings of 25%. In addition, unemployment rose to 55% from 6.9%. This inflation lasted for two years and a third.

British manufacturing management is an organization in charge of regulation of manufacturing. This is important for coordination of all manufacturing firms to achieve desired results. During the time of recession or any other time, it offers advisory services to firms according to various economic and other projections for a firm to respond appropriately. During the two major recessions of 1980 and 1990, it reacted by laying off workers. This move was crucial due to the stage where the economy was.

As discussed earlier, a period of reduced demand was being encountered by manufacturing firms. Some competitors of Britain would be reluctant to lay off their workers in such a time. They argue that such people need to continue earning something. This can be very disastrous to an economy. It leads to disguised unemployment in which many workers remain on the payroll without being engaged productively in a firm’s activities, as there is very little to be done. This raises the price of products as the cost of disguised unemployed people is passed to the consumers. This may increase inflation and dig the country deeper into crises.

The reaction of British manufacturing management was very crucial to the economy. This is because it reduced the cost of labor on firms and hence, firms were now flexible and were able to lower their prices. Due to the relationship of demand and supply, the lower prices of products would boost demand and help firms to survive profitably. This strategy has not been utilized many times but has potential to deliver satisfactory results.

Britain has better experience with recessions and that was the reason why it was able to pull out this stunt and prevent cost- push inflation. Another reasoning why this move delivered satisfactory results is from the entrepreneurial theory. The macro view school of thought focuses on factors that are external to an individual entrepreneur. Displacement school aspect of environmental school of thoughts focuses on the effects of displacing a person from a group. People displaced through job lay-offs had to get alternative sources of livelihood.

The displacement theory states that a percentage these people start exploiting their entrepreneurial abilities to earn a living. In short or medium run, such people end up starting their own firms through innovation and consequently generate even more job to the economy. Knowledge of these principles by British manufacturing management helped the manufacturing sector in the country to rise after being hit by the two recessions.

Such approach has been one of the reasons why Britain has risen up steadily, though slowly, after the recession. This process can be seen as a good self-healing process. Due to the sacking of workers, firms have that opportunity to continue being profitable and pull up the whole economy. Additionally, the sacking of some employees leads to the development of other firms, which is also beneficial to the economy. The competitors of Britain have a recovery system that is government centered. Although it looks more attractive to the citizens, it is greatly limited and its effects are neither steady nor long-lasting.

China for example responded to the global economic crises of 2009 by lowering the interest’s rates for the first time since 2002. This worked only because China at that time had higher local demand and the economic crises did not hit it as hard as European countries. The effect of this was the increased investment in Chinese firms and reduced cost of the output. The self-healing effect Britain used to boost internal demand by manipulating various factors is not seen.

On the other hand, Indonesia responded by lowering the overnight lending rate with a view of increasing the amount of currency that was available for overnight trading. This reduces inflation, as the economy is able to have adequate reserve of foreign currency for foreign trading, and to reduce depreciation of local currency. This can be viewed as a well – calculated move.

Other countries such as India and Australia responded by injecting money into the economy. For instance, the Reserve Bank of Australia injected a total of 1.5 billion US dollars to caution the economy against the crisis. The People’s Republic of China later initiated the economic stimulus plan with a view to stabilize the economy, and cushion it against the global economic crises.  The total sum in US dollars used amounted to 586 billion. These countries were only hit by a spillover from European economic crises. Injecting money to the economy would have provided adequate caution. However, this would not have been as effective if it had been used by a country that was hit by the crisis first hand. Such an approach would not have been adequately effective used solely for the two recessions (1980s and 1990s) in Britain. An internal recovery mechanism is required within the affected sectors after which the government may intervene to create even a great synergistic effect.

From the above discussion, it can be concluded that British manufacturing management has acquired experience over time to help the manufacturing sector and the whole economy pull out of recessions. Returning every sector to profitability is more crucial than trying to boost the demand alone.

The British experience differs sharply with other countries. Some countries are seen trying to boost demand in such tough times through Economic stimulus plans. Others such as the US respond by boosting investors and consumer confidence. This can be seen through their effort to insure investments in the heights of global economic crises. Confidence alone in times of recession can lead greater loss on investment. The industries involved have to revert to profitability before external financial assistance is issued as Britain deed.

In the recessions of 1980s and 1990, Britain demonstrated a new method of dealing with inflation and recession. Its major competitors would have reacted through trying to boost demand or to restore confidence among people as discussed above. This can lead to higher loss and the long-term positive effects may not be steady. On the other hand, Britain reacted to the same by job sacking disguised employees and hence reducing the cost of production. This lowers the cost of production and hence the price. Consequently, demand increases. The overall effect of this is profit for firms and creation of new firms.