The Purchasing area is in charge of setting off the alarms. Every time its top managers receive a report of an increase in the company’s most important inputs, which in jargon is called “internal cost inflation”, an alert is produced that, added to inflation, leads to the decision to remark. “In this area, nobody is willing to lose profit margins”explains a senior executive of a massive consumer multinational.
There is no magic or secret formula to ensure the sustainability of the company, only historical methods to take care of the much-claimed “margin”that number that CEOs are required from the parent company.
The summary on how to manage the crisis would be: take care of the cash, review the fixed costs and, only later, study if there are opportunities to grow. “The first thing a company does, in such a context, is to focus on cash. A financial mistake leads to bankruptcy”, he explains. Roberto VassoloProfessor of IAE Business School.
Differences. The strategies are different depending on each item. For example, in the last two weeks, a security equipment SME decided to paralyze sales, as did the automotive terminals, which, given the constant rise in the dollar, put their dealerships on hold and halted operations.
“The crises are permanent, what differentiates the current one is that there was not one like this one that seems terminal. We don’t have a survival plan.”shoot Alexander BestaniPresident of inca food. As a SME entrepreneur, Bestani describes the reality of his sector: “the girls have been in crisis for four decades, due to a tax and labor regime that complicates them. Without a mattress and financial rest, we have had very tough situations in recent years, but not as deep as this”.
In the short term, the companies’ strategy aims to avoid measures that impact the viability of the business. “There are changing situations, depending on the type of company. If you sell goods locally and even have imported components, you’re in trouble. On the other hand, if you export services abroad, you can rest easy”, adds Vassolo.
The current scenario exposes, to a greater extent, those that sell goods, high fixed costs and require inputs from abroad. In this sense, Vassolo highlights that “we are seeing auto parts companies that are forced to close because they do not have raw material or if they do, there are no reference prices. So sometimes it’s good to lower sail and wait.” From his vision, there is an alternative: export. “As always, in these circumstances, looking outside, outside, usually gives you oxygen. Sometimes you cannot export, but if you have the capacity to provide a service, it is a measure that greatly mitigates the effect of these moments”, says Vassolo.
Survival. Just as large companies resort to price increases to protect their profitability, SMEs adopt the same strategy, although with a different objective: survival. “You have to pay salaries and, for that, you need cash flow, which is what allows you to operate on a day-to-day basis”, adds a connoisseur of the SME situation. “If you don’t have cash, you can’t operate”, defines a senior executive of a multinational.
Bastani admits that companies have “the body” prepared for the constant ups and downs of the Argentine economy. “There is permanent training, an attitude that helps in these circumstances. It is unfortunate to say so, but it is the truth. What everyone does is protect their heritage, ”he acknowledges.
If businessmen are aware of anything, it is that “you have to be alive for tomorrow”, according to Bestani’s crude definition. “The first right is the right to live. And to live tomorrow too. So the first thing to do is take care of what you have. That implies thinking a lot about what you are going to do with sales, with deliveries. You meet many living who want to quickly compare a lot of stock, outside the historical curves. Therefore, you have to be very careful, also with the box. It is no use having these resources, but you also have to have supplies, finished products or eventually ‘irons’ if they are useful to react quickly”, he explains.
Salaries, fixed expenses and tax withholdings that have a criminal contingency make up the emergency menu for which a small or medium-sized company needs to have a constant flow of money. “You have to have the capacity to postpone any payment. In this context, the relationship with suppliers is key for there to be a mutual understanding. You have to massage that dialogue thoroughly ”, emphasizes Bestani. And he finishes: “If they deliver everything, they are defunded and are left without assets. If they don’t deliver anything, they run out of market share and never recover from crises. Of all of them, SMEs are the most affected because there are no effective and fast countercyclical policies for this universe of companies”.
It is the reality of the private world in these turbulent times, where no one wins. In any case, companies try to lose as little as possible. No more, no less than surviving.
by Marcelo Alfano
