MELTDOWN SIGNALS NEW WAYS OF DOING BUSINESS
COMPANIES that are nimble, adaptable and have access to the right sort of business information still have many opportunities to grow their businesses, even amid uncertainty about when the global economy will emerge from its prolonged slump.
"Economic downturns that disrupt growth are an inevitable fact of nature," says Kim Jenkins, managing director at Experian South Africa.
"But the larger economic booms and downturns are themselves comprised of smaller cycles of growth and decline, which means businesses have pockets of risk and opportunity to address at any time in an economic cycle."
Businesses should develop the ability to conceive multiple scenarios and what these mean for their organisations and adapt their strategies accordingly, rather than betting big on one forecast for the future.
According to Clem Sunter those that can conceive of, and adapt to, a range of outcomes are best positioned to survive and thrive in uncertain times.
For example, those that have sold a premium product in the past might have to think about how they will compete on price if a hard times scenario persists or if South Africa ends up relegated to the Second Division where most Third World countries reside.
"Emerging markets such as Russia, Brazil and South Africa are starting to show the first signs of economic recovery measured by indicators such GDP growth," says Rick Gallagher, managing director of Experian's Emerging Markets Group. "But an influx of new credit will be the key to sustaining a recovery."
Credit facilitates people making investments in themselves such as education, drives the housing and vehicle markets, and enables people to start or grow their small businesses.
Against that backdrop, credit information solutions play a key role in spurring economic growth into the future since credit information empowers lenders to give loans to more people.
The availability of credit information also benefits consumers and the broader economy. In Brazil, the government calculated that it could boost its GDP by as much as 0,8percent if credit bureaus were able to supply lenders with positive credit information about consumers.
With regard to the South African market, there has been a sharp fall in lending following the introduction of the National Credit Act (NCA) in 2007.
Delinquency rates post-NCA have also declined significantly, from more than apercent before the Act came into effect to less than 0,5percent.
However, lenders cannot afford to be complacent because there are some worrying signs, too, such as a sharp rise in credit card usage.
The number of inactive cards in the market has reduced significantly, suggesting that cash-strapped consumers are using previously inactive credit cards to service debts and pay for day-to-day expenses. What's more, consumers are using up more of their credit card limits.
Up-to-the-minute credit information and sophisticated scoring techniques are at the top of the list of factors that have been identified for success in difficult times.
Banks are constantly looking for new sources of data and new ways of understanding trends in their customer base because they operate in a fast-changing environment.
New legislation such as the NCA has brought new dynamics into the market, with new patterns emerging in the ways that the same consumers behave across different financial products.
This is becoming increasingly important in managing credit for companies that operate in the business-to-business space as well.
For example, Transnet now refuses to make any credit decisions based on reports that are older than six months. They also undertake modelling exercises to stress-test their top clients to understand how well their businesses are likely to cope in a range of economic scenarios.
Another case in point is the Lewis Group. They have always managed their credit business tightly, but have seen that the data around their customers is changing at an unprecedented rate.
In the past, they used to re-examine and re-develop their credit scorecards on a three-year cycle. Now, they re-evaluate their risk models and scorecards every year.
lThe writer is a communication specialist