The global recession caused by the COVID-19 pandemic is rapidly approaching the half-year mark, and the outlook for economic recovery in the United States remains uncertain. With the long-term financial impact of this downturn unclear, it’s natural to turn to the past for answers. Can the lessons learned during the Great Recession tell us how to successfully emerge from the COVID-19 recession?
Though the recessions differ in terms of cause and scale, two key business lessons from the Great Recession remain true today. In this post, we’ll explore these two critical takeaways – and how they can help business leaders confidently overcome the economic uncertainty posed by the current health crisis.
Key Differences Between the COVID-19 Recession and the Great Recession
While the Great Recession provides relevant takeaways for our current economic downturn, the two events differ in how they started. While a single event spurred today’s financial decline, the Great Recession resulted from a series of systemic flaws that went unaddressed for years. The U.S. Financial Crisis Inquiry Commission determined multiple causes for the Great Recession, including:
- A general lack of financial oversight by regulating bodies
- An unchecked rise in unstable subprime mortgages
- Corporate governance that allowed banking firms to take on too much financial risk
- Wall Street and individual consumers funding investments with excessive borrowing
Together, these considerations created a perfect storm for the economic turmoil that began in late 2007. The cause of today’s economic decline, however, was an event completely unrelated to the economy – an event that interrupted the longest economic expansion in United States history.
The second major difference between the Great Recession and the recession caused by COVID-19 involves scale. While the Great Recession was the most severe economic downturn since the Great Depression, the damage from the current recession is already worse. Consider the following:
- While 8.6 million jobs were lost during the Great Recession, 20 million jobs were lost in the first nine weeks of the current recession.
- The number of unemployment-insurance claims eclipsed the total number of claims submitted during the 18 months of the Great Recession.
These numbers showcase that while the fallout from the Great Recession was severe, it pales in comparison to the economic carnage wrought by COVID-19.
How the Great Recession Can Guide Your COVID-19 Recovery
Despite the differences in cause and scale, the general characteristics of both recessions remain the same:
- Rising unemployment
- Decrease in trade
- Lowered GDP
- Global decline in economic activity
These characteristics are tied to one essential truth: when facing economic adversity, there is no such thing as business as usual. Overcoming a recession requires strategies designed to meet the current economic landscape. By looking to the Great Recession, we can glean insight into two strategies companies can implement today.
Strategy #1: Expand Your International Presence
While the Great Recession led to severe economic turmoil in the U.S. and across the globe, companies with an established international presence were better positioned to withstand the downturn. IBM, for example, generated two-thirds of its total revenue through international markets at the time of the recession. Thanks to its global presence – specifically in countries like China, India, Vietnam, and the Philippines – IBM offset business losses in other markets to emerge from the financial crisis less battered than its competitors.
The value of global diversification holds true in the face of COVID-19. As different international markets suffer and recover from outbreaks at different times, companies with a well-developed global presence are better positioned to weather individual market setbacks. Additionally, when the pandemic passes, companies that have expanded into new international markets have an advantage over competitors with limited global reach. As a result, companies that engage in global expansion are primed to not only endure today but flourish tomorrow.
Strategy #2: Maintain Quality While Reducing Costs
A recent Harvard Business Review study compared how differentiators (companies that compete on quality and service) and cost leaders (companies that compete on price) fared during the Great Recession. The study found that differentiators were more likely to suffer reduced revenues, or even go out of business, when compared to cost leaders.
For differentiators, the logical conclusion might seem that pivoting to a cost-based strategy is the best approach during a recession. However, the study asserted that differentiators will never be able to compete with cost leaders strictly in terms of pricing. In fact, data shows that differentiators who shifted to a price-based value proposition did not increase their revenue – or their chances of surviving the Great Recession.
Rather than attempt to beat cost leaders at their own game, differentiators must double down on what makes them appealing to customers while finding ways to reduce costs internally. Accomplishing these seemingly opposing initiatives, along with the goal of expanding globally, sets up a challenge for business leaders looking to compete during a recession. How can companies continue to deliver high-quality services while expanding into international markets and simultaneously tightening budgets?
The Role of International PEO in Your COVID-19 Recovery
One global hiring solution enables you to grow your foreign presence, maintain product quality, and remain By partnering with an International PEO (Professional Employer Organization), your company can expand into profitable foreign markets, source the right talent, and continue delivering the products and services that make you stand out from competitors.
International PEO helps you maximize ROI when expanding globally. While the U.S. economic recovery crawls along at an anemic pace, markets across the world are bouncing back at faster rates. Expanding into these markets allows your business to tap into valuable revenue streams that can offset any financial losses in the U.S. Determining which markets show the best ROI for your company, however, requires the flexibility to easily test prime markets.
International PEO allows your business to enter and exit foreign markets seamlessly and without lingering costs– especially when compared to the costly and time-consuming alternative of establishing a foreign entity. By using International PEO, your company can begin operating in a new market in a matter of days. If other markets show more potential than your current market, this solution helps your business bypass traditional tear-down requirements, transforming a lengthy and cost-intensive exit into a quick transition. This agile approach helps firms minimize risk and maximize efficiency while exploring new markets – a critical factor in the face of COVID-19’s market volatility.
Rise Above the COVID-19 Recession By Going Global
There is no exact blueprint for our current economic crisis. However, the Great Recession reveals that by expanding globally and maintaining product quality while reducing costs internally, your company can ride the waves of volatility in domestic markets.
Velocity Global’s International PEO solution helps business leaders expand into new markets, tap into lucrative revenue streams, and maintain compliance with flexibility and speed. We navigate all local laws and requirements to ensure a smooth international expansion process.
With experience helping companies expand into over 185 countries worldwide, we have the expertise to help your business grow while saving up to 60% compared to entity establishment– so you can keep costs low and quality high. Reach out today to find out how.