Post Recession Recovery- Are CEO’s Positioning for Market Dominance or for Rebuilding Value-Chains??
Scanning my Wall Street Journal yesterday morning, I came across an article, CEO’s Call Credit Crucial to Jobs. (subscription may be rquired)
The article summarizes statements from a group of executives attending this paper’s annual CEO Council. The essence of the headline is that executives feel that the key to recovery in the U.S. is predicated in growth of jobs, and job growth has to be fueled primarily by small and medium sized businesses. These same executives however, point out that these businesses are restricted by a lack of credit to be able to invest in hiring and their value-chain resources.
This argument, for me makes lots of business sense. Ever since this global credit crisis transpired in mid to late 2008, there has been a constant cry for banks to begin more lending, albeit with more prudent risk factors. U.S. legislative leaders are constantly lambasting banks and financial institutions for paying more attention to their own recovery vs., that of the economy as a whole.
But then I began to ponder on other events that have occurred, particularly these past few months. Have you noticed that the financial headlines these past few months have been filled with announcements of acquisitions?
Just for curiosity, I performed an Internet search of announced acquisitions over the past three months. I’ve screened the announcements to reflect those that would have supply-chain implications.
- Coca Cola and China Huiyan Juice Value: $2.5 billion
- BASF and Ciba Value: $5.4 billion
- Eli Lilly and Imclone Value: $6.1 billion
- Stanley Works and Black and Decker Value: $4.5 billion
- Berkshire Hathaway and BNSF Value: $34 billion
- Kraft and Cadbury PLC Value: $16.4 billion
- JDA Software and i2 Technologies Value: $396 million
- Hewlett Packard and 3Com Value: $2.7 billion
My very unofficial tally indicates over $38 billion in acquisition volume if you do not choose to include Berkshire’s acquisition of the BNSF railroad, $72 billion if you do. That’s just a representative sample of these past three months.
With this evidence, the question I would pose is simply the following. Are CEO’s more concerned right now on positioning for market dominance or market share, vs. investing money in ramping-up job growth and value-chain resources to prepare for the pending recovery? More than not, acquisitions tend to lead to the shedding of more jobs, and the consolidation and elimination of more suppliers.
I’m sure that there will be many on either side of this debate. The strategists will argue that acquisitions are a more expedient means to seize opportunities in emerging markets, specific industry sectors, or drive more productivity and faster sales growth. Detractors may well argue that the history for successful acquisitions among companies is not stellar, except for the bonus payouts to the executives in the companies involved.
But back to the key point that started this thinking. Is credit really not readily available to finance expansion and jobs? The numbers above indicate that at least larger companies are finding a treasure trove of credit, to the tune of $72 billion in the last three months. Are these same credit resources available to small and mid-sized businesses? Perhaps not, at least according to the attendees of the Wall Street Journal CEO Conference.
The sum conclusion of this posting is for all to reflect on the fundamental question which I chose for the title of this posting- In preparing for the upcoming post-recession recovery, are CEO’s really positioning for market dominance, job growth, or both? The informal evidence that I’ve uncovered concludes market dominance.
That stated, perhaps these same CEO’s would refrain from talking about the lack of job growth, at least until they are willing to invest the same level of financial resources on job growth in their own companies. Perhaps they could convince their bankers that investing in jobs is just as productive.
To the same U.S. legislative leaders who rant about Wall Street and the banking industry, perhaps its time to stop the sound bites and wake-up to what’s really occurring in the economy. Business news network CNBC reported that U-3, the U.S. government’s broadest indicator of employment now stands at a whopping 17.5% of the workforce. One in five Americans are either out of work or under-employed.
What’s happening on Wall Street and Main Street are dramatically at odds, and sound bites from either side are not addressing the magnitude of the problem. Small businesses can’t hire anywhere close to the 17.5% number, and large enterprises it seems have other priorities of investment.
Perhaps some readers can either clarify or chime in?