Updated: Jul 24
For 2020 a negative economic growth of around seven percent is forecast for Europe, and in the case of a second wave the drop is probably even greater. The decline is almost twice as high as in the financial and economic crisis in 2008/2009, but bankruptcies have declined to date. Just for now. But there is also an opportunity in the crisis to change things to the better and build a sustainable business.
After Lehman Brothers went bankrupt in 2008 and the whole world went into a financial crisis, european economic output also declined by minus 4.4 %, the subsequent recovery period with steady growth continued until including 2019. To date, insolvencies are lower than in previous years. According to Creditreform’s Insolvency Trend Report, corporate insolvencies are about 25 % below the previous year’s level. But this security is deceptive: Tax deferrals and bridging loans have only postponed the problem to the future. For deferred taxes are to be paid just as much as the installments for bridging loans. Acredia therefore predicts an increase in insolvencies of 20 % in Austria, which is most likely in Europe’s average, from autumn/winter, for comparison: the increase in bankruptcies in 2009 was only about 9 % higher than the previous year’s level. Credit insurer Euler Hermes sees particularly problematic “Zombie companies”, the number of which is estimated at 13,000 in the eurozone. These are those companies that have been kept alive until now only because of the persistent low interest rate period and expansionary lending, an economic downward spiral reinforces the existing problems. Overall, 7 % of SMEs in the eurozone are at risk of insolvency. Nevertheless, it hits Europe less hard than, for example, the USA, where an Acredia study expects corporate failures to rise by almost 50 %.
Change in behaviour and free workforce is an opportunity
Thus, the global financial crisis had led to a slump of about half as strong as the lockdown and the resulting consumer behaviour. The rapid changes in buying behaviour have hit particularly hard all those industries that live exclusively on physical contacts, such as gastronomy, hairdressers and beauty salons. The advisory profession can increasingly adapt to virtual meetings and now have to consider which changes remain permanent, how to deal with them and how price models and processes can be adapted to them.
One of the biggest changes should be the acceleration of the trend towards efficiency through digital channels, but not only from the supplier side, but also from the customer side, to handle business more flexible and efficient, and to use personal contacts more selectively, which was revealed in the crisis that human interaction can be pleasant on the one hand and a health risk on the other hand.
The current crisis has given e-commerce an additional boost, but also e-services, as the avoidance of psychic contact has shifted the human need for direct, individual service to the digital world and even the last entrepreneurs have lost the fear of video conferencing. But what can give the real boost is free workforce, as experienced in the financial and economic crisis in 2008/2009, so many creative young people were unemployed in the USA that startups such as Whatsapp, AirBnB and Uber were able to start or grow during this time and are now world market leaders in their areas.
In Europe, we have the best conditions to start an innovation economic miracle. Short-time work in particular gives people the opportunity to use their free time capacities without existential fears to develop innovative new solutions. The rapid adaptation of economic processes to changes in the lockdown has also shown that many of humanity’s problems (climate change, economic inequality, gender inequality,...) can be tackled with innovation. The so-called “social impact innovation” movement, i.e. those companies that want to solve societal problems with their solutions, is experiencing a renaissance and there are also more and more statements of governments that the relaunch of the economy should be “greener” and “more sustainable”. Not only in terms of the environment, but also on the basis of all 17 Sustainable Development Goals defined by the United Nations for the next 10 years.
Who benefited from the last crisis?
Crises and the long-term impact on the economy can be seen well by examples of the past. In the so-called Dotcom crisis in 2000, Amazon stock plunged from approximately $ 90 per share to just over $ 10 per share. Before the financial crisis in 2008, Amazon had just been able to reach these peaks again, before the share lost two thirds to $30 in 2008. The Corona crisis has now given Amazon the absolute boost to increase from around $ 2,000 to $ 3,200. But not just now, but the whole time between the financial crisis and the Corona crisis, Amazon has become the biggest winner and one of the largest companies in the world. In addition to Amazon, all so-called big techs have benefited overproportionately from the upswing after the crisis, including Google, Facebook and Microsoft, because in and after the last crisis, they invested enormously in adapting their business model and buying startups that are well positioned for the future. For example, the big techs have built up or expanded medium-sized and easily accessible server structures – i.e. cloud services – in order to become infrastructure providers of digitisation. So they have used the financial crisis as an opportunity, and in the following decade they have become the largest companies in the world. Who uses the current crisis as an opportunity?
The next decade belongs to the impact- and client-oriented companies
The courageous prognosis is therefore: The winner of this crisis is who manages to bring as many of his customer benefits to the new normal as possible, thus adapting his own business model to the new reality of customers, not only the sale of products, but all the values and additional services that the customer appreciates at the company. Not everything has to be online, but taken into account the fact that many things are now at a distance, which one would not have thought possible so far. At the same time, those who adapt products and services in a way that they contribute to a positive social change will benefit. Because the crisis has shown that adaption of economic processes is possible and because of that having the only goal to make money isn't accepted any longer, buyers are becoming increasingly critical and expect the brands they trust to contribute to a positive social development.