Think Globally, Act Locally!
Originally Published in the Catalyst Quarterly October 2011
We pointed to the coming unavoidable problem in Europe and now it is here!
So what does the crisis in Europe have to do with you? Even if you are a large national corporation with thousands of locations, each has a local address and a local surrounding customer base. What does Europe have to do with you? Potentially plenty from a psychological stand point. To the degree that your business is EU export/import price related, you will be directly impacted.
Yes, there will be direct and indirect economic impact on jobs/incomes depending on the employment base in your specific location, and the strength/stability of your local household make-up. The EU economy, no matter the “solution” implemented to their sovereign debt problem will weaken in 2012.
With high headline media focus, short term U.S. consumer confidence could take big hits, particularly regards volatility in the U.S. equity markets. While there will no related riots in the streets here in the U.S., the hoarding of cash “for a season” is a probable result depending on the degree of explosion in Europe (for those who have cash to hoard).
Pragmatic economic impact is potentially long run for some sectors. The U.S. banking system, U.S. equity markets and bond markets, and/or U.S. Corporations that do significant business with the EU will be impacted.
On the positive side, since our last Catalyst Quarterly, other potentially intersecting domestic/global problems, such as China’s domestic economy and its hard focus on reigning in inflation, (they just recently reported dropping below 6% !) are beginning to move in a more positive direction. So this is good news.
Major present global impact now appears isolated to Europe – no “perfect storm” converging on a global scale. China has done a pretty good job in recent months in managing issues we pointed to in our last Catalyst Quarterly. However, we continue to expect costs of China’s exports to rise. If you are buying goods from Europe, this upcoming crisis could actually cause your costs of goods to go down.
Whether you are a small business entrepreneur performing the evaluation yourself or a national corporation with a large in-house team of analysts’, look at your specific location(s) as you make forecasts and adjust business plans for 2012. Consider probable impacts on your local markets in light of the disruption and restructuring in Europe.
About 20% of U.S. exports go to Europe. Do you have a major employer in your market geography that has a key tie to exports to Europe? In terms of the psychological impact on moves in the U.S. stock market, (i.e. consumer confidence,) consider that about 20% of S&P 500 stock purchases come from Europe.
2012 will probably be a year of major impactful global headlines – the lion’s share from Europe probably negative. What does this mean for your local market?
Catalyst Analytics has two proprietary scores, the Stability Strength and Willingness to Spend Scores, which measure a local business/service market’s current state and probable reaction to significant local and/or national economic changes, including those in consumer confidence.
Stock market volatility in reaction to Europe and consumer confidence impacts from the same are highly probable in 2012, but these are often only observed as national measurements. They do have local impact!
In the short term, it is important to understand a specific location’s surrounding customer base and their present ability and willingness to spend disposable income, particularly when considering product, pricing, inventory, promotion/advertising, and value proposition strategies. Our analysts’ precise measure and weighting of a number of unique factors for each site specific location’s surrounding economic conditions and household make-up yields a quantitative score that permits you to make well-founded business decisions.
An “ability and willingness to spend analysis” of your local customer base, should be a local measurement of the area surrounding you specific business address. It should not be a national measurement of consumer confidence. Those who try to apply national measures to their specific site locations are playing Russian roulette. Think of the absurdity of applying a sample size of a few thousand to a huge nation of 300 plus million people within unique states, counties and cities spread from coast to coast. It is far more important to understand the state of the local shoppers that grace the thresholds of your specific location.
While the European contagion will impact the U.S. in its bond markets, equity markets, major banks, dollar value, and “general measurements” of U.S. consumer confidence, it is more important that you focus on local measures of your surrounding customer base.
What about new opportunity? New product mix and new advertising/promotion focus? Credit and spending may be tightening further in response to changing domestic and global conditions. Measure your risk appropriately – measure it locally. Understand the unique condition of your individual market(s) and reallocate resources among stronger locations and weaker ones. Give some locations more resources and keep some keep some on a tight leash. Don’t wait, act now!
What about your relationship to your lender? The most recent Senior Loan Officer survey issued by the Federal Reserve showed that foreign banks in the U.S. showed their first major tightening on lending/underwriting standards since 2009.
Understand that the sovereign debt crisis in Europe is not going away. It will be forced down a path of resolution in the near future, which will involve a weakening of Europe’s economy and ability to consume, probably forcing them to sell goods cheaper. At the same time, their ability to consume our goods will be negatively impacted. Are you in one of these certain sectors of the U.S. economy? Ironically, there is a strong possibility that the value of the U.S. dollar could improve in the coming months against the EU. You may need to weigh this possibility and its impact on your business if you are reliant on buying or selling to and from the EU. We are not saying to bet on it, weigh possible impact for you specifically and have mitigations in place if appropriate.
If your business is flourishing, and you are about to buy a Mercedes, maybe you should wait several months…..you may get a better price! If this is the way you may be thinking about buying a car from an EU country, as you look into 2012, be insightful as you ask yourself, “What does the contagion in Europe have to do with my local business?“