Years ago when I was still working, I attended a management course about strategic business planning.
Since some of Armenia’s major challenges include economic recovery and revival, job creation and attracting investments, I followed Prime Minister Pashinyan’s visit to the World Economic Forum in Davos, where he was an active and visible participant. His forceful presentation to Swiss business leaders with the headline “get rich and enrich” prompted me to reflect and revisit my notes from that management course with the idea that countries and companies to some extent share some similarities when it comes to economic planning and strategies.
Admittedly and this should be emphasized, the government has oversight responsibilities. It must ensure that the business is on solid financial ground, that it meets all the laws, legal requirements and environmental regulations and that it treats workers fairly and pays a living wage.
The course introduced four strategies. The first was called the “Circle the Wagons” strategy. It involved making the reduction of costs uniformly the primary focus during difficult and adverse conditions. The potential risk of this strategy is unrest and a drop in morale. Moreover, momentum is lost, and viability erodes.
General Electric followed this strategy. They had a vast portfolio of industrial businesses, and when credit was abundantly available, they financed their customers through their GE Financial arm. When the financial crisis hit in 2009, liquidity became a problem, so they adopted a cost reduction program that tarnished their image of a “quality” products company. Today GE is still trying to recover. Its stock value has declined by 90 percent.
The second was called the “Fort” strategy. Here, the primary objective is to maintain the status quo with existing product lines in existing markets. This, too, is risky as new products and new markets with the rapidly evolving new technologies can damage the foundation.
Unfortunately for Campbell Soup while their business was safe and continued to be profitable due to their high market share, they failed to innovate and introduce new products once tastes and trends changed. That’s when new companies like Progresso introduced a variety of new soups and garnered a huge market share, forcing Campbell to plummet in dominance and profitability.
Conversely, the “Slim Down” strategy seeks to narrow the product line to only the most profitable products, eliminating all the marginal ones by type and geography. The main risk is that, if prolonged, the competitive position can be appreciably damaged, allowing monopolies to form within the environment.
This is the strategy currently being followed by American car companies. Competition has become fierce from Japanese, German and now South Korean companies, with their worldwide market shares increasing leaving American companies struggling to catch up. Both Ford and General Motors have reduced the number of brands they have, focusing primarily on their best selling models in their best markets,
Lastly, the “Eagle” strategy involves creating a primary market demand for a brand new product, which increases export competitiveness. This requires high technical service, innovation and engineering know-how. The focus is to invest in developing, manufacturing and marketing a new product for new markets. If it’s truly a unique product, the success rate is considerably higher. To be successful in this strategy, new capital investment and adequate working capital is absolutely necessary.
The two companies that stand out as Eagles are Apple and Tesla. Apple and its iPhones revolutionized communication, while Tesla captured the trend of luxurious electric cars. Apple is a highly profitable company and a cash cow; Tesla is forecasted to become one.
Pashinyan said “the cornerstone of the Armenian economy is the creativity and ingenuity of the people.”
This is right, but the people should be given the opportunity to fly. An eagle does not walk or crawl, rather it flies high. To stop emigration and the brain drain, the creative and ingenious talent that exists in Armenia should be given the opportunity to be employed productively.
I am hopeful that Armenia’s economy can fly like an eagle. To achieve that, it needs an economic revolution and a new thrust of energy.