The global economy was declining long before September 11. Since then, it seems to have gone into a tailspin, marked by volatile stock markets, sagging consumer confidence, and widespread layoffs. Most companies are trying to figure out how long it will take for the economy to turn around, and what they can do to stay alive until then. In an effort to answer these questions, Knowledge@Wharton teamed up with CNET News.com in San Francisco to organize a panel discussion of leading business executives from the U.S. and Europe. The discussion featured Beth Kaplan, managing partner for venture capital firm Axcel Partners; Andrew Heller, CEO of Heller Capital, a private equity organization; Sir Paul Judge, chairman of Isoworth, a manufacturer of beverage-dispensing systems in the United Kingdom, and a consultant; and John McCartney, deputy chairman of Datatec, a global provider of Internet-related products and services. Charles Cooper, CNET News.com’s executive editor of commentary, moderated the discussion. The following is an excerpt:
Cooper: The global economy was already weakening before the suicide attacks of September 11. In Silicon Valley, we believe the recession had started months ago. Can you give us an overview of how your business was performing before September 11 and how it changed as a result of the attacks?
Kaplan: The businesses in our portfolio had been doing fairly well. We have been investing in technologies that focus on improved productivity. We have found that our customers — while they are still slow in making purchase decisions — are looking for solutions that help them improve labor productivity and reduce costs. We see a major opportunity in the consumer and retail sectors.
Cooper: Some indicators pointed to a sharp decline in economic activity in the immediate aftermath of the attacks. Did that happen in your case?
Kaplan: We focus on the mass retail sector — so we have products and services that cater to grocery stores, convenience stores, and so on. And such outlets, we think, are going to fare extremely well in the current environment. What we are seeing, though, is a slowdown in decision making. Capital budgets are under high scrutiny. We see managers having to try harder to justify capital investments and taking more time to make decisions. Project managers and even division heads can’t make decisions any longer; very often the CEO gets involved. We have one customer that went through 10 layers of decision-making authority, with the ultimate authority resting in the chairman’s office.
Heller: My portfolio companies are very small. They were doing well before September 11, and they’ve continued that way. They’re all non-cyclical businesses. I’ve been extremely fortunate.
Judge: The beverage-dispensing company, Isoworth, was affected by the slowdown in growth in the U.S. beverage industry, but my consulting businesses were holding out quite well – one of them deals with technology transfers from North America and Europe to the Far East. There’s a lot of interest in that area. As the economy softens, people look for new opportunities. Our best business is one in California, a hotel in South Lake Tahoe. That has been booming, I guess, because Californians don’t wish to fly long distances.
McCartney: Our businesses are related to designing, building, and installing large data networks around the world. They were slowing well before September 11. We’re a large partner of Silicon Valley designers and manufacturers, and the slowdown in their business has been reflected in markets around the world. The biggest change since September 11 is the slowdown in decision making. When you’re talking about $100,000 or multimillion-dollar networks, the level of authority required to approve such expenditures has now been heightened. Customers are also taking more time to make decisions, and they are scrutinizing the productivity paybacks more carefully. That has slowed everything down, and this slowdown affects companies as well as economies.
Cooper: If the slowdown spreads across the economy, it could have a deadening effect on business both in the U.S. and abroad. How do you get around that?
McCartney: I don’t know that there’s anything you can do to “get around” that in the very short term. I believe that in this country and in most major markets around the world, we’ll see a dramatic slowdown when fourth quarter numbers begin to come in, and probably also early in the next year. One thing that could well happen is that the recession’s trough will deepen as a result of September 11. The economic reaction to the attacks could result in a steeper decline in economic activity, but the recovery may be faster as well because people will get refocused on managing their businesses and their lives. There’s a very strong chance that we will see economic recovery faster than we would have. This could happen sometime in the second half of next year.
Kaplan: One thing that will happen is that corporations, regardless of their size, will now focus on fewer priorities. They will go back to what really matters. In recent years, many companies made investments in technology that may not have been related to their core mission. Now we will see these companies refocus on areas that are vital to the advancement of their business mission. . . .
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