Global Melt down on the cards

There are numerous articles being published about how the world economy is coming out of recession and that there is going to be growth and development. I believe, that the contrary is true. That there is a possibility that the world economy is going to crumble and this could be one of the most severe economic crisis, the world has ever seen. The following are the main reasons which I believe can take the global businesses and economy into a downward spiral.

a. China Hard Landing
With China, the world's second largest economy facing a slow down in growth, there is a clear evidence of reduction in demand of all goods and services right from commodities to electronics. The shrinking market size would not only lead to lesser profitability and greater default rates but would also dent the global growth numbers severely. Besides, China has an over leveraged equity and housing market both of which are facing serious downward pressure. Also, many mining and commodity companies are staring at huge losses as China's demand has gone down. At 6% growth rate of China, the world is fretting. If its growth reduces below 3-4%, it could lead to severe hiccups in global economy. China is facing its most severe economic pressure in the past few decades.

b. Euro Zone sovereign crisis
With Greece still not being able to pull out of recession and the famous PIIGS still in trouble, Euro zone is one of the most serious threats to global economy. Italy and Spain have ever increasing unemployment rates. Also, these countries are too big for even Germany or ECB to consider bailing out. If Italy fails, it can set shock waves not just to ECB and euro zone but the whole world. ECB's QE has hardly had any impact in improving the GDP or consumer confidence or unemployment. Any shock in them and ECB might just run out of measures to shore up their growth. Greece is still burning cash and there is little improvement in its fiscal situation.

c. Oil Shock
Oil is the most under estimated of the shocks for the global economy. Not just oil price fall help the consumers but it also destroys the producers. Right from major oil companies which are still one of the biggest industries in the world to the oil producing nations, all are facing pressures. Oil single handedly drives the highest percentage of global trade. There are hosts of industries which are heavily dependent on oil price and a fall in it could lead to their complete collapse. Most of the biggest oil companies in US and the world are AAA rated and banks have severe exposures to them. A fall in oil prices make their business unviable and continued pressures on oil prices could lead to domino effect from these companies to banks to overall global business. Also, oil producing countries are facing unprecedented loss in revenues and are finding it hard to balance their budgets. If one of the major countries defaults, it could lead to ripple effects across the world.

d. Global Banking industry
The global banking industry is in a state of uncertainty due to multiple reasons. Firstly, most banks globally have huge derivative exposures which are vastly dangerous and carry a huge risk. Some of the banks have such huge exposures that if not corrected on time, they can bring the whole bank down. Besides, increased regulation have made their business unprofitable. Combining this with litigation charges, most of the major banks in the world have posted losses this quarter. Banks are aggressively down sizing and it seems that some of the banks might not see the turn of this decade due to their over leveraged balance sheets and unprofitable business strategies.

e. United States of America
With US going into elections, there is a huge amount of policy uncertainty. This could lead to severe confidence crisis in an already worried global macro-economic scenario. Also, the rate hike cycle of Fed could very well dry up the liquidity and make the cost of doing business more expensive across all companies. This can have serious repercussions.

Overall, I feel there is severe downside risk for global growth and there is a possibility of the most major economic setback of the century being just around the corner.

Cross functional exposures and expertise - A must have for an organization

It has been observed that very few industry veterans/ CEOs prefer to hire people with expertise in an unrelated industry. This trend is somewhat changing though. A giant electronics company recently hired an ex FMCG veteran for a top job within the company. This makes one wonder about how should one decide on hiring especially for the top jobs within the company. Is it useful to have an industry veteran or is it good to have someone from an unrelated industry take up an important job within your company??

Essentially I believe that the following things need to be taken in to consideration before deciding if one should be hiring a person from within one's own industry or one should go for cross functional individual.

a. Company requirements & job description
Firstly, the need of the company in terms of the job description would play a crucial role in determination of whether the company and the role is open for a person with cross functional expertise. It is necessary to ensure that the job description is not looked upon with a myopic view but a wider dimension of the overall expectation from the candidate is taken into consideration. Many organizations tend to give more importance to routine tasks for a candidate taking up a role to decide on the job description thus reducing the opportunity to creatively look upon the positive impacts that a person can bring in.

b. Team composition
If there is a team who would be managing that role/ project/ task that the person is going to be appointed, it is always more beneficial to have at least 20% of the team to be composed of people with diverse experiences. This, one should remember not just works in a business school classroom, but also in every organization. It brings a fresh perspective and offers an opportunity to look at a business case with a diverse view. This would ensure that the team is better equipped to solve a business problem rather than having people with similar background giving the team a one dimensional approach.

c. Inter industry relationships
Seemingly unrelated industries tend to have a common thread. For example - Apple & Louis Vuitton, though they appear to have completely different businesses at first glance, there is a common element. Both tend to produce luxury goods and tend to target customers who are willing to pay a premium to own their products. So a person who has worked with Louis Vuitton may still find his expertise to be relevant for Apple.

d. Ability to bring a positive impact
As with most tasks / businesses, the primary thread is trying to find people who can bring an impact. So identifying a good resource is essentially about identifying the inherent capabilities of the person and his ability to positively influence one's business. Its essentially saying " Find good people (From your industry or different industry)- They will make it happen for you"