Looming Recession and How Some Clients are Preparing and Taking Advantage

31st October 2019


Many business people and analysts believe that a recession will shortly impact Hong Kong and, potentially, much of Asia this year, with the global markets to follow in 2020.


Of course, the danger of even discussing recession is that the debate shakes investor confidence and makes the slowdown occur. Where uncertainty exists, employers become less inclined to hire and growth stalls. But let's take a look at facts.


What is driving the recession fear?

The main driver behind the latest concerns in Hong Kong is the escalating trade war between the USA and China and political unrest.  
 

A recession would be unlikely to pose an immediate threat to Asia's largest economies, although they have begun to slow. However, a number of other Asian economies, such as Singapore, are more at risk and have been described as 'innocent bystanders' in the trade fight. 
 

Why? Because they are small economies where open trade - particularly with China - is vital to success. Let's look at some of the main economies of interest and the likely impacts of this anticipated slowdown. 
 

Hong Kong 

The biggest financial hub in Asia, Hong Kong is being impacted by China's slowdown, in addition to a climate of political unrest and the uncertainty created by the trade war. Some economists have already called the prospect of a recession after GDP dropped by 0.4% in Q2. The impact of the pro-democracy protests is yet to be captured in the economic figures, however, and various economic agencies are expecting to see that Hong Kong is already in a technical recession when the Q3 figures are released. 
 

China 

Growth has long been slowing in this economic tiger, which is now the world's second-largest market. GDP grew by 6.2% in Q2. Washington has imposed tariffs on a huge number of Chinese exports, to add to the growing strain. Around 20% of Chinese exports head to the US, but the real concern for these manufacturers is the lack of clarity over the dispute's scope and end date. Beijing is targeting a growth level of 6%-6.5% this year and has increased infrastructure spending and cut taxes to assist. Conditions may be challenged when the October sales tax increase comes into effect, however, and domestic demand weakens. 
 

Singapore 

This powerful state is incredibly reliant on trade, particularly high-tech exports, and it has already seen the crunch of weak global demand as well as the effects of the slowing Chinese economy and the escalating trade war. In Q2, its economy contracted by 3.3%. Central growth forecasts for this year now stand at just 0%-1%. 
Q3 figures are expected to show a technical recession. 

 

India 

Growth is also faltering and remaining slow in India, Asia's third-biggest economy, with a landscape of weak investment and weak domestic demand. Quarterly GDP growth is now at a five-year low, at 5.8%. Domestic spending slowdown is a particular concern, as India has long relied on this consumption to spur forward economic growth.  
 

South Korea 

There have been plenty of rumors about South Korea falling towards recession, but a huge increase in government spending created growth in Q2. GDP grew by 1.1% and in summer, the central bank cut base interest rates for the first time in three years. The main challenge for South Korea currently is the global softening in demand for tech exports, with electronics representing a third of its total export demand. The other key challenge for its growth prospects is a bubbling trade battle with Japan. 
 
Global 

Britain’s messy and protracted exit from the European Union has created much uncertainty for the UK and European economies, and across the pond, in the US poor (and even failed) IPO performances from New Economy / Digital Companies have resulted in skepticism in the massive funding new Tech start-ups have experienced and which has fuelled economic growth since the Global Financial Crisis of 20072008. 
 

Lessons from Companies and Clients taking advantage of Recession 
 
But, as in any downturn, there are plenty of positive opportunities for entrepreneurs and forward-thinking business leaders to take advantage of. At Silicon Valley Associates, we watch the markets with interest and are still experiencing recruitment demand.  
We have noticed a number of interesting trends from our clients this month. For example, companies are busy doing the following: 

 

1. Reorganizing their teams 
 
At a time of economic threat, businesses recognize that they need to operate in the most efficient, effective way for optimum performance. This often means reorganizing a team to maximize its outputs. Where plans have been on ice for some time, the threat of a recession tends to expedite them. Contractors and other interim, expensive, staff may be temporarily released from the organization to save costs and more junior staff may be given the opportunity to step up and to prove themselves; reducing the wage bill whilst helping to create a culture of competitiveness and morale-building. 

 

2. Removing waste and inefficiencies from the business 
 
Also described as 'trimming the fat' within an operation, business leaders are working hard to eradicate unproductive working practices, eliminate excesses, and avoid waste in their operations. They might embrace, Lean, Agile, or other productivity frameworks or choose to invest in technology which helps them to better manage their business. Often the threat of a recession forces difficult decisions in a 'do or die' scenario that leads to bold management and strategic risk-taking. This can pay off handsomely for those businesses which get it right. 

 

3. Reinvesting strategically 
 
With the money saved from running a more efficient, leaner, and less wasteful operation, businesses are able to free up funds to reinvest strategically where it matters most. For example, we are seeing lower budgets for business development needs, but greater hiring volumes for account managers. We are seeing cuts for programming teams and greater hiring demands for Customer Service and UI / UX functions. There is also a current desire to hire more lower-cost, junior roles and to pause on the more expensive and experienced hires. 


4. Seeking opportunities to diversify 

We are noting that western and local IT vendors alike are experiencing difficulties where they invest in specific industries such as retail and hospitality. With these service sectors facing a downturn, those IT vendors are looking to diversify into other attractive industries. As a result, they want sales and business development candidates who come with a ready contacts list and the ability to rapidly succeed in their field. If a candidate can hit the ground running and deliver rapid results in this way, they will find ready employment. 
 

5. Hiring in new markets 
 
Those IT vendors who have their markets in Hong Kong and China are also redirecting their investment and hiring efforts to new markets, including Singapore, Japan, and other parts of South-East Asia. We are seeing a real upturn in recruitment requests for sales executives and business development executives based in these markets. For example, we have clients with manufacturing based in China, who are beginning to look at countries such as Vietnam and Thailand. Our IT recruitment desk is noting a sharp rise in demand for candidates who have experience in running IT operations in overseas factories and who are either based in the relevant geography currently or who are open to relocation. 

 

These insights are valuable for candidates seeking new roles and for hiring businesses alike, and show how forward-thinking companies can work around the specter of an economic downturn to propel their businesses forward in challenging times. 

 

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Silicon Valley Associates is ideally positioned to support the continual demand from tech companies and IT Departments looking to hire in Hong Kong, Asia, and Worldwide. Please let us know if you would further advise on the above topic or your hiring needs

 

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