The Impact of Recession on Business
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Recession refers to economic turn down. Furthermore, business will normally during economic is good.. Recession can be simply understood as a bad phenomenon in economy, a negative growth in economy activities. Every country experience recession in different time period, example United States experience a recession in year 1815 because of the War of 1812. Even though there is no specific definition about global recession, International Monetary Fund (IMF) indicates that when global growth is less than 3%, it is a global recession. Long term recession economists usually called it as economic depression and named it as economic collapse when situation come to the worst. Recession is part of economy, it will occur as long as economy exists. Recession is known as a business cycle contraction, a general slowdown in economic activities. It can influence both large and small business. During the recession, large businesses will call off hiring process, stop buying new equipment, curtail research and development, stop releasing new product and reduce marketing and advertising expenditures. These efforts are known as cost cutting. Besides, falling stocks and slumping dividends are one of the impact of recession. These cause the shareholders become upset and call for new management team. When the stock falls and dividends decline or stop, the investors may sell and reinvest the proceeds into better-performing stocks. Next, recession may lead to credit impairment and bankruptcy. This is because customers have difficulty in paying back money. Thus, it further influences the ability of company to service its debt which means the debt will have to restructure as soon as possible. Otherwise bankruptcy may ensue. Moreover, the recession will lead to employee lay-offs and benefits reduction. The business may reduce human resources to increase the productivity. Benefits reduction such as wage reduction will occurred in order to maintain the business. Furthermore, recession will also cause a reduction of quality of products. The company may compromise the lower quality of its products when they seek to cut costs to improve its bottom line. Recession will also lead to reduced consumer access. Since the firm will spend less money on advertising and marketing, it reduces consumer access to their products. As for small businesses, the occurrence rate of bankruptcy is higher than large businesses as they own fewer resources. Entrepreneurial spirit will be minified and lead to lesser loan. Recessions may make people suffer but it does not last forever.
However, both circumstances may happened at the same time.