The economic crisis in the business environment of Iaşi: impact, consequences, solutions

Transcription

1 Economy Transdisciplinarity Cognition Vol. XIV, Issue 1/11-1 The economic crisis in the business environment of Iaşi: impact, consequences, solutions CIOTINĂ DANIELA Al. I. Cuza University, Iaşi, Romania FĂDUR CRISTINA-IONELA Al. I. Cuza University, Iaşi, Romania MIRONIUC MARILENA Al. I. Cuza University, Iaşi, Romania Abstract The aim of this paper is to obtain an economic map of the region of Iaşi after the occurrence of the economic crisis and to describe the commercial credit policy, the financial policy, and the investment policy of the companies of Iaşi. The objectives of the research can be synthesized as follows: determining the impact and the consequences of the financial crisis on the companies in the region of Iaşi and presenting the measures adopted by managers in order to ensure the continuity of the activity in the new economic context. Our research is based on a questionnaire composed of items concerning the measures adopted by managers in order to fight the effects of the economic-financial crisis. The answers were processed using the SPSS statistic analysis program. In our approach, we have studied a sample of companies in the region of Iaşi, from the following activity fields: services, commerce, and industry. Most analyzed companies were negatively affected by the economic crisis that started in, some of which had to suspend their activity. After processing the results obtained following the application of the questionnaire on the managers of the companies of Iaşi, we have noticed a channeling of their efforts in order to stay on the market. Most measures implied selling assets in order to cover bank credits, renegociating the contracts with the business partners, in the direction of reducing their value, and lowering operational expenses, especially those for the saff. Key words Economic crisis, commercial credit policy, accounting result, anti-crisis measures. Introduction The economic crisis is a present and controversial subject. However, the importance of this topic is entirely uncontroversial: the effects of the crisis are painfully visible, as the only rising index refers to the number of bankrupt companies. The economic climate gradually degrades as anti-crisis measures are long in coming. The current crisis is unique because it is based on a superposition of three types of crisis, triggered in different moments and having distinct characteristics: a liquidity crisis, a financial crisis, and a crisis of capitalism as a model. This extremely rare combination explains its spread and deep effects, incomparable with those of the recession between [5][]. As a result of globalization, the economic-financial crisis has propagated in waves of various amplitudes, sweeping all continents one by one [3]. In the current economic context, managers must rethink the entire business: the investment policy, the funding policy, and the commercial credit

2 policy. Any decision made has a boomerang effect, having the potential to make the difference between the continuation of activity and its termination. At the world level, the most important topic under debate during the last three years has been related to searching for solutions to exit the crisis. After the financial crisis has become an economic one and after the bank crisis has transformed into a crisis of sovereign debts, that is, of the debts of the states, economists, politicians, and managers of large companies have attempted to find solutions to re-launch the economy. The methods and ways followed have been relatively diverse and, in certain situations, even radically different. However, it is clear that two sets of approaches to the crisis have been formed, which can be defined as follows: austerity or economic stimuli. The sides and opinions have been and still are divided. The effects of the crisis are similar in different geographic-economic locations, but the solutions adopted are tightly linked to the specificity of the business environment, to the culture and values of society, to the existing resources, to the fiscal policy, etc. The easiest reality to research is that in which we live... Has the business environment of Iaşi been shaken by the economic-financial crisis? How has the economic crisis affected the companies of Iaşi? What was the impact of the introduction of the minimum tax? Is the commercial credit policy efficient, or is it a factor that favors the occurrence of commercial debts? Are bank credits a solution for reviving activity? In a study performed on companies, we have attempted to find pertinent answers to all these questions Research methodology and results In our approach, we have studied a sample of companies in the region of Iaşi, from the following activity fields: services, commerce, and industry. The aim of this research is to determine the impact and the effects of the economic crisis on the analyzed companies, as well as the measures adopted by management in order to overcome the difficulties generated by the new economic context. Our research is based on a questionnaire composed of questions concerning the measures adopted by managers in order to fight the effects of the economic-financial crisis. The answers were given between January-February 11 and have been processed using the SPSS statistical analysis program. We have classified companies according to their size and activity field. Therefore,.% of the companies is represented by micro-companies, 71.% by SMEs, while large companies account for.% of the companies included in the analysis. Sample structure according to the company size % % 7% Micro-enterprises SMEs Large companies Fig.1. Structure of the analyzed sample according to the company size The start of the economic crisis has actually meant opening Pandora s box for most companies, which recorded significant drops in their economic results, or had to suspend their activity. 93% of the respondents stated that they have felt the negative effects of the economic-financial crisis. What is interesting is that 7% of the companies have not been affected by the economic instability, obtaining constant results. Following an analysis according to the company size,.% of the analyzed companies are micro-enterprises, 71.% are included in the small and medium enterprise category (SME), and.% of the companies included in the sample are large enterprises. Of the micro-

3 enterprises, 1.% have been affected by the economic crisis, and from the SME category, 9.7% of the managers have stated that the impact of the economic crisis on the company s activity was negative. All the large companies in the analyzed sample have felt the negative effects of the economic-financial crisis. Table 1. Sample structure according to the impact of the economic-financial crisis and the company size Company size Negative impact of the crisis No Yes Total Micro-enterprises 9 11 % according to the company size 1.% 1.% 1.% % according to the negative impact of the crisis.7% 3.1%.% % of the Total.% 1.%.% SMEs % according to the company size 3.3% 9.7% 1.% % according to the negative impact of the crisis 33.3% 7.% 71.% % of the Total.% 9.% 71.% Large companies 1 1 % according to the company size.% 1.% 1.% % according to the negative impact of the crisis.%.%.% % of the Total.%.%.% Total 3 39 % according to the company size 7.1% 9.9% 1.% % according to the negative impact of the crisis 1.% 1.% 1.% % of the Total 7.1% 9.9% 1.% The instability of the business environment is mainly translated through a reduction of the economicfinancial results. In what concerns the analyzed sample, 9.5% of the companies in the field have suspended their activity, 7.% have recorded a significant drop in their economic results, while.% have obtained better results compared to the period before the crisis. Table. Situation of the changes of economic-financial results Negative impact of the crisis Activity suspension Result drop Result preserved Result increase Total % according to the activity field 9.5% 7.% 9.5%.% 1.% % according to the results change 33.3% 53.3%.7% 5.% 51.% % of the Total.9% 39.%.9%.% 51.% % according to the activity field.7%.%.7%.7% 1.% % according to the results change.7% 3.% 33.3% 5.% 3.% % of the Total 9.%.%.%.% 3.% 5 5 % according to the activity field.% 1.%.%.% 1.% % according to the results change.% 1.7%.%.% 1.% % of the Total.% 1.%.%.% 1.% Total % according to the activity field 1.% 73.% 7.3%.9% 1.% % according to the results change 1.% 1.% 1.% 1.% 1.% % of the Total 1.% 73.% 7.3%.9% 1.%

4 The situation of the companies in the field is more optimistic than that of companies providing : % of the companies have recorded a significant drop in their performance and financial position, while for.7% of the companies the economic crisis has meant a period of increase of the economic results. Only 11.9% of the total number of companies included in the analysis operate in and all of them have recorded lower economic results than before the start of the crisis. Overall, the economic-financial crisis has determined the suspension of activity for 1.% of the companies and a reduction in the accounting results for 73.% of the cases. In this period of recession,.9% of the companies have managed to obtain, however, better results. Consequences of yhe occurrence of the economic crisis on the analyzed companies 15 39,% Changes of the result Suspension of the activity Reduce income Income maintenance Income growth 1 1,95% 5,%,%,% 9,7%,%,% 1,% Fig.. Consequences of the occurrence of the economic crisis on the analyzed companies Renegotiate contracts with partners 1 7,3%,3% Renegotiate contracts Renegotiate contracts with suppliers Renegotiate contracts with clients Renegotiate contracts with suppliers and clients The contract terms remained the same,7% Fig. 3. Renegotiation of the contracts with the partners The main measures adopted by managers refer to the commercial credit policy: 7.3% of the companies operating in have renegotiated their contracts with the customers, 1.9% of them granting commercial discounts in order to stimulate a faster collection of commercial debts,.3% of the services companies have renegotiated their contracts both with upstream and with downstream partners, 1.1% of them obtaining commercial discounts from the suppliers for the sales volume or

5 for payments in advance, while 5.1% of the service providing companies have not altered their contractual terms. In what concerns the companies in the fields of and, we can notice a symmetry of the measures adopted in what concerns the commercial credit policy. 1.1% of the companies have renegotiated their contracts with the commercial partners,.11% obtaining commercial discounts from their suppliers; 1.1% benefit, following the modification of the contracts, from longer deadlines for paying their commercial debts, which has a favorable impact on their immediate liquidity, demanding at the same time a reduction of the total value of the object of the contract. For 1.1% of the analyzed companies in the field of, the terms of the contracts closed with the suppliers and the customers have remained unchanged. Of the 5.1% companies that have renegotiated their commercial contracts,.7% have obtained longer deadlines for paying their debts to the suppliers and.11% have reduced the value of the contracts closed with the customers. 1 Commercial discounts granted by suppliers 3,3% 1 Commercial discounts granted by suppliers No Yes N/A Fig.. Commercial discounts granted by suppliers after renegotiating contracts The amendment deadlines for payment 5,5% Deadlines for payment 15 More long The same 1 5,7%,7% Fig. 5. The amendment of the payment deadlines to the suppliers after renegotiating contracts

6 Alteration of contracts value with suppliers 5,95% 15 The value contracts with suppliers Less The same 1 5,7% Fig.. Alteration of the value of the contracts closed with the suppliers after renegotiating contracts Commercial discounts granted for customers 1 3,3% 1 Commercial discounts granted for customers No Yes N/A,7% Fig. 7. Commercial discounts granted to customers after renegotiating contracts In the commercial credit policy, granting commercial discounts to customers has not been considered an efficient measure for stimulating sales or for the faster collection of commercial debts. As a matter of fact, as we can see in figure nr., in most cases the average deadline for debt collection from the customers has remained unchanged. 5.1 % of the companies and none in the field have accepted to extend the due date of commercial debts, while only.11 % of the companies in the field have obtained a lower average collection deadline for the customer commercial debts.

7 The amendment of collection deadlines 51,35% Collection deadlines 15 Lower More long The same 1,7% 5 Fig.. The amendment of the debt collection deadlines from customers, after renegotiating contracts In what concerns the efficiency of the commercial credit policy, it is possible to make an analysis at the level of the studied sample. By correlating the deadline for debt payment to the suppliers with the deadline for debt collection from the customers, we obtain a synthesizing image for each of the three activity branches. Therefore, for the and activity fields, we can notice a negative evolution of the commercial credit policy, since only.7% of the companies have managed to delay the payment of their debt after renegotiating the contracts with the suppliers, while 5.1% of the same company category collect their debts over a longer period. For the field, the situation is much more favorable. 1.1% of the companies have obtained longer payment deadlines, and.11% of the companies have reduced the collection deadline for the granted commercial credits after renegotiating their contracts with the customers. Only.7% of the companies have been more permissive in what concerns the debt collection deadline from the customers, in order to preserve the contracts already closed. 1 7,3% Alteration of the value of the contracts with customers 7,3% 7,3% The value of the contracts with customers Lower Upper The same,7%,7% Fig. 9. Alteration of the value of the contracts closed with the customers after renegotiating the contracts

8 The economic-financial crisis has meant for 7.3% of the companies that perform their activity in and a reduction of the value of the contracts closed with the customers, which has allowed them to continue their activity. Contracting bank credits 15,5% 1 Contracting bank credits Before the ecconomic crisis Not yet, but we will in the near future No banking credits contracted 5,7%,7% Fig 1. Situation of contracting bank credits by the analyzed companies In what concerns the funding policy, companies have avoided to contract new bank credits. The SPSS output shows that.5% of the companies in, 1.9% of the companies in, and 1.1 of the companies in have not resorted to bank credits. According to the answers given by the managers in Iaşi, the solution adopted to cover the losses incurred in 9 was for the companies to be credited by their associates, using the legal reserves, as well as amounts from other reserves. Moreover, the companies that made disinvestments (that have sold assets) used the amounts obtained to cover the contracted bank credits before the start of the economic crisis. 1 Reduction of the expenses for the staff 1,% 7,3% Reduction of the expenses for the staff 1,% The gross fund for the salaries diminished, but the number of employees has remaind constant Layoffs occurred The work load was reduced The staff expenses were not reduced,7% Fig 11. Reduction of the expenses for the staff All the companies in the analyzed sample focused their efforts on reducing the operational expenses. 1.% of the companies in, 13.51% of the companies in, and 13.51% of the companies in have reduced their expenses for the staff through layoffs. Some companies in

9 (5.1% of the analyzed enterprises) have resorted to reducing the workload, while others (.7%) have reduced the employees salaries, without making any layoffs. In what concerns the reduction of operational expenses, measures have also been taken to reduce rental expenses: 1.9% of the companies in and 5.1% of the companies in the other two activity fields have moved their headquarters to a location with a smaller rent. Reduction of the expenses for the rent 1,% 1,% Reduction of the expenses for the rent Moving the headquarters to another location with a smaller rent Some work locations have been closed No reduction in the expenses for the rent The company has no expenses for the rent,7%,7% Fig 1. Reduction of the expenses for the rent Impact of the minimum tax 1 9,73% 1 Impact of the minimum tax Neutral Negative Very negative Fig 1. Impact of the introduction of the minimum tax For 9.73% of the companies in, the introduction of the minimum compulsory tax has represented a heavy burden, and 13.51% consider that this measure has had a very negative effect on their financial performance. In,.11% of the companies have not been affected by the introduction of the flat-rate tax, while 5.1% of the managers have stated that the minimum tax has had a very negative impact on the economic-financial results.

10 Conclusions Economists could demonstrate, based on graphic analyses, that the current economic-financial crisis was to be expected. The cyclic nature of economy will always lead to the same result. However, the solutions for reducing the effects of the crisis are in our hands, as a result of the acquired experience and of lessons provided by history []. In periods of economic crisis, characterized by recession, managers have to be more cautious and to make more efforts to save their business. After processing the results obtained following the application of the questionnaire on the managers of the companies of Iaşi, we have noticed a channeling of their efforts in order to stay on the market. Whether they have changed the activity object, sold assets in order to cover bank credits, renegotiated their contracts with the business partners or reduced the operational expenses, their purpose was the same: to survive in crisis conditios. References [1] Jaba E., Grama, A.(). Analiza statistică cu SPSS sub Windows, Editura Polirom, Iaşi. [] Jaba E. (). Econometrie aplicată, Editura Universităţii "Al.I.Cuza", Iaşi. [3] McCord A. (1). The impact of the global financial crisis on social protection in developing countries. International Social Security Review, Vol. 3, /1, pp [] Mortreuil L. (1) The current crisis: who is to blame?. Journal of Management Development, Volume: 9, Issue: 7/, pp [5] Sapir J. (a), Global finance in crisis, Real-World Economics Review, Vol.. [] Sapir, J. (b), Quelle ampleur et quelle duree pour la crise actuelle, Revue du Mauss Permanente, May 19. Acknowledgements This work was supported by the the European Social Fund in Romania, under the responsibility of the Managing Authority for the Sectorial Operational Programme for Human Resources Development 7-13 [grant POSDRU/CPP 17/DMI 1.5/S/73]".