Global recession

21 Feb

BBC news, today, announced that the UK is experiencing a ‘mild’ recession. Having lived here for almost three years, I find the statement amusing and alarming. The amusing bit is from an outsider perspective, it doesn’t sound all that bad. It sounds like the British economy is experiencing a slow down. However, I know the British tend to express dire situations with understatement. As an example, instead of saying ‘I’m home with the flu’, a Brit would probably say ‘I’m feeling poorly’. With the first statement, you know the person is home with a temperature and feeling aches, pains, and chills. With the second statement, it sounds like the person is just a bit worn down. So, when the British government says we’re experiencing a ‘mild’ recession, you have to be a bit alarmed and dig deeper to better understand what ‘mild’ means:

  • Like in the US, housing prices (except for London) have stopped growing or have dropped.
  • Costs of goods have gone up, on average, 20%. Butter in the last year has gone up from 95p to £1.39 (46%).
  • Salaries have remained unchanged (i.e. frozen) for a while.

While the above sounds less than the US’s current situation, there are some aspects to consider. Some of the British banks are involved in the US prime mortgage situation and there is one (Northern Rock) which is keeping Britain’s banking reputation in a negative light for many months. Britain like other western countries is involved in outsourcing with Asian markets. And costs of living are only going up in western countries while salaries do not.

While I hope, with caution, this is a mild recession and not just the beginning of a larger trend, I do wonder about the cause for such a situation. I do believe the financial markets are at play here, but I believe there is a hidden undercurrent left over from the techbust. As a manager who has worked, managed, and tracked development and test projects with offshore and outsourced teams, I feel there has been a major push to offload work to countries like India and China. I understand on paper the per engineer cost looks attractive, but when you analyze the project costs and performance the company pays the same as if they kept it onshore or a bit more. In fact, most of the time, because of knowledge transfer activities, the company actually delivers less the first and second year of the offshore effort. So, I think this recession is a continuation of the techbust. The question to ask is ‘what’s going to happen and how do I navigate the stormy seas?’

The first part is easy to predict, the cuts for companies will now spread to include the Eastern workforce. So, in addition to western jobs continuing to be at risk, we will start to see pink slips and salary freezes in India. China’s workforce is cheeper than India and will probably be unaffected. If these reductions do not balance costs with earnings, then more drastic changes will happen.

As to the second part, I’m still thinking :-).