Over the last year or so, there has been much talk about another impending recession and how it could impact channel management. The recession theory is based upon historical trends, which suggest business cycles tend to last around five to seven years each. That means every five to seven years we experience some sort of a recession. Eventually the economy recovers, and then something else happens to triggers another recession. Current discussions are predicting another slowdown soon. This article explores how you can get your organization—and your channel management team —ready for the moment when another recession arrives.

Channel management is complex (see our article Challenges of Channel Management for more on this), but with proper preparation you can address many of the problems and even succeed in the face of the next recession.

Is recession coming? The current state of affairs

Bear market rallies

Over the last few weeks, the global markets have seen a series of bear market rallies, and several analysts are suggesting that when the market rises again in the near term, holders of securities should sell because the market has not yet reached its bottom. In several countries, markets are already down quite substantially.

China: borrowing from the future to stimulate growth

China, for example, has lost more than 50% of its market value over the last year. The Chinese economy is currently the second largest in the world, valued at around $9 trillion per year. Over the past five years or so, the Chinese government has provided multiple stimulants to drive economic growth. The biggest challenge for China, however, is that it has borrowed from the future to build its economy out, yet consumption has not increased substantially. Because of that dynamic, as the worldwide economy slows down, China as “the factory of the world” can no longer sustain growth due to weakness in demand—not just domestically, but abroad. This has led to a substantial slowdown of the Chinese stock market.

Slowdown in many of the world’s largest economies

Most recently, Japan has entered a recession again, tied primarily to demographic forces, and most developed countries have a huge amount of national debt, which is preventing them from developing in the future. Outside of BRICS (Brazil, Russia, India, China and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey), the rest of the world is not large enough to compensate for the slowdown in most of the world’s large economies, even though commodity prices, including oil prices, have dropped substantially.

Wage stagnation in the middle class weakens consumption…

Basic consumption patterns have changed dramatically over the last 30 years, because of the amassing of wealth within the top one or two percent of society. At the end of the day, a rich person consumes on a daily basis roughly the same amount of commodities, energy or materials—exclusive of the luxuries associated with conspicuous consumption—as a middle class person does. However, because of wage stagnation in the middle class, incomes have not increased substantially, and thus demand for goods has stagnated as well.

…while productivity gains are being diverted to corporate profits

While technology continues to drive productivity, that productivity contributes more to corporate profit margins than to wage growth, and this has slowed down consumption substantially across the world. While Japanese and Chinese consumers tend to save more than consumers in developed countries like the U.S. and the U.K., some developed countries like Germany also have high rates of savings. As a result, especially after World War II,