When facing shrinking market and loss of consumer confidence, companies' instinctive reaction is to lower production, become obsessed with saving costs, and eventually downsize. Basically, companies tend to hibernate during the economic winter. Well, there are two obvious problems with this reaction. First, they might be missing opportunities because recession does not affect equally all sectors and all geographic areas. Second, and contrarily to real winter, we do not know how long the economic winter will last, which triggers questions like "what if we don't have enough food to live it through?" Needless to say, this kind of conservative reaction is probably a (very) bad idea.

The appropriate reaction is to offset the expected shrinking by entering new markets that are not affected as badly as our traditional markets. USA is entering recession (this is now beyond discussion). Since economies of Canada, Western Europe, and Japan significantly depend on US economy, they will be seriously affected. On the other hand, China, India, and Central and Eastern Europe countries undergo large internal growth thanks to scores of people entering middle class and increased availability of disposable income. In other words, their growth only moderately depends on export and therefore they might go through the recession relatively unscathed. Although companies have to investigate carefully the opportunity to export to these markets, it is certainly the most sensible way of living through the recession.

GDP growth - Worldwide vs. Emerging countries

This figure shows the changes in GDP for world average vs. emerging countries. Assuming that GDP growth is a relatively accurate indicator for economic health, we clearly see that although all economies are slowing down, emerging countries will still deliver good performance.

In fact, exploring healthy markets makes sense whether or not our traditional markets are in recession. The difference is that now it's not just a question of increasing profit, it might be a question of survival. Local SMB's usually suffer from globalization. Now there is an opportunity to benefit from it!

This post is partly inspired from Peter Hall (Export Development Canada Chief Economist) conference about Canada's Global Export Forecast. The report can be found here.