Creative entrepreneurs can weather the current global economic crisis better than traditional businesses. In reality it’s not the creative entrepreneurs but it’s the large companies that are being challenged. Creative companies can survive any condition.

Virgin Atlantic, which was founded by British entrepreneur Sir Richard Branson in 1984, survived and came out stronger after the airline crisis of the early 1990s when many established airlines went bankrupt.

In a recent interview with INSEAD, Branson said a lot of opportunities will emerge as a result of the current global economic slowdown but companies need to be nimble to move quickly and decisively to realise these opportunities.

“There are enormous opportunities when there is a crisis. In a situation like this, it’s absolutely essential to conserve cash. I think companies that do have cash owe it to their country and the people in the company to actually invest that cash in order to grow out of the crisis,” Branson says.

With oil prices and stock prices of airlines collapsing, Branson said it could be the time to look at whether it is good for Virgin to start an airline in South Korea, Russia or Brazil. “We should consider expanding if (there is) cash to do so.”

The best companies with the best products and services survive in a crisis. “You will see other companies all around you going bust and you’ll benefit from that,” Branson says.

Government needs to allow companies to go bust, so that new and more efficient companies can emerge, Branson says. The US government, for instance, should allow ailing airlines to go bankrupt so that new and more efficient airlines are set up in their place. In this crisis, we have to accept the consequences.

To encourage entrepreneurship, governments should do their part to stir competition, Branson says. For instance a merger between British Airways and American Airlines would be bad news for the consumer and governments should prevent this from happening, he argues.

It was Branson’s desire to improve airline services that inspired him to launch Virgin Atlantic, providing travellers value for money service that brought fun to flying. “Virgin Atlantic’s acceptance of British and Far Eastern travellers spurred all of us to start breaking the rules in other areas.”

Virgin group Today, some 40 years since Branson and his partners established Virgin Entertainment, their recording business, the Virgin Group has over 250 companies in its stable. Besides airlines and entertainment, Virgin is into hotels, leisure, finance, renewable energy, telecommunications and even space travel. Virgin Galactic will start its space flights next year, using environment-friendly space launch technology.

Apart from promoting entrepreneurship and competition, governments need to regulate when there is not enough regulation, particularly in the banking sector.

He says the banking mortgage community should never be allowed “to bring the world almost to its knees ever again. There obviously has to be a better regulation in that area.”

Beyond making money, Branson says entrepreneurs must also realise that they have the responsibility to promote greater good. “They have the responsibility to look closely on how they can possibly redistribute wealth for the collective good.”

Business people, for instance, should not leave money sitting unproductively in banks. “They should use that wealth creatively to change society and to start new companies. They should expand their businesses in new regions of the world, thereby employing more people and bringing opportunities to areas which are previously being exploited by companies that are monopolistic.”

“I’ve always believed that there is no point in going to business unless you’re going to make an enormous and positive difference,” Branson says.

Source: knowledge.insead.edu

It’s hard, but basically – it’s time to face the facts: In this global economic downturn, even rich consumers are taking a deeper look, and more carefully weighing purchase decisions – much to the discomfort of marketers worldwide.

Every luxury brand fears the critical eye of the newly frugal consumer, but the tests of time have shown advertising is an indispensible necessity in recession. The famous studies by McGraw-Hill in the 80’s, showed that brands that continued or increased advertising during the 1981-1982 recession experienced an average increase of 256% in post-recession sales, over those who didn’t.

Comforting to know, although today’s strategy should be a slightly different one. Considering the fact that the global media already is calling this crisis one of the most s evere since the depression of the 1930’s and recent studies like those of Unity Marketing (US based luxury market research firm) present disturbing news on the spending behavior of affluent consumers. “Specific changes they are making to their lifestyle according to our latest survey are reducing the times they dine out and shopping less frequently. Affluent shoppers are showing a new frugality that may well become a habit once this recession ends.”

Furthermore, Richemont, maker of luxury watches, is currently facing the toughest market conditions since its formation 20 years ago. Richemont’s spoke person: “We see no cause for optimism. We must assume that there will be no significant recovery in the foreseeable future and plan accordingly to cope with this situation.” With those ominous words in its trading update last January, Richemont provided the first concrete signal to the luxury industry of the depth of the global downturn, raising the question of its long-term impact on the sector as we know it.

Several more examples could be given to illustrate the downfall of the luxury market. Potentially, luxury brands could face some of the toughest hits during this crisis, as brand erosion is just around the corner due to tempting short-term solution to drop prices of luxury items to a minimum. Luxury marketers could be pushing the panic button anytime soon now. So, who will be the first to fall?

here are several different schools of thoughts:

One theory says that “affordable luxury” will suffer as customers retreat to their comfort zones. For the rich, this means only the best products (no trading down) and for the poor, it means highly accessible, mass-produced products or better: ”value-for-money-products”.

Others say that small, independent brands are the most at risk. With tough credit conditions in a highly cash-flow intensive stage of their development, these businesses lack the oxygen they need to grow. What’s more, they argue that department stores will flee to “names people know,” a euphemism for those with big brands and advertising firepower.

But big brands are not immune to this slow down either, especially if we take a longer-term perspective of what is going on. Unlike small fragile businesses or overextended banks, it may take years for the eventual decline of some of the big brands we know to play out, as it is unlikely to come from cash flow or liquidity issues. But, it will happen, eventually. Even big names, as we have already seen across the retail sector (and the economy more generally), can fail.

So in truth, there will be companies who will struggle in all of these segments, while others will thrive. This is a good thing. Joseph Schumpeter called it creative destruction; the process whereby sleeping giants are replaced by innovative upstarts over the longer-term. The question remains: how will luxury brands going to survive?

Alfredo Silva is a freelance Marketing & Communication strategist. Contact Alfredo: alfredo@klatergoud.com