A Dow Chemical regional executive for Europe, Middle East and Africa says:
Our company accepts that there are regular setbacks and crises in emerging markets. We know that most of these crises are largely crises of progress and we do not really adjust our overall strategic approach. We adjust our tactics but we are never really concerned about crises. They come and go and we are here to stay.
Economic and political uncertainties can easily disrupt quarterly and even annual plans. This goes with the territory and many companies do not even adjust their cost structure in times of downturn, knowing that this can damage the business once the crisis is over. The wisdom of this approach was clearly demonstrated after the 1998 rouble crisis in Russia. In a Wall Street Journal interview in 2002, Peter Brabeck, CEO of Nestle, said:
If I had only thought about short-term profit margins, I would have withdrawn from Russia, like every bodyelse, during the Russian crisis. We did not. It very clearly had an impact on my profit margins, but in 18 months we doubled our market share. This is the difference between short-term profit margin maximisation and long-term, sustainable profitable growth.
It is immensely frustrating for regional managers to be criticised for missing quarterly budgets during crises. Performance criteria should be focused on sustainable, medium- to long-term results, not the next month or quarter. Likewise, management incentive schemes should be related to longer-term results.