With a business that dropped “by 10 to 40 percent, depending on the segments, on the first semester of 2009,” some operators in the industry may be tempted to go it alone.

In the present situation, each of us legitimately wants to protect its own margins and therefore wants to pay less for purchases - as it is no longer possible to increase sale prices - and to leave to others the burden of financing growing stocks of unsold items,Alain Chevassus explains

Alain Chevassus, président de Cosfibel

According to the president of Cosfibel, the current recession raises three important questions.

Below-cost selling?

The first question relates to the continuation of business activity. Actually, the adjustment of products’ costs is always longer than the drop of sale prices, as everyone is afraid by the “sales gap”. In such conditions would below-cost selling be acceptable to help maintaining certain activities? “No,” answers Alain Chevassus. “It does not comply with business ethics and there is hardly any interest to see market prices collapsing. Indeed, in such a case, reflation will be more difficult as investments will not be funded by the companies’ cash-flow but through their debt.

Who’s financing what?

Precisely, the second question relates to the funding system. “Bad sales of our customers, as well as ours, are generating new stocks, together with the need to fund them and the need to clear them”. According to Alain Chevassus, “business ethics would imply that each of us be responsible for funding its own part of the business. Attempts to comply a company to fund another one should be banned, as it would prevent the second company to fund its own investments and would therefore hinder the reflation.

Furthermore, Alain Chevassus also points out the banks’ behaviour. While ECB’s rates have never been so low (1.5%), rates proposed to SMEs have never been so high (9%).

Looking forward

Last but not least, comes the question of how taking into account middle and long term goals. “The only way to benefit from this crisis is to adapt our behaviour to short term necessities (price adjustments) but also to long term goals: to maintain a mutual trustful relation between customers and suppliers, to carry on investing at the appropriate level, and once again, to stand out from the mass through innovation”.

We keep on ensuring that the options we choose be consistent with long term goals and contribute to a rapid return to serenity,” concludesAlain Chevassus.