In June of 2007, upon entering the IT park that Manhattan Associates calls home in Bangalore, I was struck not only by the hustle and bustle of activity and construction but also by the contrast between the clean office and hotel properties and the rough-looking construction workers that built them. Surrounding most of these properties are spaces of dusty, undeveloped and trash-laden lots. But at that time, you could feel that it was simply the momentum of a globalizing IT network and infrastructure outpacing the usual bureaucratic pace of city planning. Having just returned to Bangalore this month, the impression is the same but with significantly more offices and hotels.
However, the influx of hotels has made more obvious the fact that the global economy has slowed down dramatically, leading to significantly less business travel than before, and less occupancy rates. After visiting multiple hotels near the office for lunch, my colleagues and I had the sense that the number of lunch guests easily outnumbered the number of guests staying overnight. In one new, 5-star hotel, we heard it was 12 guests against a total of 180 rooms.
Bangalore will likely succeed in the race to cut costs around the world because most of the costly overhead will be tied to operations in foreign companies' home countries. But services firms like hotels that cater to the coming and going of foreign guests will be hit hard as I have already witnessed. The list actions by technology companies resorting to layoffs and cuts since last October is longer and longer. And if you have been following public earnings announcements, you already know that the recession has not been good for supply chain vendors, including Manhattan Associates. Oracle has already taken advantage by moving to acquire Sun.
The key will be in how well companies can maintain their foundations while weathering the storm, and by foundations, I include the core individuals and talents essential to the successful execution of existing strategies. When a company has to start chipping away at their core to survive, it is the strongest signal that our current environment will bring dramatic change to the underlying assumptions of that company's strategy.