The Impact of Economic Stagnation on the Life Cycle of Companies

<p>Life cycle concept describes patterns of companies&rsquo; development and can give managers an opportunity to forecast further perfomance of their organisation and choose a relevant strategy. This becomes especially important when a country is experiencing economic downturn, including periods of stagnation, when companies are challenged to grow in a negative external environment. The goal of this thesis is to identify the influence of economic stagnation on lifecycle of companies. A number of tasks were completed to achieve this goal:</p><p>1.&nbsp; According to theoretical concepts and researches, &ldquo;life cycle&rdquo; was determined as an individual combination of typological phases of development that a firm is going through during its lifetime, while &ldquo;life cycle phase&rdquo; as a period in time when parameters characterising the activities of a company have certain values. According to the chosen model, a lifecycle consists of five phases: generation, growth, stability, downturn and liquidation;</p><p>2.&nbsp; Examining theoretical and empirical methods used to determine lifecycle phases, as a basic methodology of defining lifecycle phase the work of Y.V. Ivanov was chosen. This work regards organisation as a techno-economic system influenced by the external environment;</p><p>3.&nbsp; Analyzes of official data of Federal State Statistic Service, cyclical indicators prepared by Development Center of HSE and PMI index by HSBC and Markit proved that since the end of 2011 Russian economy is stagnating. Also it was identified that stagnation has penetrated also manufacturing and non-ferrous metals industry;</p><p>4.&nbsp; The Y.V. Ivanov&rsquo;s methodology was complemented with the choice of parameters for analysis that would correspond to the goals of the study, availability of information in the financial statements of the companies and the specifics of current situation on chosen markets and in Russia as a whole. As objects for study two major companies in certain segments of non-ferrous metals industry were chosen: OK RUSAL and JSC VSMPO-AVISMA Corporation. Both companies are oriented on Russian as well as foreign markets. Consequently, they experience both the influence of economic stagnation in Russia and of situation on their segments of international non-ferrous metal market. Key parameters which define life cycle phase of particular company are the subject of study. The following parameters were analysed:</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Acquisition and liquidation of fixed assets and intangible assets;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cost per unit produced;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Costs and sales revenues;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net profit/loss and profitability of production;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Selling, general and administrative (SG&amp;A) costs;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Average salary of employees;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Number of employees and staff turnover;</p><p style="margin-left:57.3pt;">&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Changes in organisational structure.</p><p>5.&nbsp; As the result of the analysis, it was identified that OK RUSAL in 2012 entered stabilisation phase and VSMPO-AVISMA is still on the growth phase. Main conclusion of this study was that life cycle of companies is primarily influenced by the situation on end markets of these companies. The stagnation of the national economy has only indirect influence that is reflected in companies&rsquo; orientation on short-term goals.</p>