Even before the global financial system was rocked by the events of the past few weeks, India Inc faced an array of challenges: high interest rates, inflation at around 12%, a stock market operating far below the year's highs and slowing GDP growth.

But in the turbulence lies opportunity. Economic turmoil creates more opportunities for companies to move into leadership positions than any other time in business. About 24% more firms moved from laggards to leaders in the 2001 downturn compared with the subsequent period of economic calm, according to an eight-year global study by Bain & Company that analysed the net profit margins and sales growth of more than 2,500 companies.

Meanwhile, around a fifth of those in the top quartile of financial performance in their sectors dropped to the bottom quartile during the period. By comparison, only three-quarters as many companies made such dramatic gains or losses after the recession.

Indian firms that can navigate economic turbulence effectively—by heeding warning signs and reacting quickly—are also likely to improve their competitive positions, as turbulence becomes a defining characteristic of the business environment.

Consider Intel Corp., which managed to pull away from Advanced Micro Devices Inc, its rival in the chip business, during the 2001 recession. Heading into the downturn, AMD's heavy investment in product design was paying off, with AMD's revenues growing three times faster than Intel's.

Then the recession hit, catching the entire industry with too much capacity. As AMD's lack of profitability prevented it from investing in new production facilities, Intel seized the advantage. It invested in new facilities with state-of-the-art production capability and spent heavily to advertise its P4 processors. In the ensuing years, Intel's relative cost position improved dramatically while AMD had to slash 15% of its workforce. The momentum AMD had built quickly evaporated and a re-energised Intel remained the industry leader.

How can Indian companies take advantage of turbulence and a slowing economy, as Intel did? First, they need to realise that conventional approaches often don't work. Many industry leaders fall from the top during downturns or turbulent times because they assume that a strong market position is an insurance policy against trouble. That approach breeds overconfidence.

Executives postpone taking precautions or reach for the same levers they pulled in the past—like hedging their bets by diversifying. When the downturn hits hard they usually over-react. They slash costs and staff indiscriminately, cut capital expenditures, squeeze suppliers, and avoid strategic acquisitions. Then when conditions improve, they must spend heavily to regain momentum.

The better approach: slow in, fast out—like a good driver heading into a sharp curve. Winners in turbulence tend to brake quickly heading into a downturn by managing costs carefully and consistently. They focus on what the company does best, reinforcing the core business and spending to gain share. That allows them to speed up at the top of the curve, when the economy starts to turn for the better.

Companies that are prepared—or which brake early—tend to capture a disproportionate share of industry growth and profits during slowdowns.

Four principles can guide companies through turbulent conditions:

Boost the core: As turbulence hits, a company should focus on areas where it has a competitive advantage and avoid ill-considered diversification. Diluting focus when times are tough can subject the company to more volatility, not less.

To build upon their strengths, companies first need to know their starting point by performing a diagnostic of their business as turbulence builds. By identifying their core strengths and weaknesses, businesses can develop a clear definition of their core business and strategy—this will give them a reliable yardstick to measure new strategic options.

During the 1990-1991 US slump, toy-maker Mattel maintained a clear picture of its business needs. It reduced capacity, eliminated costs, and refocused manufacturing and marketing resources on its core brands: Barbie and Hot Wheels. By tending to its core, Mattel was able to grow despite the downturn.

Change lanes in time: We have seen that companies faring poorly during downturns exhibit a common response: they overreact, then hang on and "stay the course" even when the road is rougher ahead. The lesson? If your strategy is not working, review it. Winning firms react to trouble early, scrapping ideas that aren't working and turbo charging those that are.

Reacting to wrong moves slowly can allow competitors to muscle in. Take US supermarket chain Kmart: during the recession of the late 1980s, it diversified to hedge its bet on a struggling core discount retail business. But its acquisition of unrelated retail businesses drew much-needed resources and attention away from Kmart's core. By the time it unloaded these unrelated businesses, Wal-Mart and Target had made inroads into its markets.

Keep thinking ahead: Envisioning alternative scenarios is necessary to take advantage of turbulence—but it's not enough to create opportunities. Managers need to monitor events, taking accurate and timely measures as one of the alternative scenarios emerges. They need to prepare action plans for its onset. And once the downturn hits, they need to change course rapidly when required.

One company that prepares well for slowdowns is US-based industrial conglomerate Emerson Electric. Its top management spends a disproportionate amount of its time planning. They re-examine growth targets, recalibrating them to reflect changes in the business climate. Each business unit develops alternate future scenarios and plans actions that will deliver targeted results to improve performance under each scenario.

Emerson reacted early to the onset of the 2001 US downturn. The company repositioned its cost structure, asset base and business makeup; built new facilities in low-cost locations; and accelerated some new product development and engineering programmes while terminating others. It remained profitable through the downturn, with its stock outperforming benchmarks.

Hunt for deals: Another characteristic of companies adept in a downturn - they make bargain acquisitions to build up their core, even when it means taking calculated financial risks. As markets improve, they are well-positioned to accelerate. Consider the deals made by Ambuja Cements Ltd—then Gujarat Ambuja Cements Ltd—during the 1998-1999 slowdown in the cement industry.

Instead of retreating into a shell, India's then fifth-largest cement maker by sales acquired an ailing Modi Cement Ltd, taking advantage of the target's low valuation. It then turned Modi Cement around. Today, Ambuja Cements is India's second largest cement manufacturer by profits, and one of the country's most efficient cement producers.

Turbulence will surely find any company's weaknesses. But economic downturns reward strength as well. Companies have a surprising amount of control over how they can react when they enter a downturn. Those that are prepared usually find a way to manoeuvre effectively through it—and that sets them up to move ahead.

The author is a Partner in the India office of Bain & Company. Co-authored by Darrell Rigby, a Bain partner in Boston and the head of Bain's Global Retail Practice.