Wednesday, December 5, 2012

JOB CUTS: LOGICAL OR SHEER WHIM-BASED?

Jobs cuts, during recession become a ‘necessary’ evil; and this is the only quick solution for companies...

So do announcements of an aggregate 2 million further drop in global employment count (on a single Monday; January 27, 2009) stand justified as the only short term solution? “Yes, this is perhaps the ‘safest’ and ‘most prompt’ decision at the hands of the decision makers,” thumps Van Jackson, Senior Strategy Consultant and Analyst (Foreign Policy). What makes the case of job cuts stronger is that it is not a very common sight to witness such a move across boards, across industries. It’s not just financial, real estate and auto sectors (the biggest bailout grantees) that stand guilty of handing over pink slips, but companies even in the retail, IT and pharma verticals are making it to the headlines for similar reasons. This recent occurence has therefore proven how it is the ‘demand side’ of the market that is to be blamed for disturbing the equilibrium, which therefore called for a reduction in supply for even maintainence of reservation prices by the companies. And as we consider production economics, a reduction in the ‘L’ (read ‘labour’) factor remains the quickest overnight solution to enforce a production scale cut; hence tormenting job cuts and in thousands! Even David Haigh, CEO, Brand Finance, agreeingly states that, “Companies get hit when salaries become more than the revenue. The current economic turmoil has catalysed the heavy retrenchments taking place in many leading global organisations as they seek short-term measures to cut costs and reduce debt...”

Now for the brighter side of the picture: one party that would be most fearful of the downturn (after the ‘employees’ group) is the army of companies’ shareholders. As per a February 2009 World Bank and S&P report, a gutwrenching $15.53 trillion have been wiiped-off at the bourses during the past 12 months, thus representing a total global stock value erosion of 44.09%! Worse, bourses in emerging markets have been reduced to less than half in value during the given time interval (-51.82%)! Understanding how Jack made job cuts count positively for GE’s stock price and market value, investors and shareholders across the globe can hope that their companies will make the most of the announced and future (more?!) jobcuts, thus giving their stocks a better shot at appreciation. And isn’t the primary objective of a pulicly traded entity protection of its shareholder interests? Isn’t it Jack?


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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