When layoffs are rooted in opportunity

NOT all companies which lay off workers are struggling for survival — some still have healthy cash flows despite smaller profit margins. So, why are they doing it now?

According to an Economist Intelligence Unit survey released this week, six in 10 companies say that the slowdown presents an opportunity to streamline their businesses through redundancy.

Nothing that corporate image is very important to some, CIMB-GK economist Song Seng Wun said: “There’s more work to explain restructuring in a good economy.”

Forecast Singapore economist Vishnu Varathan agreed that there will be “some opportunistic moves” from some companies to shed staff.

However, he added: “It’s hard to distinguish between these bona fide companies and ones that are opportunistic.”

Companies restructure generally to become more efficient and lean in the long term, and sometimes venture into new areas, creating new jobs.

That many firms are looking to restructure now comes as no surprise to economists whom Today spoke to. “There’s excess labour around. Some companies have overhired in good times — they have no choice but do whatever it takes to get themselves back into shape,” said Citi economist Kit Wei Zheng.

Industries hit badly by exports, such as the electronics and manufacturing sectors, would see more restructuring. “These are companies with a cash-flow problem, they need to get rid of labour at a faster rate,” said Mr Varathan.

Some companies might also want to “take the opportunity to get rid of deadwood”, said human resource consultant Paul Heng.

“These are usually those with ‘unmarketable’ skills — those who did not bother to upgrade their skill set, were slow to adapt to the demands of the job — or there’s a personality clash between the employer and employee,” said Mr Heng, managing director of NeXT Consulting.

HOW RELEVANT IS JOBS CREDIT?

If jobs are lost through restructuring, what then is the relevance of Jobs Credit? Economists point out that Jobs Credit — a wage subsidy introduced by the Government in January to help companies preserve jobs — is not there to save all jobs. What it does is to help employers reduce their payroll bill.

Mr Song said: “It helps keep workers for as long as possible.” But ultimately, said Mr Kit, “if there is a huge labour excess, companies will have to lay off notwithstanding”.

While restructuring may result in job losses now, it will allow the companies to grow stronger in the longer term, said Nanyang Technological University economist Randolph Tan.

“Better to restructure during a downturn, because idle capacity can be ‘re-tooled’,” he said, or re-organised or geared towards cutting-edge or next-generation jobs, such as nano manufacturing.

“It would affect ongoing business operations to restructure at peaks of economic cycles, (when) most organisations would more likely want to add capacity than re-tool their existing processes,” he said.

As such, some economists believe that the Government is on the right track with training schemes such as Skills Upgrading and Resilience Programme and Professional Skills Upgrading Programme.

When old jobs aregone for good

When companies restructure, some “could choose to locate their lower value-add products in other countries, so this means workers may not be rehired”, said Madam Halimah Yacob, the National Trades Union Congress’ assistant secretary-general.

But at the same time, new jobs could be created out of restructuring during this downturn, like in the services industry where there is job growth, said Mr Song.

He noted that the retail industry has many foreign workers.

“I’m happy with their service, but why do we have to rely on foreigners to fill these jobs? Perhaps, this will result in a mindset change among Singaporeans.”

The mindset change may come when retrenched workers find that their old jobs do not exist anymore even after the economy recovers, said Mr Song.

via TODAYonline

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