Economic downturn and the disposable worker

February 27, 2020

LAHORE: Manufacturing sector in Pakistan has been fighting an uphill task to cope with high costs and dwindling sales. Most companies have been forced to prune their workforce to cut cost. Still,...

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LAHORE: Manufacturing sector in Pakistan has been fighting an uphill task to cope with high costs and dwindling sales. Most companies have been forced to prune their workforce to cut cost. Still, reducing workforce has not prevented many companies from folding up.

Those that survive, rue parting with best brains that has affected their quality and service, while retained employees face challenges of putting in extra efforts to increase productivity with fewer resources. Still the sales have dived to very low levels forcing them to survive at margin.

Entrepreneurs faced similar situation in the past, but the severity was restricted to a few sectors. This time impact is all around. The textile sector slump has prolonged to seven straight years. Car production never nosedived as sharply as in past eight months.

Engineering sector is operating at very low capacity. The home appliances manufacturers are closing shifts. Even the beverage sector posted decline during this period. Parting ways with the workers is an art that very few entrepreneurs know.

Most of them proceed from behind the door, but make their preferences known to their top managers. This way they retain their favourites and get rid of more competent workers.

Firing workers is a risky job because there is a possibility that you fire a competent worker that might end up working with your competitors. In fact, some organisations facing less economic stress grab competent and efficient workers fired recklessly by panicky companies. This way they pick up talent that otherwise would not be available in the market.

Layoffs are necessary after a meltdown in economy, but it should be an effective layoff that actually improves efficiency rather than inflicting strategic damage to the company.

It is unfortunate that many entrepreneurs fail to realise that downsizing not only hurt those that are forced to leave the job but also impacts the morale of retained workforce. Competent entrepreneurs have the foresight to act well in time. During the ongoing economic depression, many companies that had accumulated capital from past profits retained their entire workforce while the recession was deepening.

They did not realise that their extra fat would be consumed soon when the sales bottom out. When they started feeling the pinch they started firing in panic.

They were too late to realise that there would be no economic rebound anytime soon. Those that acted on time and prudently managed the downsizing of their workforce are in a better position.

They are operating efficiently and managing to survive on the dwindled sales. They hope to be in the driving seat when the economy moves to growth path in the long-term.

There are certain sectors that are anticipating a recovery. It includes the apparel sector comprising readymade garments and knitwear manufacturers.

These two sectors benefitted from their past experience and did not part with their workforce during the past one year. Though the apparel exports are still lopsided, signs of recovery in this segment of textiles are visible.

This is the reason that the readymade garment manufacturers opposed any strike or protest against some government policies against which they too have reservations. Prudent entrepreneurs with dedicated professional management operate with lean, but highly talented workforce even during best of times.

When productivity goes down appreciably and need arises to cut the workforce the management should take the entire workforce on board. The management should not hide behind their executives. It should explain the situation to the entire workforce.

Workers should be given the choice to either accept uniform cut in wages or accept a fair formula for layoffs. Another option is to offer some workers marginal salary around half salary or, even less than that and let them spend the year working in some other area, but not in the firm.

They could do something that would help them learn and would also help the firm's reputation in some ways. Notwithstanding what you are doing for the people who are leaving, you should do as much as you can to focus on the people who are staying.

Companies should enhance their reputation by being fair to their workforce. Bad times do not last for long, but bad reputation as employers lasts with the company for a very long period.



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