Retrenchment: Are you worried?

 

“In health you forget the doctor, in comfort you forget God”

It is January, we’re freshly back from holidays. Most of us are busy spending our bonuses. And national GDP is up by 3.7% in 2013.

My colleagues warned me an article about retrenchment published today is quite likely going to be ignored.

In the big picture of the world, anything can happen. There’s worrying news coming from HSBC (some even say they’re technically insolvent!), US Federal Reserve is rolling back their bond buying and the year started off gloomy in the equity markets.

At home, very tight labour policies are giving companies a Herculean task in the hiring of foreigners. Progressive Wage is requiring companies to pay more for labour at the bottom rung. Businesses are saying their goodbyes and taking off for low cost regions like China, Malaysia and Vietnam.

Retrenchment will happen somewhere on the labour landscape, the only question is – how many workers are going to be affected?

But how about when I tell you…wait for it…: retrenchment is actually good for an economy and there is nothing to fear.

That was a pretty bold statement. Better state a few caveats.

It is nothing to fear if:

  • Your country’s economy continues to attract good foreign investments
  • Your country has a tight labour market
  • There is healthy union support

To some, retrenchment is a vulgar word that symbolises frustration and major disappointment. It is an emotional event. It is the corporate equivalent of a breakup. But unlike a breakup, there is nothing personal about it.

It is cold rationalisation. A company overhauls its operations, policies and manpower – anything to to improve a company’s profitability. It is a natural process. A corporation is not a charitable enterprise. It it is not profitable, it will cease to exist no matter how big it is.

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If you find a better paying job, you probably will resign. If the company needs to save its skin, it will have to terminate employees. It is fair, it works both ways.

A company sluggish, inefficient and unproductive, will run into trouble. If there are too many of such companies, it affects the economic health of a country. Singapore cannot afford this.

Richard Darman, a former US Deputy Secretary of Treasury had a stark illustration, “The bloated, risk averse, inefficient and unimaginative large corporations that make up an American business “corpocracy” were the key reasons behind the decline of the United States global competitiveness.

When an inefficient company sheds manpower, it is also freeing up human resource back into the labour market. Take for example the case of Five Stars Tours. The company owes some S$300k worth of unpaid wages to staff. Chances are their pay packages were not really competitive to begin with. Now all these workers, once bonded to Five Stars Travel, are now available for better companies. (A side thought: if they had confronted their financial situation and reorganised, their fate may have been different.)

Retrenchment doesn’t have to occur during periods of downturn either. The mid 1980s in America was a period of high overall employment, low interest rates, minimal inflation and a bullish economy. Yet companies downsized in an effort to to keep competitive.

All this fancy talk is all well if you’re a white collar PME who can find a job easily. But what about the blue collars? The low wage workers?

That is where union involvement becomes necessary.

Let’s take for instance outsourcing. Companies outsourcing operations into China had been fashionable from since the 1990s. Workers in the manufacturing and other low-skilled industries are especially vulnerable.

In Singapore 4 in 10 workers retrenched last year was a result of outsourcing. Between the periods of 2001 to 2008, the U.S. has lost 2.4m jobs to China. Outsourcing makes companies very efficient, but as a result the labour market suffers.

Rising costs are a push factor of why companies move.

In Singapore, the unions do not leave the business of corporate restructuring solely in the hands of the market. Although the employers are free to hire and fire, unions representing unionised firms have a very big say in how this is done.

Even before the need to outsource, the Labour Movement has been lobbying for them to stay. Cham Hui Fong of the NTUC explained this “…we have always been urging, together with the employers, the government to make the costs affordable for businesses. I think there are a lot of costs that are managed by the government. In some cases, rental, electricity and utilities. These are some areas where they feel very hard hit and these are also some of the reasons why some companies move out of Singapore.”

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(Cham Hui Fong, Assistant Secretary General NTUC)

Unions soften the social impact of retrenchment. When the need comes, they prepare the workers and negotiate for fair retrenchment packages. According to Cham, “When we hear news of companies restructuring and leading to job losses, what we usually do is that we will alert the workers that this is impending, this is coming so that there are no surprises.”

The next step is then to proceed to help displaced workers find jobs from firms that are hiring.

The employment market (which means your job, your career and your bonuses) relies on one thing and one thing only: money. How efficient, how productive and how imaginative a company is in managing its business and profit, directly affects a nation’s employment opportunities.

Retrenchment is a necessary evil for a business, but for the individual, it does not necessarily spell doom and gloom.

Especially if you’re a member of a union.

 

 

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About the author

Benjamin Chiang

Benjamin Chiang is an enthusiast of good advertising, deep thinking, labour issues and chocolate. He writes also at www.rangosteen.com and occasionally on Yahoo!

The views expressed are his own.

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