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Downsizing and Globalization: Why are These Strategies used by Companies, and What Implications do they have - Essay Example

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Introduction Globalisation and downsizing are some of the most popular practices in the contemporary global economies. The growing competition in the global market has jolted contemporary companies to adopt the practices in their strategic plans to enhance their competitive edge…
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Downsizing and Globalization: Why are These Strategies used by Companies, and What Implications do they have
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Download file to see previous pages This paper evaluates the reasons why downsizing and globalisation are widely applied in companies and the effects of the strategies on social economic status of developed economies. Downsizing news in companies usually creates a sensation in the media and in the public domain mainly because of the perceptions about the financial status of the affected company and the economic effects of the strategy1. From an economic perspective, downsizing is considered as a short-term measure and the company’s management is usually accused of undertaking mass redundancy without reasonable economic need. Mass dismissal of employees is a common strategy that managers take in order to enhance the economic status of the organisation on the stock market and enhance the image of the company to the shareholders for a brief period 2. The rationale for downsizing has been a subject to numerous economic studies for a long time and has undergone metamorphosis for the past decades. 1S. Abraham, and Kim, D. “Layoffs and employment guarantee announcement: How do shareholders respond?” International Journal of manpower, 25(8)2004, pp 726-739. 2ibid p727 In the 1980’s for instance, companies management emphasised on reducing the size of production units, increasing their efficiency and enhancing their ability to adapt to the dynamics of the market3. Business leaders justified downsizing, by arguing that it was necessary to scale down the size of workforce into the right size that would serve the interests of the company better4. Downsizing has various impacts on developed economies but before examining its effects, it is important to consider the facts that prompt companies to dismiss employees. Downsizing in companies is informed by two factors, namely reactive or defensive and proactive or offensive strategies5. Reactive or defensive downsizing arises from several factors, key among them the poor financial performance. Poor financial performance of a firm is one of the factors contributing to a decline in demand of its products. Dismal financial performance could be caused by unsuccessful commercial approach, overproduction and loss of competitive edge, especially when the company experiences high production costs, rendering the prices of the final product costly and uncompetitive6. Other factors that could contribute to a decline in the demand of the company include a consistent decline in growth of the firm7. In such situation, downsizing is applied as a pre-emptive strategy to cushion the company from anticipated financial collapse. For the past decades, various companies in developed countries have undergone restructuring process in order to enhance their productivity and profitability. 3S.Abraham, and Kim, D. “Layoffs and employment guarantee announcement: How do shareholders respond?” International Journal of manpower, 25(8)2004, pp 726-739. 4Chalos, P., and Chen, C. Employee Downsizing Strategies: Market Reaction and Post Announcement Financial Performance. Journal of Business Finance and Accounting, 29(5/6), 2002, pp845-870. 5 ibid p847 6ibid p853 7ibidp859 During the restructuring process, some departments are considered untenable, resulting to dismissal of the affected units8. This kind of downsizing referred, as “proactive layoff” has been particularly prevalent in the last two decades, mainly because of increasing adoption of information and technology9. Thus, some occupations previously undertaken by human labour are conducted cheaply and more ...Download file to see next pagesRead More
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