why corporates need to rationalise costs

economies across the world have slowed down, those posting good numbers of gdp growth rate aren’t faring well on equitable distribution of national income. then is the issue of rising number of loan defaulters. so what happened suddenly in the economic landscape that well-established companies, barring a few, are increasingly falling in the trap of squeezed profits?

first globalisation (that in the indian scene resulted in public sector undertakings sharing their market base with more competitive enterprises, causing gradual decline in performances of psu firms) and now easy access to information (all thanks to the internet revolution) that is not allowing companies to reap unfair profits owing to new ventures in related business coming up rapidly through easily gained knowledge of a profitable market.

google is perhaps the best company to work with as per studies, the internet giant has great workplaces, jaw-dropping salary packages for staffers and the perfect work-life balance. but google can afford this, at least for the time being, for no other internet-based company can today challenge its might.

but for others, is replicating google’s workplace and work culture a sure-win position? infosys (an india-based outsourcing firm), for instance, started off with some eye-catching buildings and perks for its staffers; today the company is finding ways to cut costs. others like flipkart too are matching international standards on the back of foreign funds, but will they be able to sustain these costs is a question.

uber recently announced its departure from south-east asia and its only promising market outside us and Europe is india, where again it is struggling to convert revenue into profits.

the ground reality for today’s corporates is that the market is wide open for participants. you just cannot afford doling out great salaries and perks to your staffers that work from expensive and lavish offices. you may be able to sustain this for initial few years, but the rush of entrants in your sector will eat into your profits sooner than later and turn these so-called eye-catching assets into burdens.

same is the story with indian public sector undertakings and banks that have failed to grasp the fact that you cannot offer excessive pay packages to your employees when the private sector peers are working on comparatively lower packages.

the corporate sector on a whole is reeling under the pressures posed by hiring workers that are promised good pays and regular appraisals, margins are regularly thinning and entering negative territory. the hard reality of today is you just can’t afford these. should you not correct course, be ready to fall.