Why Do Companies Downsize

Downsizing in business enterprise is term used to describe the fact of reducing number of employees on the operating payroll. There can be many reasons for why companies do downsize. Let us have a look at some of the major factors that forces companies to downsize.

To Reduce Costs

The major reason why do companies downsize is to reduce the costs. Usually major companies rely on long term forecasts which help them to take vital decisions to keep their businesses going. If at any time they feel that the company is going to make lose, layoffs or downsize remain the only option for them to overcome loses.

However, at times, some unexpected events like recession, economic crisis can force the enterprises to make massive layoffs or downsizing.

Companies Downsize Why Do Companies Downsize

To be More Profitable

Another major reason behind downsizing is to make more profit. Often companies with an intention to make more profits expand their businesses and if the expanded operations fails to bring any results then they shut it down. Another way to raise profit is to downsize workers or factories.

Entering into a New Business Partnership

Merging is an important and more common practice of business. Whenever a corporation enters into a new partnership, downsizing of workers is obvious. This is happen because when two new corporations decide to work together, they certainly have some new tasks and goals to achieve. In this case the corporations may feel the need to hire more workers or to layoff in order to meet the expenses.

Downsizing usually comes in to act when the two merging companies are not financially strong and to meet their expenses they turned to downsizing. However, if two financially strong companies merger then there are chances that they need more workers.

To Restructure

Restructuring is another important factor behind downsizing. Whenever a corporation have financial crisis or in heavy debt, they may require restructuring. A typical restructuring program involves several different elements ranging from downsizing, selling assets to obtain government bailout funds.

When a company opts for getting bailout funds from government, it has to make a pledge to bring necessary changes in its operations to raise the profits.

However, a firm can also take help from any other private company instead of a government but in that case too the conditions remain almost the same, i.e. to restructure their operations. This is a one cause of downsizing.

Pay off Debts

Whenever a company finds itself in financial crisis, it first option is to sale out the non-profitable assets. Other than that a company may think of reducing the number of contractual or temporary workers and quit any dealerships or suppliers so as to pay off the debt with the earned money.

Handling the Situation

For any firm, corporation and business enterprise, it is extremely necessary to keep prepare to face any situation at any time. A good homework is needed to cope with harsh economic crisis and it is only possible when companies start preparing for this while still having a cheerful profitable time.

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