Large corporates such as Amazon, Meta, Netflix, Microsoft and others announced layoffs. According to data from layoffs.fyi, a layoff statistics platform, between 2022 and early 2023, a total of more than 106,000 technology industry jobs are laid off. Though the economy has slowly recovered after the epidemic, the world is facing the rising interest rates, high inflation, and lingering concerns about a possible economic recession. However, do layoffs bring company efficiency, or save some money?
Layoffs equal to saving money?
Meta CEO Mark Zuckerberg announced earlier that 2023 will be the ” year of efficiency”, which may be a forecast of the upcoming large-scale layoffs. For large corporates, manpower streamlining can improve corporate efficiency. Although layoffs are claimed to save costs, layoffs often lead to huge short-term expenses, because companies need to pay thousands, or even tens of thousands, of severance expenses at a time.
The U.S. Small Business Administration (SBA) estimates that the actual cost of laying off each employee is 1.25 to 1.4 times their salary, and the companies that lay off employees need to bear these potential costs. Some large companies have paid more than $7 billion for layoffs.
Outsourcing
Outsourcing is an effective system for corporates to maintain their competitiveness. Generally speaking, corporates choose outsourcing to reduce costs, streamline the structure, and concentrate on core business. However, when companies decided to outsource, they usually paid too much attention to cost considerations and often ignored that there are always two sides to everything. Labor disputes under outsourcing will increase, because corporates may think that they can exploit outsourcers unscrupulously, but outsourcers are businessmen, so they naturally try to pass the squeezed costs on to employees or suppliers.
When the Boeing 787 “Dreamliner” was put into production, a large number of processes were outsourced. The original thoughts was it would save time and manpower, but it turned into a nightmare. Not only were serious overruns, but also more delays in delivery, and Boeing later had to acquire those outsourcers that in financial difficulties.
On the other hand, the inadequacy of the outsourcer is a nightmare. If the outsourcer is too shrewd, it may also pose a threat. South Korea’s Samsung used to be an outsourcer for many Japanese electronics companies, so it got a valuable opportunity to equip themselves. Samsung grew up quickly, and its achievements far surpassed those Japanese electronics companies. On the contrast Samsung rarely outsourcing, it probably because they don’t want to pose a threat to their own business.
Summary
Whether layoffs and outsourcing are good or bad does not tie with the decision, but on how the company clearly explains to the affected employees in order to gain their support and understanding. Otherwise, although the efficiency is improved, the staff morale will be affected due to the loss of confidence in the enterprise, and high-quality employees will not be retained. The result is not worth the loss.