Downsizing Trend Here To Stay
Corporate America has an early Christmas present for workers: another round of job cuts. The pace of downsizing has picked up recently, both locally and nationally, even as the U.S. economy finishes its strongest year in more than a decade.
In New England, technology firm Cabletron Systems Inc. of New Hampshire and photography giant Polaroid Corp. of Cambridge announced a total of 2,100 layoffs Tuesday. On the same day, RJR Nabisco Holdings in New York and Boeing Co. in Seattle said they would eliminate more than 14,000 jobs.
In the past month, Eastman Kodak Co., Citicorp, Levi Strauss & Co., Hasbro Inc., and Whirlpool Corp. have set similar plans.
Economists say there is more to come.
The cutbacks are a response to current business difficulties, but they are also being done with an eye toward 1998. “Companies are realizing they are going to have trouble earning the kind of profits Wall Street expects,” said Mark Zandi, chief economist at Regional Financial Associates in Pennsylvania.
The combined impact of a strong dollar, weak Asian economies, and a slowing U.S. economy will make it difficult for U.S. companies to boost sales next year, say analysts. If sales are flat, simple mathematics dictates that the only way to increase profits is to cut costs. Since labor is the biggest component of business costs, it becomes the obvious target.
What lies behind the latest round of downsizing? Analysts point to a few critical factors:
Troubles in Asia. Corporate America was counting on Asia to be a source of growth next year. Not anymore. The currency crisis in Southeast Asia and Korea and the stagnation of the Japanese economy mean exports to Asia will probably shrink in 1998. On top of that, Asian producers are expected to send more of their goods to America, which in turn could force domestic companies to cut prices to remain competitive.
The strong dollar. At current levels, the dollar makes American goods more expensive overseas and foreign goods cheaper in this country. Japan’s Fuji Photo Film Co. has taken advantage of a weak yen to launch a price war against Kodak, which is eliminating more than 16,000 jobs in response.
The merger wave. The year just ending is already the biggest one ever for corporate mergers, according to Securities Data Co., a research firm. Cost cutting is often one of the goals of mergers, so it is no surprise layoffs are often part of the mix.
Wall Street pressures. “Wall Street wants to see quarter to quarter progress,” said Ned Riley, chief investment officer at BankBoston Corp. For most of the 1990s, Wall Street got what it wanted. But analysts expect profit growth to slow next year. Given that scenario, the pressure to cut costs will only intensify, they predict.