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Cost Cutting Lessons Learned From China During This Economic Slump

 


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When the economy struggles, one of the first steps taken by companies is to find ways to cut costs. One of the most common areas cut is in the number of employees. For example, the total number of layoffs reported in December 2008 was over 500,000, bringing the total number of corporate pink slips to over 2.5 million. This is the worst year for layoffs since 2001 when 1.6 million jobs were lost as the nation was recovering from the last recession and the 9/11 attacks.

According to human resources experts, the strategy of reducing jobs is a very “short-sighted" approach and will ultimately cost the company more in the long run when these companies are forced to pay higher salaries and offer more attractive incentives to lure the talent they let go. Tony Goodwin, CEO of Antal International a global recruitment company, has said, “In these uncertain times when the developed economies, especially the US, are sliding into a recession, corporate executives need to be careful while formulating the human resources strategies. " Goodwin goes on to say that “Companies that are now firing people would experience problems next year when the economy improves. . . . These companies will have no choice but to start rehiring then at higher costs. "

Chinese companies are very much the opposite in their human resources strategy. They are more conservative in their approach to cost control. Chinese companies do not offer huge salaries for talent, but also they do not turn to mass layoffs when the going gets tough. Even during this global economic slowdown, Chinese companies are encouraged to continue creating jobs and hire laid off foreign talent. Chinese companies also take measures to avoid job cuts first.

For example, China Eastern Airlines, one of China's largest airlines based in Shanghai, recently launched a cost-cutting campaign to reduce costs during this economic slump. Instead of huge layoffs, as would be seen in the United States, they are slashing executive salaries, encouraging unpaid vacation for employees, and cutting unprofitable routes. In the US, we see no decrease in executive salaries, an increase in job cuts, and a decrease in routes and even in-flight services (a topic for another day).

Job cuts during this economic downturn will only cost more in the long-term. It may temporarily reduce costs; however, when the economy turns around (and yes, it will turn around), it will cost you substantially more to rehire lost talent due to the economics of supply and demand. Instead, we can humbly follow the example of China and look for other more creative ways to cut costs, which may mean the business owner(s) taking lower salaries and reducing services. This may also be an opportunity to hire very experienced and talented individuals.

Aaron Wong is the Founder of AQI (Arrow Quality International), the first and leading Chinese Bridge consulting firm. Aaron is an extremely fluent speaker of Mandarin Chinese, and proficient in Cantonese Chinese (so he claims). He has over 7 years in the translation industry in positions of freelance translator and contract Federal Government linguist. Aaron has been involved in many business ventures that include selling his family cherries when he was 10 to a computer business when he was 13 to sending English teachers to China and Taiwan to teach English at 24. He graduated from the University of Utah in 2 years with a dual Bachelor's degree in Chinese and Asian Studies; and received his Masters in Management with an emphasis in business management from Colorado Technical University with a 4.0 GPA. Aaron received his MBA from the University of Utah in the spring of 2007. He also currently serves as the Secretary of the Board of Directors for the Lehi Area Chamber of Commerce, a volunteer Business Counselor for SCORE, a Student Mentor for the University of Utah SMART Start program, and has been recognized as a Top 40 Under 40 Professional by BusinessQ magazine. Find out more at http://www.arrowquality.com

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