Receiving the dreaded pink slip can be a catastrophic moment in any individual’s life. Shattering financial stability, evoking the “why me” feelings, and triggering unimaginable personal anguish, layoffs can certainly cause identity crisis, emotional distress, and even health implications at an individual level.
But let’s not forget the ripple effect it creates within economies. From reduced consumer spending and tax revenues, to increased government spendings (in economies that provide unemployment benefits) and long-term economic scarring, layoffs can potentially reshape the social, political and economic fabric of affected economies.
Where are the mass layoffs?
Whether it is tech giants, such as Google, Amazon, Meta, Dell, Microsoft, retail big shots, such as Walmart, McDonalds, financial megastars, such as Wells Fargo, Goldman Sachs, Citi, Morgan Stanley, consulting biggies, such as Accenture KPMG, Deloitte, or manufacturing heavyweights, such as General Motors, 3M, mass layoffs have taken place or are in-progress across several industries worldwide. The list of companies cutting back their workforce amid increasing economic uncertainties is growing with every passing day. In fact, it is even spilling into smaller businesses and start-ups across sectors, including Fintech, crypto, enterprise SaaS, transportation, digital media, and more. Leading the pack with almost 240,000 employees laid-off so far in 2023, the global tech sector is witnessing one of its most distressing years in recent times. Besides tech companies, businesses in warehousing, transportation, construction, manufacturing, wholesale trades, and real estate are also on the verge of massive job loss, if it has not already begun.
Why are so many people being laid off?
The pandemic years sparked a staggering shift towards online services and forced tech companies into a hiring frenzy to keep up with the demand. However, post-pandemic realities are turning out to be different from earlier expectations, compelling businesses to quickly adjust to the present realities of:
* Uncertain market conditions caused by global economic interdependence and geopolitical turmoil in various parts of the world
* Reduced consumer spending due to declining demand for certain products or services
* Redundancies in certain roles due to adoption of remote and hybrid work models
* Cost cutting measures to either mitigate pandemic time losses, or improve performance and profitability
* Supply chain disruptions that are impacting production and revenue generation
* Increased reliance on digital services, leading to permanent shifts in consumer behavior, and necessitating workforce adjustments in affected industries.
Can India escape it or should Indians be worried?
The short answer – No, we cannot escape the ripple effects of what is happening globally. Layoffs are like economic earthquakes that send shockwaves throughout the world, and as an emerging economic superpower, India will not remain unscathed. Ban Ki-moon, the former Secretary-General of the United Nations once said, “In the interconnected web of global commerce, layoffs in one corner of the world reverberate throughout, exposing the fragility and interdependence of our economies.”
In light of India’s prominent role in the global labor market, there will be repercussions in various areas of our economy:
* Intensified Job Market Competition: The surge in global layoffs has led to a surge in job market competitiveness in India, in turn contributing to higher unemployment rate and greater challenges for those seeking employment.
* Decline in Exports: The worldwide economic deceleration has reduced the demand for Indian exports, impacting the country’s trade balance negatively. The situation is compounded by the adoption of protectionist measures by many countries in response to the pandemic or due to other political factors.
* Mounting Pressure on Domestic Industries: With the reduced demand for Indian exports, domestic industries face greater competition from their international counterparts and are under intense pressure to maintain their competitiveness despite the current economic circumstances.
* Diminished Remittances: Indian citizens who have lost their jobs abroad are unable to provide the same level of remittances as before for supporting their families in India. The overall decline in remittances adversely affects the Indian economy, as remittances are a significant source of our foreign exchange and account for around 3% of our GDP.
* Fluctuating Foreign Investment: The government’s FDI policy reforms boosted transparency and opened up strategically important sectors for 100 percent FDI under the automatic route. While this step led to the highest-ever FDI inflows of $84.84 billion in 2021-22, the inflows contracted by around 16% in the first half of the current fiscal as foreign investors adopted a cautious stance due to the global economic slowdown, including loss of jobs across sectors.
What happens when the job losses hit our shores?
In addition to the dents in consumer spending, tax revenues and remittances,
* Sectors, such as tech and e-commerce that serve as the back office or outsourcing operations for global companies could suffer massive job losses in India.
* Sectors that are heavily dependent on exports may face growth and sustainability issues due to the reduced demand and depleting spending power in international markets.
* Global companies with offices in India could potentially cut budgets for the spaces that they hold, or swap large offices for smaller facilities, leading to a reset in our real estate sector. There could also be instances of rent defaults and delays, leaving commercial landlords in a financial crisis.
Job cuts or job growth in India?
In 2022, India accounted for around 11% of the global layoffs, which was down to 4% by early 2023. Job cuts in India are relatively lower than global averages simply because international companies are looking at our stable economic condition as a positive sign to continue operations without significant reductions. In fact, many recruitment consultants and executive staffing firms have indicated that a number of global companies are looking to relocate their downsized operations to India for greater cost efficiencies. Hence, the effects of the global layoffs in India may remain confined primarily to the IT product and services companies, with startups in this space being the most vulnerable.
Bracing for turbulence
In the face of imminent global layoffs, it is important that companies in India take decisive steps to mitigate the ensuing economic turbulence. This includes:
* Investing in employee reskilling and upskilling to maintain workforce adaptability amid increased job market competition.
* Embracing digital transformation and innovative technologies for enhanced operational efficiency.
* Forming strategic alliances, both domestically and internationally, to share resources and expertise, which can be instrumental in navigating economic shocks.
* Practicing compassionate leadership, offering emotional support, and providing flexible work arrangements to boost employee engagement and productivity.
Most importantly, we need to remain agile and adapt quickly to the changing market dynamics. That is the only way we can ensure competitiveness and resilience in uncertain times. In fact, these global economic conditions present us with an opportunity to become more adaptable, innovative, and sustainable. Focusing on these key strategies will help businesses in India to not only weather the storm, but also emerge as leaders in the evolving global economic landscape.
About the Author: Narayanan, Founder & CEO of Practus.
Disclaimer: The views expressed are solely of the author and ETCFO.com does not necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.