Company strategy

The recent global economic and financial crisis has generated challenges at all levels of economic policy decisions. Most of the companies in advanced countries and emerging markets have faced an urgent need to act concurrently on different fronts: systemically or politically sensitive economic sectors had to be bailed out; the general downfall in economic activity had to be counteracted; vulnerable population groups had to be protected from declining incomes. These costly actions were taken in a context of falling of crude oil price.

1. Most companies cut up to 15% of capital expenditures (capex) and up to 30% of operating expenditures (Opex)

Capital expenditures, or capex, is money used to purchase, upgrade, improve, or extend the life of long-term assets. Long-term assets are typically property, infrastructure, or equipment with a useful life of more than one year.

Many companies set minimum dollar thresholds for capex, meaning that capital expenditures below the threshold are simply expensed even though they exhibit capexcharacteristics. This is done to simplify the accounting process and avoid having to record insignificant depreciation expenses each period for small-value assets.

Capital expenditures generally takes two forms: maintenance expenditures, whereby the company purchases assets that extend the useful life of existing assets, and expansion expenditures, whereby the company purchases new assets in an effort to grow the business. It is important to understand that money spent to repair or conduct ongoing, normal upkeep on assets is not considered capex and should be expensed on the income statement when it is incurred.

2. Some companies has laid off staff up to 15% to reduce Opex, and increase profitability

The lower layoff rates observed during the last recession mirrored the relatively small peak-to-trough employment decline observed in recent years. During periods of economic downturn, companies may need to reduce their staffs through layoffs. Both hourly workers and exempt employees may face layoffs due to lack of work; however, companies use layoffs as a last resort, utilizing other methods for reducing their payroll expenses, such as furloughs. These payroll saving methods apply differently to exempt employees than they do to hourly workers. Individual employees may also be covered by contracts dictating whether they can be laid off. Consult with an attorney specializing in human resources issues with questions regarding this matter.

3. Recruitment of new staff has been frozen and staff in contract basis are not renewed

The effect of long-term hiring freezes is particularly damaging to the recruiting function, because no hiring generally means that a majority of recruiters will be laid off. Historically, budgets for recruiting have been cut so low that the function is literally decimated, making it rather difficult for companies to resurrect a decent function when the economy swings up.

4. Technical staff are redeployed to focus on cash generating projects

The redeployment of staff from one activity to another has a key part to play in helping to ensure a balance between the need for continuity and the need for change. Redeploying workers is a critical workforce planning tool that most companies with multiple operations can use to build strategies for managing fluctuations in both economic and production cycles. During an economic downturn, organizations must streamline their workforces and during upswings, organizations race to increase their workforce to capitalize on growth opportunities. Through redeployment, companies can offer employees relevant employment opportunities at specific locations based on current and forecasted workforce needs.

5. Maintenance and production expenditures are cut to minimal. This in turn may affect the integrity of the facilities in the long run.

The slump in the prices of oil and other forms of energy resulting from weak demand, together with expectations of lower prices compared with several years ago, have made new investments in production facilities generally less profitable, as costs, while starting to fall back generally remain high. The price collapse has also cut the production expenditures to minimal and plant operation are also minimal.