Impact of Global Economic Crisis on HR Strategies-Challenges and Issues

By Kochhar, Veeran | Political Economy Journal of India, July-December 2009 | Go to article overview
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Impact of Global Economic Crisis on HR Strategies-Challenges and Issues

Kochhar, Veeran, Political Economy Journal of India


The global economic crisis has brought to the forefront of the business organization the concepts of viability and survival. This paper seeks to specify in the first section areas of reactions in the organization. In the second section, it deals with the challenges and opportunities for the future to keep the organization on right track in tough times. In the third and final section HR strategies are discussed which are relevant in times of crisis.

I Areas of Reaction in the Business Organizations

The Global Economic Crisis has very serious dimensions as it has impacted the world economies in total. The Global impact of the current crisis may be outlined as under:

* Open economies like USA, UK turning protectionist leading to tight visa and outsourcing norms.

* Massive job cuts in USA, UK, Japan by major companies.

* Adverse impact on exports and deferred capital expenditure.

* Slowing down of industrial output and corporate profits, finally resulting into lower GDP rate.

* Rise in Non-Performing loans that would make the banks cautious in funding.

* Much more stressful environment for employees. Well managed companies like Toyota and Microsoft also have been substantially affected by the economic downturn, individual consumers have lost confidence and spending has come to a halt. According to Prof.Nouriel Roubini, "This is the worst financial crisis we had since the Great Depression" The crisis is not v-shaped rather it is U-shaped as is shown in the figure 1


The world is in the middle of a U. It is almost a year and half into recession and the fall in output is going to continue, the job losses and the recession could last up to the end of 2010.

As a result of Global Economic crises, three reactions in business organizations are worth discussing.

1. Corporate Reaction for viability.

2. The employee Reaction for Survival

3. Human Resource Reaction for Adaptability in Recruitment, Training and Institutional Learning.

Corporate Reaction for Viability

* The immediate response to Global downturn by most business organizations has been to take immediate initiatives to conserve cash, reduce costs and improve efficiency.

* The fundamental goal is not to maximize profits but to remain viable or to maintain current market share.

* The efforts for viability include focusing on core activities, developing contingency plans, refining Just-in-time delivery of raw materials and final products i.e. shortening the supply chains, wringing costs out of every element of production, discarding or extending the use of every corporate asset.

* The planning horizon is abbreviated.

* Every corporate function that does not obviously contribute to positive cash flow is halted.

* Previous corporate, decisions, plans and methods may be repudiated.

* Corporate executives must define reality, and then intentionally clarify the future focus, priorities and plans of the company.

* For viability, new plans must have room for innovation which provide opportunities to grow more rapidly than competitors and to influence ultimately the direction of the industry.

* The foundation of useful corporate plans is honesty, realism and transparency.

The Employee Reaction for Survival

The current global recession has created a much more stressful environment for employees and must be handled effectively by managers and HR officials to help the organization to achieve its business objectives. Employees on account of crisis are struggling with number of new stressors such as:

Loss of Laid-offs: Employees may be struggling with loss of laid off colleagues. These colleagues were part of their workplace social network as well as carrying part of total workload.

Stress: Besides the experience of loss, employees may be struggling with heightened stress due to the impact of the recession at work or at home.

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