Maintaining Profitability in a Recession
GHD is one of the top 50 companies in Australia with a bias in the services industry. Overall performance for the year 2008 was good with revenues up by 39 % and stakeholder expectations for the year 2009 are high despite recessionary effects being felt globally (GHD, 2007). The major challenges facing management are how to increase or at least maintain high profitability at a time of shrinking incomes (Hogan & Dean, 2008). Economic forecasts for the year 2009 show a likely downswing in all sectors of the global economy, with the services industry likely to be the hardest hit (Seager, 2008).
At the same time, rival companies are beginning to venture into areas that GHD held a virtual monopoly. Their entrance into the industry is causing ripples as they are able to undercut the company and entice reliable customers away. Startup companies with lower overheads are also giving the company stiff competition when it comes to levying fees. The founders of some of these companies have been former employees who took early retirement or were retrenched as part of the company’s cost saving measures. GHD’s strategy has been to provide superior services by employing the best brains in the industry.
This has meant that the salaries paid to company staff have been very attractive so as to retain top notch experts that can satisfy client’s requirements. With a poor economic future looming and budget cuts being made by most companies, the prospect of generating high profits without making drastic cuts in employment levels (or at least remuneration) seem bleak (Cohen, 2009). Clients in the emerging markets of Asia are developing their own pool of human resources while the African markets are largely underdeveloped such that they cannot adequately absorb the services GHD has to offer (APEC, 2009).
The dilemma facing management is further complicated by the development of regional trading blocs that encourage the abolition of tariffs and make the movement of resources across borders seamless. As a consequence, labor can easily migrate to any part of the world and offer their services cheaply. References APEC. (2009) Capacity Building Network. APEC website. Accessed on 19 January, 2009 from http://www. apec. org Cohen, A. (2009) EU Cuts 2009 Economic Outlook. The Wall Street Journal accessed on 19, January, 2009 from http://online. wsj. com/article/SB123235965001894597. html GHD.
(2007) Consolidated Financial Report for GHD Group Pty Ltd as at 30 June 2007 accessed on 19 January 2009 from www. ghd. com. au Hogan, W & Dean, K. (2008) Australian Outlook. ANZ Economic Outlook 15th October 2008. Accessed on 19 January 2009 from http://www. anz. com/aus/corporate/Economic-Research-And-Publications/Economic-Research/Economic-Outlook/default. asp Seager, A. (2008) Poor outlook for services sector raises likelihood of big interest rate cut. The Guardian, Thursday 4 December 2008 Accessed on 19 January 2009 from http://www. guardian. co. uk/business/2008/dec/04/bankofengland-credit-crunch-interest-rates-services-sector