Alexei Kredisov: “After the 1998 crisis business faced a lack of loyalty to employers”
Building, 14 November 2008
Alexei Kredisov, Managing Partner of Ernst & Young Ukraine
The current financial crisis impacts not only macroeconomic indicators and tax revenues but also the plans of each and every enterprise. Most companies have reviewed their development strategy and reduced expenses. Alexei Kredisov, Managing Partner of Ernst & Young (Ukraine), shares his views on how Ukrainian business views its future. It is noteworthy that Ernst & Young has been the first to complete a full-scale survey of the impact of the economic crisis on Ukrainian companies.
Q: In which areas are Ukrainian companies experiencing the impacts of the current economic crisis?
A: Reduction of total sales is the major impact, according to 60% of survey participants. The crisis impacts include general deterioration in the financial sector, difficulties with buying foreign currency and a high inflation rate. In most cases, businessmen referred to certain difficulties with staff – reduced motivation, difficulties with hiring professional staff, job cuts and lower morale. The crisis has repercussions in all industries, but the strongest impacts are being felt in the financial sector, real estate, construction and metallurgy. It should be mentioned that survey participants expect its negative effects in all sectors.
Q: What actions do companies plan to take?
A: Eighty percent of survey participants plan to reduce their expenses. One should expect that they will bring down both operating as well as long-term capital expenses, in particular on new technologies, business development and payroll. Fifty-five percent of respondents will seek to improve the company's liquidity and financial efficiency. For streamlining financial flows and corporate governance, they plan to focus on intracompany efficiency. Unfortunately, 30% of companies plan job cuts.
Q: Which positions will be cut first?
A: About 15 or 20% of respondents plan to reduce the number of manual workers, 12% will cut white-collar and administrative staff, and approximately 10% plan to reduce the number of mid-level and top managers. In general, 30% of companies plan to reduce the total number of their employees by approximately 15%. It is noteworthy, however, that the planned payroll cuts are much more modest. According to the current plans, the wages of those who survive job cuts will remain unchanged, although their social packages, i.e., various guarantees, insurance policies, and noncash benefits, will be reduced in any event. But the basic wages will be kept unchanged. Most probably, this means that companies do not project a prolonged crisis and will seek to retain their core staff for the sake of post-crisis growth. After the 1998 crisis with its massive layoffs and wage cuts, businesses faced a lack of loyalty to employers. While companies plan to reduce staff, they will be letting go off the inefficient staff. They will not reduce either essential employees or their compensation packages. This is an interesting observation.
Q: What are the expectations of Ukrainian companies for the next year?
A: Ninety percent of respondents projected that the Ukrainian economy would experience difficulties and would register a modest downturn. It is noteworthy, however, that half of Ukrainian entrepreneurs expect that their businesses will grow under the current conditions. The opinion of businessmen is split. Approximately half of respondents have a favorable outlook: they expect their total sales and profits to be the same as in the current year or even slightly higher. The other half expects a fall in total sales and only 15% expect significant deterioration. That is to say, despite the expectation of economic difficulties, businesses have contradictory projections regarding their own business.
143 domestic and foreign companies operating in Ukraine took part in the survey Impact of the economic crisis on Ukrainian companies.
Interviewed by Anna Levchenko
