Corporate executives in and outside Barbados are obsessed these days with austerity, or so it seems.
From top decision makers at some of Barbados’ largest firms to Neal & Massy in Trinidad and Tobago and LIAT, the reaction to gloomy forecasts is the same: we have to cut costs.
Invariably, that means shutting down facilities and letting go workers, just like Neal & Massy did recently when it pulled the plug on Almond Village, a move that will put at least 500 people out of work by the end of April.
But while austerity can be necessary, it shouldn’t be seen as the lone option. Three years ago Sir Courtney Blackman, a former Governor of the Central Bank of Barbados, struck a note of caution about laying off workers as the recession began to hit hard in earnest when he urged Barbadian companies not to rush into cutting payrolls by shedding workers in order to save money or boost corporate profits.
Why? They should prepare for the day when prosperity returns and must be able to respond immediately to the demands of the marketplace.
The case he cited was Boeing, the major United States aircraft manufacturer which went the layoff route only to be forced into a massive rehiring programme when orders for new aircraft began to flow in.
The latest example of that is Caterpillar Inc., the world leader in heavy duty equipment. Around the time Sir Courtney was advising Bajan firms to hold off on cutting payrolls, Caterpillar was doing the opposite in the United States and around the world. In 2009, for instance, it responded to the global economic downturn by firing 33 000 workers worldwide, shutting down plants, and cutting ties to some of its agents.
Now, it’s on a hiring binge and undertaking a major expansion. In the past two years as the American economy began showing signs of life once again and emerging economies ordered more equipment, Caterpillar Inc. had to build or update 15 plants and was forced to hire thousands of workers while committing to a US$2 billion capital investment programme.
The economic resurgence at home and growth abroad has opened the floodgates on demand for excavators, bulldozers and other mining and production machinery. That’s why Caterpillar is now the “poster child for America’s manufacturing renaissance”.
The truth is that Caterpillar didn’t plan for such an economic revival and the lesson for Barbadian and other Caribbean companies is that they shouldn’t make that mistake. “We came out of the recession much stronger and faster than expected,” said Doug Overhelman, Caterpillar’s chief executive.
“I’m not one for passing up sales, so we really had to ramp up production quickly.”
Figures tell much of the story. The company has a backlog of US$30 billion in orders that must be filled. That’s three times more than what it was when it switched into cost-cutting high gear in 2009. As a result, some of its customers must wait until 2014 for the equipment they badly need today.
There is another price Caterpillar is paying: pent-up demand for equipment is so great, it is giving competitors a chance to slice into its market. Already, Komatsu of Japan and Hyundai of South Korea are making their presence felt by undercutting Caterpillar on price. For instance, Hyundai is offering customers equipment for 35 per cent less than Caterpillar’s and a shorter delivery time.
When Caterpillar reports its first quarter earnings on April 25, don’t be surprised if its profits exceed US$2 billion on US$16 billion in sales, a 47 per cent increase on the whole of 2009. Its revenue this year should surpass the US$70 billion mark, US$20 billion more than for the whole of 2008.
Some executives and analysts in Barbados may dismiss much of this as irrelevant, insisting that Caterpillar is a different story that can’t be applied to the Caribbean country. However, it’s not rocket science to figure out that dwelling in an atmosphere of doom and gloom can make a company lethargic. And that means it wouldn’t be investing for the future.
Caterpillar’s chief financial officer Ed Rapp explained that the company’s business typically runs in a six-year cycle but “this time we’ve tried to invest earlier”. That’s something Barbadian firms may wish to think about.
