Downsizing

Downsizing

Which industries have reduced fixed cost commitments?

The article talks about a few particular industries that have attempted to reduce their fixed costs. The first is the auto industry, with Honda being the company they mention. Honda had made a cut in its engineering staff due to a volatile sales environment. Since the sales of their autos were not very consistent Honda decided that they would downsize in order to have fewer expenses and have a better chance of making a profit. Honda figured if they had fewer fixed costs, which have to be paid even if they don’t sell many autos they would likely lose money and decided in response to this to lower the fixed costs.

Other industries mentioned by the article are the computer and technology industries. In these industries the technology they use is constantly changing rapidly. In response to this, companies such as IBM have decided to lower the amount of employees they employ and outsource products and equipment. This in effect reduces the amount of fixed costs spent on personnel, plant and equipment.

The third industry mentioned by the article is the utility industry. This industry has a very stable environment and a constant demand, which means they have no need to cut fixed costs in order to remain profitable.

Do you believe this reduction in costs has substantially impaired the ability of these industries to meet the needs of their customers?

The article gives two different views on the outcomes that downsizing and outsourcing can bring. With Honda, the downsizing of their engineering staff left them unable to keep up with the designing of new automobiles. Since they were unable to design new vehicles fast enough they could not keep up with what their customers wanted in a new car or truck. This caused the customers to look at other options and buy from Honda’s competitors, which lowered Honda’s market share.

The other company mentioned in the article, IBM,...