Employment Adjustment Strategy for a Property Development Company

Employment Adjustment Strategy for a Property Development Company during Economic Crisis Associate Prof. Sonthya Vanichvatana, Ph. D. MRICS, Associate Architect Assumption University of Thailand (ABAC) Martin de Tours School of Management, Department of Real Estate

Introduction ABAC Many questions arise including the following: p What approaches business management, strategy, and/or activity should be employed to reduce employment cost during economic crisis? p Are there any similarity and/or difference in term of employment adjustment approaches between the economic recession situation during A. D. 1997 – 2000 and 2008 for real estate developers? Sonthya Vanichvatana 2

Research Objectives (1) (2) ABAC To study approaches for employment adjustment during the two economic crises in Thailand, To analyze different approaches against a) b) c) product type (low-rise, high-rise, and mixed products), the size of capital, and the business experience (year) and to compare the similarity and/or differences between the two economic Sonthya Vanichvatana crises (3) 3

Research Scope ABAC Focus on the surviving strategy applied during the 2 economic crises: (1) during A. D. 1997 – 2000 and (2) during A. D. 2008 – 2009 and beyond. 2) The survey will focus on residential real estate development companies for sale, covering both low-rise (single detached house, duplex, and townhouse) and high-rise (condominium). 3) The survey will cover the real estate development companies that have the memberships of the three main real estate professional associations in Thailand. The members of these three associations cover the majority of the market share, especially Bangkok Sonthya Vanichvatana and Metropolitan. 1) 4

Literature Review p ABAC Impact of Layoffs n Impact on Participants p p p n Impact on Cost p p n Job layoff victim: self esteem Survivor employee Firm reputation and management: stock price, HR Decline productivity or quality of firms Rehiring and retraining costs more than offsetting the short -term saving from reduced payroll expense Impact on Firm’s Knowledge p p An organization’s talent is a company’s primary source competitive advantage An individual leaves a firm taking away some piece of knowledge that supported he/she in performing the tasks associated with the job Sonthya Vanichvatana 5

Literature Review (Cont. ) p ABAC Employment Adjustment Through: payroll cut for management, bonus cuts, reduction of overtime, freezing new hires, dismissal of part-time workers, early voluntary retirement, reassigning and dispatching of surplus workers to subsidiary or affiliated company and reassignment of surplus workers to different sections of the same company n Benefits on Cost: p p n Provide ways to maintain the established professional relationships which have taken much time and financial resources to build Allow employees to return to the company when the economy improves, thereby avoiding direct rehiring and training costs, and indirect costs associated with new employee assimilation and adjusting to new work environment Benefits on Firm’s Knowledge p Retaining their employees is retaining their knowledge and expertise Sonthya Vanichvatana 6

Literature Review (Cont. ) p ABAC Employment Adjustment (Cont. ) n Japanese Employment Adjustment Aid Subsidy Provided by the Ministry of Health, Labour and Welfare p Available to business owners who, due to a contraction in their business activities caused by economic reasons related to fluctuating business cycles or changes in the industrial structure had to place employee on leave or transfer employees p Sonthya Vanichvatana 7

Literature Review (Cont. ) p ABAC Employment Adjustment Practices during Economic Crises in Thailand Vanichvatana and Peungchuer (2009: 1) qualitative research through in-depth interviews with real estate developers for strategies, techniques, and/or activities to survive during the two most recent economic downturns in Thailand. Benefits on Cost: n A part of the interview questions is about strategy to manage cost of a company. Sonthya Vanichvatana 8

Literature Review (Cont. ) Sonthya Vanichvatana ABAC 9

Literature Review (Cont. ) p ABAC The Characteristics of the Two Economic Crises in Thailand Vanichvatana and Peungchuer (2009: 1) Sonthya Vanichvatana 10

Research Methodology ABAC Research process Extends the previous work of Vanichvatana and Peungchuer (2009) with quantitative research to examine the norm of the real estate industry in Thailand. Quantitative Analysis To envision to norm conduct of the real estate industry in Thailand through questionnaire survey. 1)Descriptive Analysis 2)Chi-Square Tests Sonthya Vanichvatana 11

Hypothesis I. Real estate development company use many employment adjustment approaches II. ABAC There are differences in employment adjustment strategies between the two economic crises Sonthya Vanichvatana 12

Variables ABAC Abbreviations Meaning Independent Variables Capital_Cat – Capital Category, capital of the respondents as registered to the Ministry of Commerce, Thailand: 1 = Low capital, capital less than 100 million baht[1], 2 = Medium capital, capital between 100 million to 500 million baht 3 = High capital, capital more than 500 million baht Prod. Type_Cat – Product Type Category, the product type of the respondent: 1 = Low rise, 2 = High rise, 3 = Mixed type (low rise and high rise) Exp_Cat – Experience Category, experience, in year, of the respondents as checked from the registered information with the Ministry of Commerce, Thailand: 1 = Low experience, work less than 5 years, 2 = Medium experience, work less between 5 to 12 years, 3 = High experience, work more than 13 years. FIN_Source 97_ X and FIN_Source 08_ X (X = 1 to 7) – Types of source of finance: 1 = Share holders as a source of finance, 2 = Foreign alliance, 3 = Existing banks/financial institutions, 4 = New banks/financial institutions, 5 = Pressed sale and transfer of finished units in the stocks, 6 = supplier credits, 7 = Change business from for sale to lease. [1] The current currency exchange rates are as following: 1 USD = 34. 5 Baht, 1 AUD = 27. 3 Baht, 1 GBP = 56. 5 Baht, and 1 EU = 45 Baht. Sonthya Vanichvatana 13

Variables ABAC Abbreviations Meaning Dependent Variables Layoff 97 and Layoff 08 – Types of Layoff Plan: 1 = No layoff plan, 2 = Not layoff yet, 3 = Layoff less than 10% of total staffs, 4 = Layoff between 10 -50% of total staffs, 5 = Layoff more than 50% of total staffs Payroll. Cut 97 and Payroll. Cut 08 – Types of Payroll Reduction Plan: 1 = No payroll reduction plan, 2 = Not have payroll reduction plan yet, 3 = Plan to reduce payroll less than 10% of the salary, 4 = Plan to reduce payroll between 10 -50% of the salary, 5 = Plan to reduce payroll more than 50% of the salary Employ. Adjust 97 and Employ. Adjust 08 – Types of Employment Adjustment: 1 = Reduce payroll/salary, 2 = Reduce overtime (OT), 3 = Reduce bonus Move. Staff 97 and Move. Staff 08 – Whether have plan to dispatch staffs to subsidiary or affiliated company 1 = Not have 2 = Have [1] The current currency exchange rates are as following: 1 USD = 34. 5 Baht, 1 AUD = 27. 3 Baht, 1 GBP = 56. 5 Baht, and 1 EU = 45 Baht. Sonthya Vanichvatana 14

Findings: Layoff p ABAC The layoff situations for the property developer respondents during 1997 -2000 are more severed than those during 20082009 Sonthya Vanichvatana 15

Findings: Payroll Reduction p ABAC The payroll reduction approach situations for the property developer respondents during 1997 -2000 are more severed than those during 2008 -2009. Sonthya Vanichvatana 16

Findings: Employment Adjustment Approaches p p ABAC During the 1997 -2000 crisis, the respondents imposed the more sever approach of ‘Payroll Cut’ than during the 2008 -2009 crisis. In the other hand, the more compromise approaches of ‘Reduction of Overtime’ and ‘Reduction of Bonus’ are applied during the 2008 -2009 more than during the 1997 -2000. Sonthya Vanichvatana 17

Findings: Move Staff p ABAC The ratio is similar in both crises for imposing Dispatch staff to subsidiary or affiliation company Sonthya Vanichvatana 18

Findings: Relationship between Employment Adjustment Approaches and Real Estate Developers’ Attributes p ABAC Chi-square tests for any relationship between the defined independent variables and dependent variables Sonthya Vanichvatana 19

Findings: Relationship between Employment Adjustment Approaches and Real Estate Developers’ Attributes Sonthya Vanichvatana ABAC 20

Findings: Relationship between Employment Adjustment Approaches and Real Estate Developers’ Attributes ABAC Similarity: (i) (ii) ‘Layoff’ variable has no significant relationship with any independent variables during both economic crises. Both independent variables of ‘Exp_Cat_No’ and ‘Fin Source_1’ (Share holders) have no significant relationship with any dependent variable. Sonthya Vanichvatana 21

Findings: Relationship between Employment Adjustment Approaches and Real Estate Developers’ Attributes ABAC Similarity: (iii) There are two similar pairs of dependent-independent variables in both crises: (i) ‘Employ. Adjust_2’ ‘Fin_Source_2’ =‘Reducing overtime’ ‘Supplier credit’ (as a source of finance during economic crisis) ‘Move. Staff’ ‘Fin_Source_5’ = ‘Move staff to subsidiary or affiliation company’ ‘Expedite sale and transfer of finished units in the stocks’ (as a source of finance during economic crisis) * (Vanichvatana and Peungchuer, 2009: 2) ‘Expedite sale and transfer of finished units in the stocks’ ‘High capital-category company’ * Any possible link between ‘Move staff to subsidiary or affiliation company’ and ‘High capital-category company’ ? Sonthya Vanichvatana 22

Findings: Relationship between Employment Adjustment Approaches and Real Estate Developers’ Attributes ABAC Differences: 1. 2. Only during the 1997 -2000 economic crisis, two dependent variables related to payroll cut, ‘Payroll 97’ and ‘Employ. Adjust 97_1’ (payroll cut) have significant relationship with independent variables Independent variables of ‘Capital_Cat_No’ and ‘Product_Type_No’ have no significant relationship with any dependent variable Sonthya Vanichvatana 23

Conclusion ABAC The results from the quantitative analysis can be concluded as follows: 1. Real estate developers applied many types of measures for employment adjustment during both economic crises 2. Respondents imposed more disturbing approach to reduce employment costs during the 1997 -2000 economic crisis than during the 2008 -2009 crisis Sonthya Vanichvatana 24

Conclusion (Cont. ) 3. ABAC For layoff and payroll reduction approaches during the 2008 -2009 crisis, respondents use less disrupt options for approaches than during 1997 -2000. In other words, for layoff during 2008 -2009, there is more proportion that chosen no layoff plan and no layoff yet plan than high percentage of layoff proportion. It is also similar for types of payroll cut plan 4. The approach for Dispatching staff to subsidiary or affiliation are similar in both crises Sonthya Vanichvatana 25

ABAC Q&A Sonthya Vanichvatana 26