Big Layoffs Despite Economic Upswing Really Not a Paradox : Labor: Large corporations are being increasingly challenged by savvy and efficient smaller enterprises.
Despite an improving economy and declining unemployment, the layoff ax is still swinging at many of the nation’s best-known corporations.
On Wednesday, Xerox Corp. announced that it will eliminate 10,000 jobs, more than 10% of its work force, over the next two to three years. The Xerox news came one day after RJR Nabisco Holdings Corp., the consumer products giant, said it will slash 6,000 jobs.
Both moves come on the heels of similar cutbacks that have hit not only troubled companies such as IBM and General Motors, but also relatively healthy firms including Philip Morris and Procter & Gamble.
Yet unemployment last month plunged to 6.4%. A paradox? Not according to some labor market economists, who see the conflicting news as a reflection of how small, technology-savvy enterprises are replacing the behemoths of old.
Many economists believe the broader impact of job cuts at the Fortune 500 companies is easy to exaggerate, because job growth has for more than a decade been coming from small companies. And it is not a question of coffee shops and Fotomats replacing factories; rather, networks of sophisticated small enterprises are carrying out the tasks once performed by large, integrated firms.
“The downsizing of big firms is much misunderstood,” said Erik Brynjolfsson, an assistant professor of management at the Massachusetts Institute of Technology who recently completed a study on the subject. “Technology has made it easier for different firms to coordinate their activities with one another, and they don’t have to be part of one company. They can get the benefits of scale without the inertia of scale.”
Such change is clearly visible in the automobile and computer industries. Whereas General Motors and IBM once produced nearly every component that went into their cars and computers, the best cars and computers today contain thousands of parts from hundreds of different suppliers--and are not, in most cases, made by General Motors and IBM.
While troubled old-line manufacturing companies have often blamed their difficulties on global competition--especially from Japan--it now appears that in many cases the real challenge was organizational. Similarly, consumer goods firms often talk of a new price consciousness on the part of consumers as the problem, but they may just be suffering competition from small, efficient and highly specialized purveyors of food, shampoo or other products.
“There’s been a change in technology and a change in the markets that favors smaller units,” said Daniel J.B. Mitchell, a professor at UCLA’s Anderson School of Management. “The underlying shrinkage of the old industrial sector was obscured” by strong economic growth through the 1980s, Mitchell added, but it is now coming clear.
Xerox, a classic postwar success story, illustrates some of these trends. After inventing the copying process from scratch in the late 1950s and protecting it well with patents, the company grew at a torrid pace for two decades.
Once the patents expired, though, the company was ravaged by Japanese competition. It recovered in part via a highly successful joint venture with Fuji. In the meantime, the company failed to exploit the brilliant innovations that emerged from its Palo Alto Research Center and pursued an ill-conceived diversification into financial services.
The company, based in Stamford, Conn., began its current restructuring in late 1991, pledging to sell its insurance and investment banking units, and began trimming what many considered a bloated staff. Xerox still dominates the market for high-end copiers and posted revenue of $3.6 billion for its document-related technologies in the most recent quarter.
But earnings were just $148 million, leading the company to decide that it had to cut jobs. It has not yet determined exactly where the cuts will occur. Xerox employs 10,000 people in California, including 3,500 at its El Segundo factory.
Xerox stock jumped $5.625 on Wednesday, closing at $86.375 on the New York Stock Exchange.
Analysts said they expect many of the cuts to come in the company’s service operations, which account for about a quarter of revenue. Tellingly, Xerox said Wednesday that it settled an antitrust lawsuit with third-party service providers, agreeing to give them $225 million in discounts.
Thus, it is likely in the future that these outside service vendors--smaller and nimbler than Xerox--will absorb more of the work once performed by Xerox. Likewise, Xerox now sells low-end copiers made by an outside firm, Sharp (though Sharp is hardly small).
In theory, if layoffs at Xerox or any other big firm result in more work for outside vendors, the impact on employment should be neutral, which helps explain why unemployment has been dropping even amid the layoff headlines.
Biggest Job Cuts
According to Challenger, Gray & Christmas, a Chicago-based job placement firm, more than 583,000 Americans have been idled through November of this year due to layoffs or other work force reductions.
Time Job Announced period Company cuts date (years) Xerox 10,000 Dec., 1993 1 RJR Nabisco 6,000 Dec., 1993 3 Philip Morris 14,000 Nov., 1993 3 BellSouth 10,200 Nov., 1993 3 AT&T; 4,500 Nov., 1993 * Woolworth 13,000 Oct., 1993 * Martin Marietta 11,000 Oct., 1993 1 U.S. West 9,000 Sept., 1993 3 IBM 60,000 July, 1993 * Procter & Gamble 13,000 July, 1993 4 Boeing 28,000 Feb., 1993 2 Sears, Roebuck 50,000 Jan., 1993 * IBM 25,000 Dec., 1992 1 BankAmerica 12,000 March, 1992 3 United Technologies 14,000 Jan., 1992 4 TRW 10,000 Dec., 1991 1 General Motors 74,000 Dec., 1991 4 U.S. Postal Service 47,000 Sept., 1991 4 General Dynamics 30,000 May, 1991 4
*unspecified
Sources: Los Angeles Times, wire reports
Researched by ADAM S. BAUMAN / Los Angeles Times
