TERM PAPER OF HRM

2010
GLOBAL RECESSION AND
EMERGING CHALLENGES
FOR HUMAN RESOURCES
MANAGEMENT IN INDIA

VIVEK MOHAN
RT1809A14
10811582
07/05/2010
INDEX:
Sr. TOPIC PAGE
No. NO.
1. Introduction to global recession 3

2. Objectives 4

3. Hypothesis 4

4. Review of literature 4-5

5. Research methodology 5-6

6. Emerging challenges for hrm in india 6-16

7. Conclusion 17

8. Bibliography 18

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INTRODUCTION:
Meaning of Global Recession:

A recession is a decline in a country’s Gross Domestic Product (GDP)

growth for two or more consecutive quarters of a year. A recession is also
preceded by several quarters of slowing down. An economy, which grows
over of period of time, tends to slow down the growth as a part of the normal
economic cycle. An economy typically expands for 6-10 years and tends to
go into a recession for about six months to 2 years. A recession normally
takes place when consumers lose confidence in the growth of the economy
and spend less. These leads to a decreased demand for goods and services,
which in turn leads to a decrease in production, lay-offs and a sharp rise in
unemployment. Investors spend less; as they fear stocks values will fall and
thus stock markets fall on negative sentiment. Risk aversion, deleveraging
and frozen money markets and reduced investor interest adversely affect

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capital and financial flows, import export and overall GDP of an economy.
This is what exactly what happened in US and as a result of contagion effect
spread all over the world due to high integration in the global economy.

“Recession is:

• GDP is slowing
• Expansion of business slowly
• Falling employment rate
• Fall in housing prices.”

OBJECTIVE:
This economic downfall has affected all the major sectors in India including
IT, aviation, banking, real estate, tourism, outsourcing, telecommunication,
etc with its consequence mainly on the HR policies of these industries:

1. Impact of economic slowdown on employment in India

2. The emerging challenges of human resource management in the global
recession situation.
3. The strategy adopted by HR personnel to deal with these challenges.

HYPOTHESIS:
Global recession has raised various emerging challenges for Human
Resources Managers HR needs to be proactive & innovative and try to come
up with early interventions as for any organization to survive during
recession. In today’s economic meltdown where job cuts, loss, pay
reduction, last come first go, insecurity of employment atmosphere prevail,
HR has special responsibility to create ease environment to the affected by
counseling, displaying care and concern, preparing them for multi skill task,
engaging and deploying in other required areas of functions like security,
crisis management team, etc.
• Global recession has raised various emerging challenges for Human
Resources Managers
• HR needs to be proactive & innovative and try to come up with early
interventions as for any organization to survive during recession

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REVIEW OF LITERATURE:
“The global economic crisis is expected to lead to painful cuts in the wages
of millions of workers worldwide in the coming year. It predicts that the
slow or negative economic growth, combined with highly volatile food and
energy prices, will erode the real wages of the world’s 1.5 billion wage-
earners, particularly low-wage and poorer households.

Effects on wages in the current crisis:

‘The economic slowdown of the advanced countries which started around
mid-2007, as a result of subprime crisis in USA, led to the spread of
economic crisis across the globe. Many hegemonic financial institutions like
Lehman Brothers or Washington Mutual or General Motors collapsed and
several became bankrupt in this crisis. According to the current available
assessment of the IMF, the global economy is projected to contract by 1.4
per cent in 2009.Even as recently as six months ago, there was a view that
the fallout of the crisis will remain confined only to the financial sector of
advanced economies and at the most there would be a shallow effect on
emerging economies like India. Many economists are now predicting that
this ‘Great Recession’ of 2008-09 will be the worst global recession since
the 1930s’.
“The financial downturn that is impacting developed economies
are likely to get worse as the European countries, the US and others go into a
deeper depression due to the increase in Job losses which often follows
recession. The slump in the market and increased job losses will have some
important implications for the changing tasks of human resource
professionals. As the unemployment continues to increase, HR professionals
are likely to be dealing with more stressed employees who are the sole wage
earners in their families”.
“In emerging economies, growth is projected to slow down appreciably but
still may reach 5.0 percent in the year 2009. The overall recruitments are
lower for the industry this time as companies remain cautious amidst the
global financial crisis.”
“Growth in real wages has slowed down globally in
2008 because of the economic crisis and the trend is expected to continue in
2009, despite signs of economic recovery. Real wages in the first quarter of
2009 also fell in more than half of 35 countries, compared to the annual
average of 2008, “Wage deflation deprives national economies of much
needed demand and seriously affects confidence,” “Minimum wages are an
important policy tool for social protection and proposes that minimum
wages be combined with other income support measures and/or tax
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reductions”.

RESEARCH METHODOLOGY:

Secondary Data collected from various sources like :

• Economic & Political weekly

• HRM Journals
• ILO Reports
• Ministry of Labour & Employment Labour Bureau

ANALYSIS & INTERPRETATION:

I. Impact of economic slowdown on employment in India:

➢ Ripples of recession leading to reduction in exports to developed countries

are being felt by all the developing countries. Credit availability and its cost
have become major areas of concern. The combined impact of all these
factors would be loss of employment and reduction of income leading to
social distress.

➢ The global situation deteriorated rapidly after the collapse of Lehman

Brothers, one of the top five investment banks in the US, the collapse of
American International Group (AIG) Bank and also of the mortgage lender.
There has been a massive choking of credit since then and a global crash in
the stock markets.

➢ The deepening of the global crisis and subsequent deleveraging and risk
aversion in the global markets affected the Indian equity and the foreign
exchange markets.

The emerging challenges of Human Resource Management in the

times global recession:
The role of the Human Resource Manager is evolving with the change in
competitive market environment and the realization that Human Resource
Management must play a more strategic role in the success of an
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organization. Organizations that do not put their emphasis on attracting and
retaining talents may find themselves in dire consequences, as their
competitors may be outplaying them in the strategic employment of their
human resources.

Few important challenges of HRM due to recession and i.e.:

1. Problem of Recruitment
2. Managing downsizing program appropriately
3. Talent management.
4. Stress Management.
5. The Return on Recognition in a Recession.

Recruitment and Recession:

Recruitment industry is going through a tough time at this moment, the
numbers have dropped drastically for the biggiest and even recruitment
agencies are battling for survival. Synergy Solutions provides recruitment
services to companies in India and in US, the biggest challenge today is to
find newer and better ways to add value to the clients. There is a need to find
innovative ways to improve recruitment ROI for the client.

Few areas where placement agencies should focus:

• Closely monitoring the way each industry is changing in current times

and the way companies within the industries are changing their hiring
strategy.

• Build stronger relationship with clients thereby working closely with

your contact points in the company to get clarity on their internal
hiring plans and prepare accordingly. This will also help protect your
share in the pie from your competitors.

• Train your recruiters to be tactically smart and agile in their actions.

During the boom there were a lot of open positions and even more
candidates available so the match making activity was comparatively
easy and largely govern by the good sentiments in the market. During
tougher times recruiters need to be smart and get themselves deeper
into the fit gap process and ensure win-win situation for the client and

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 the candidate.

2. Managing downsizing appropriately:

Virtually every country has to face the impact of a global economic
downturn which can be in the form of recession, slowdown, depression or
growth recession. When a downturn occurs, the organizations have to suffer
heavy losses and bear the brunt of slow revenue generation. During this
period, there is also less spending by the consumers, less investment by the
investors and more of savings.

Managers do to manage teams:

 Hold special meetings: During this unsafe situation, the

organization’s top most head or CEO should brief the meeting where
the main subject should be the employees and their concern. If the
head of any organization feels confidant, the whole organization feels
confidant.

 Explain to them the importance of their existence in jobs: There is

no use crying over the spoilt milk, just like economy turning to a bad
shape and business showing downfall. Its better that you discuss about
the new projects and subsequently tell them what role they have to
play.

 Offering challenging assignments and opportunities: If you offer

your teams the challenging assignments, they spirits will be lifted and
they will manage to survive even in bad times.

 Motivate the employees: The key to managing and retaining the

employees during downturn is motivation. Apart from the special
meetings being conducted, a manager should regularly be attending to
their problems and constantly trigger the employees to have good
mood.

 Offering challenging assignments and opportunities: If you offer

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 your teams the challenging assignments, they spirits will be lifted and
they will manage to survive even in bad times.

3. Talent Scenario during Recession:

The law of demand and supply mercilessly applies to human resources, also.
During the economic downturn, companies were able to downsize by getting
rid of redundant work force and dead wood. They also restructured the
employee compensation (mostly by decreasing) to stave off financial losses.
Only those employees were retained who proved their worth. The employees
had to accept all kinds of compensation-related compromises while
maintaining the same or even higher level of efficiency and productivity.
They could thus survive the financial tsunami.
New Definition of Talent While war for talent continues, the bar
for talent also goes up Old skills and competencies may not work.
Companies now need salesman who does not sell products but does sell
solutions; production managers no longer control the operations, they are
expected to innovate and improve productivity; and quality managers need
to study competitive products with more zeal and help develop better
products and services. The employer’s expectations have changed and are
set to grow:

 Highly Productive: The talented employees need to be highly

productive. They should deliver much more than they are
compensated for. If that happens, employers are willing to give larger
share to them.

 Multi-Skilled: Companies have discovered that one way to decrease

recruitment cost is to have multi-skilled employees. Multi skilled
employees help reduce manpower dependence, and the overall sum of
all the multi skilled employees is greater than the same number of
equal number of specialist.

 Self-Managed and Self-Motivated: Self-managed and self motivated

employees reduce managerial efforts. This helps organizations to have
less number of managers.

The Key to Retain Talent Lies in HR Policies and Practices As organizations

increase their expectations from employees, employers too have to
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significantly change the way they manage the talent.

Five Important Talent Retention Factors Lets us consider five factors that
can help organizations retain talent to meet the client and business
requirements in post- recession era:

i. Clear Goals, Targets and Expectations

ii. Balanced Work Environment
Iii.Track Performance Goals and Provide Analysis
iv.Fair Evaluation of Performances. Compensation to Maintain a
Decent Lifestyle

4. Stress Management
The financial recession is impacting large and small organizations and
countries in similar devastating manner. For example, as the prices of goods
and products increase, consumers tend to buy less and thus companies end
up having to lay off some of their employees in order to avoid bankruptcy or
just to stay in business, in the US during the first two months of 2009, over
17 banks have gone out of business and more such bankruptcies and closers
and expected in the financial industry. Such failures tend to increase the
number of people losing their jobs and moving them closer towards poverty

. “Stress is an in evitable reality and everyone needs to find their own

ways of beating it”

HUMOR AS A STRESS REMEDY:

Humor is a wonderful stress reducer. Experts say a good laugh relaxes tense
muscles, speeds more oxygen into your system and lowers your blood
pressure. Humor is used to facilitate communication and avoid conflict. It
gives us a different perspective on our problems. If we can make the
situation lighter, it no longer feels threatening to us. With such an attitude of
detachment, we feel a sense of self-protection and control in our
environment. Bill Cosby says, "If you can laugh at it, you can survive it." It's
sometimes difficult to force a laugh in tense situations. But that's precisely
when you need it most. One trick for finding humor in the worst of
situations is to blow things absolutely, ridiculously out of proportion. When

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your scenario reaches the point of absurdity, you begin to smile. The
situation is put in perspective and you can calm down. Remember humor
about sex or gender, ethnicity, politics, humor or joking about tragedy or
disease-related symptoms are considered humor exclusion zones.

De-stressing at work :
Practicing regular stress management is good for long run. But, practicing
preventive stress management helps in improving quality of life. Therefore,
apart from improving physical fitness and overall health, regular physical
exercise also has psychological benefits. There can be no one solution.
Everyone needs to find their own ways of beating stress.

Coaching for productivity:

Due to changing demographics of the world such as more competition and
the introduction of new technologies, organizations are discovering that
traditional tactics of management are no longer enough to remain
competitive. As such, coaching is becoming to be recognized and practiced
as an effective tool to increase morale, performance and the bottom line
through the success of each individual associate. For example studies show
that about 90% of employees who received their job performance and
professional success. In organizations where coaching is effectively
practiced as a management style, the bottom line performance is two to three
times better than the traditional. Therefore, apart from improving physical
fitness and overall health, regular physical exercise relationship with your
people so you can jointly clarify expectations and departmental goals
thereby leading to specific action plans for:

➢Reinforcing good performance.

➢ Motivating employees to new heights and peak performance levels.
➢ Providing new knowledge to individuals about changes and tactics.
➢ Training a new skill for a new task that needs performing.
➢ Explaining the current or new standards and how they can be achieved.

4. The Return on Recognition in a Recession:

People management is a Key Result Area in delivering success for a
business unit during the downturn. It is obvious to adopt lay off as a strategy

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in achieving the cost minimization strategy. But alternatives such as seeking
voluntary reduction in salaries and incentives, flexible work hours and
improvement in productivity are worth enough to try during the slowdown.
These strategies reduce the costs besides improving the
efficiency of the organization. Companies across industries and around the
world are dealing with similar complex challenges due to the ailing
economy. Now is not the time for employees to give in to fear and not work
as hard because they believe they will not be recognized for their efforts. But
how do company leaders address these employee concerns while remaining
fiscally responsible, encouraging greater productivity and sustaining growth.

Power of Recognition in a Recession :

“Recognition helps people to be resilient. Businesses right now...they’re
trying to survive. And to survive you’ve got to have some psychological
resilience. You’ve got to have employees who are positive despite the
negative situations around them I would argue that recognition is even more
important in times like this.” – Jim Harter, Gallup, October 2008 News
articles and research studies from firms including Gallup, Deloitte, Towers
Perrin and many others confirm three common issues among employees in
this recessionary economy:

1) Survivor’s guilt – Those remaining on the payroll after a round of layoffs

often feel guilty about surviving the ax. This guilt distracts them from the
task at hand. These employees typically need additional reinforcement of the
value of their work to help them justify their status in the group.

2) More work, less motivation – The survivors are also paying close
attention to how management handles the layoff and subsequent
redistribution of the work. With more tasks on each employee’s desk,
managers need a way to encourage strong individual performance while
reinforcing priorities based on ultimate corporate strategic objectives.

3) Rampant rumor mill – The inevitable rumors of additional layoffs or

restructuring further contributes to productivity and motivation challenges.

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Teams often suffer the most with rumors fueling backstabbing and
protection of individual tasks over team goals.

Savings through Proper Program Deployment :

Most companies are already investing significantly in an incentive or
recognition program of some sort, but the majority of those programs are
disparate, unfocused and do not deliver the full return on investment
possible with strategic recognition. Simply by consolidating multiple
disparate programs into one and implementing efficient global
administration, companies are able to achieve tremendous savings on their
current investment in recognition.

Strategic employee recognition ensures:

• Budget spend is primarily invested in employees and not on multiple local

administrators.

• Fully automated and integrated processes reduce the costs associated with
data entry and errors.

• Cost savings and program enforcement through global corporate

governance, tax compliance, and program measurement and management.

The Problem with Cash-based Incentives:

With the cash bonus and annual compensation increase pool drying up and
employees on a cash incentive performance track no longer able to meet
those performance goals, many employees are choosing to not work as hard
because their goals (and accompanying incentives) are out of reach. Yet
many companies continue to rely on cash-based recognition programs,
which neither maintain program consistency on a global scale nor ensure
local participants feel motivated and involved in the organization.

Gain Competitive Advantage:

Companies implementing a strategic employee recognition program during
recessionary times position themselves to outperform the competition today
and when the economy turns. Perform at a higher level today and rebound
quickly in the upturn by having the right people in the right jobs and by

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fostering a culture of appreciation key talent will want to be part of over the
long term. Partner with the CFO to deliver program savings and increase
productivity by creating a marked difference in the morale and focus of your
employees over the competition.

The strategy adopted by HR personnel to deal with these

challenges:

The recession is an opportunity for HR professionals to step and contribute

strategically. In the classical strategy paradigm, we begin by looking at the
macro-economic environment. Then we look at the micro-environment -
what affects us and our competitors. Next, we establish which strategic
factors HR influences directly. Finally, we drop down to our tactics. The
recession is about the creative Human Resources Management. The HRM
Function is asked to bring new ideas, to change the HRM Processes and to
develop or change the procedures. And this effort has to be cheap or it has to
cut the costs of the organization. The HRM Innovation is easy in times of
the business growth, but the recession is not good for big innovative HRM
Initiatives.

➢ Finding opportunities during recession.

i. Consolidate workforce: Workforce consolidation is a huge opportunity

that any organisation has nowadays. This is not only in terms of having a
leaner workforce, but also in redeployment of the workforce to improve
utilisation and efficiency.

ii. Streamline salaries: For the past few years most industries have seen
above-normal salary hikes due to the pressure of retention. In fact, India Inc
recorded the steepest salary hikes in Asia for seven years running till 2008.
But the recession has changed things dramatically. Salary freezes and pay
cuts have suddenly become the order of the day. The 13th annual Salary
Increase Survey conducted across 480 companies by Hewitt Associates
shows that salary increase projections for 2009 in India have dipped to 8.2
per cent from an actual increase of 13.3 per cent in 2008, but continue to be
the highest in the Asia-Pacific region and among the highest globally.

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Iii.Make organizations more performance-centric: The recession has
forced organizations to take a close look at the workforce and identify the
real performers. The non-performers have either found their way out of the
organization or have been put on a short notice to ‘deliver or perish’.

Iv.Identify real talent: The renewed strict focus on performance alone for
survival in organizations has not only exposed low- and non-performers, but
has also brought to the fore ‘real talent’ in the organization.

v. Develop talent as leaders: A recession is the right time to wisely invest

in the development of talent, both in terms of skill sets and in the form of
future leaders. The focus has to be on how much they are investing in their
employees and what skill sets they will need to grow their businesses in the
future.

Vi.Review and restructure policies: The mad pace of hiring, training and
appraising seems to have come to a screeching halt. And if not to a complete
full stop, the rate is low and slow. This also gives HR the time to revisit its
policies, compare them with the best-in-class practices and restructure them
for maximum effectiveness in the present and the future.

Vii.Build employer brand: Despite the fact that many companies have put a
freeze on hiring, both hiring talented people and retaining them will continue
to be a challenge for HR. Hence, keeping the employer brand intact and re-
building the same could have a cascading impact later.
Viii.Communicate and build trust and morale: Communicating with
employees not only remains one of the greatest needs of HR, but is also an
opportunity to build the trust and morale of people during tough times. It is
vital for HR to see that the morale of employees does not sag while the
organization is sailing through rough waters.

➢ How to intact your employee during recession:

Here is how to keep your employees with you and away from your
competitors during tough economic times. Differentiate Between Your Good
and Average Employees · Redirect Your Employees to Other Departments
(Job Rotation) · Listen to Your Employees · Keep Them Motivated and Busy
.Show them the long term vision The above steps will enable the employer
to hold its team together during a recession, and will even make bond
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between all of you stronger. Employees should be motivated enough to stick
to the employer during tough times and put in the extra effort required for
the organization growth.

➢ HRM Innovations in Recession

The recession is about the creative Human Resources Management. The
HRM Function is asked to bring new ideas, to change the HRM Processes
and to develop or change the procedures.
The HRM Innovation during the recession has to focus on the following
topics:

 Reduce the number of employees in the organization

 Strategic initiatives to increase the productivity and efficiency of the
whole organization
 Redesign of the compensation scheme
 Cancellation of several benefit schemes On the other hand the HRM

➢ Situational Leader ship style during recession

During recession, H R manager has to act as a democratic leader. He should
also try to combine the organizational and employees interest and adopt
situational leadership style as well as humanistic approach for leading the
employees to achieve the organization goals. Following are few
recommendations for H R Manager to deal with employees during
recession:-

1. Top management should know the contingency plan.

2. Do the brainstorming session with your top management and contribute

in their strategic planning.

3. A complete or partial job freeze, however, communicate to the workforce

that the company many continue to recruit key individuals even in difficult
times

4. Review the employee performance evaluations to determine the key

people that company cannot afford to lose.

5. Flow of Communicate should be from top to down that will help in

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making conducive atmosphere within the organization

6. Make prepare yourself for individual and group concerns

therefore there should be a proper counseling session.

7. To maintain a calm atmosphere

8. Review all HR policies, processes and procedures to ensure

that they are purposeful and contribute directly to the success of the
company.

CONCLUSION:
To sum up we can say that the global financial recession which started off as
a sub-prime crisis of USA has brought all nations including India into its
fold. The GDP growth rate which was around nine per cent over the last four
years has slowed since the last quarter of 2008 owing to deceleration in
employment, export- import, tax GDP ratio, reduction in capital inflows and
significant outflows due to economic slowdown. In India, the impact of the
crisis has been deeper than what was estimated by our policy makers
although it is less severe than in other emerging market economies. Since
humans are an organization's greatest assets; without them, everyday
business functions such as managing cash flow, making business
transactions, communicating through all forms of media, and dealing with
customers could not be completed. So when we are discussing the topic of
recession and recovery from recession, Human Resources Management
plays a very vital role. Human Resource Management must be able to
address the right kind of demands related to Human Resource functions
during the recession. Human Resource Management must play a highly
proactive role in managing the issues of global recession by helping
organization to enhance their abilities to learn and collaborates, manage
diversity, ambiguity and complexity. Human Resource Management is
responsible to manage the human resource of the corporate to maximize the
productivity, efficiency at minimal cost and maximize profit. During this
global recession, Human Resource Management is facing the many
challenges and changes in organizational level, workplace and HR
department level itself. The challenges can be faced by HR Managers
effectively if proper strategies are implemented. The recession is the

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temporary economic climate of the business world. It will be changed
through more productivity at minimal cost and maximize profit at moderate
price of products in business.

Bibliography:

1. Economics and Political Weekly Journal.

2. Government Of India official website.
3. International Labour Office (ILO), Global Wage Report 2008/09
4. ILO website.
5. www.\recession\Article More investment in infrastructure sector to
fight recession.
6.
http://useconomy.about.com/od/grossdomesticproduct/f/Recession.htm
7. http://www.stopstupidstuff.com/recession/the-impact-of-recession-
on-employment

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