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Steel – Employee productivity holds the key - Views on News from Equitymaster
 
 
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  • Apr 24, 2000

    Steel – Employee productivity holds the key

    The steel sector has seen it all in recent years. First came the boom - propelled by economic liberalisation, and then the dramatic cooling off of industrial growth. The performance of the steel sector was synchronised with that of the economy. Although the sector was slow at first to react to changes in the competitive environment, there now seems to be a conscious effort on part of steel companies to improve their competitive position.

    ('000) No of employees
      FY97 FY99
    TISCO 68 59
    SAIL 183 175
    Essar Steel 2 2

    It is evident from the above chart that both Tata Iron and Steel Company (Tisco) and the Steel Authority of India (SAIL) have made efforts to cut down the size of their work force. The downsizing has been most aggressive in the case of Tisco. The decision to cut the employee base augurs well for companies as it lowers their fixed expenses and improves employee productivity. These measures then help the companies to control costs – a key to success in the commodity business.

    The three steel companies covered under the study seem to have witnessed a peculiar trend over the past few years. Even as net profit declined significantly and the growth in sales stagnated, the wages per employee continued to register a rise during the three-year period. However, given the grim scenario in the markets, Tisco managed to stay in the black. The sharp reduction in employee base would have definitely been a contributor to this. On the other hand, Sail nearly went bankrupt during this period.

    The chart reflects a sharp difference in the revenues per employee between Essar Steel and the other two companies. This is mainly due to the fact that Essar’s plant uses the latest available technology. Tisco and Sail on the other hand are making an attempt reach such levels of productivity.

    With trade barriers being broken down competition in commodity businesses has increased dramatically in recent years. For domestic steel companies to maintain market share the need to control costs is necessary. In such a scenario controlling employee costs will prove to be a big challenge for domestic companies.

     

     

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