Many companies seem to squeeze the lemon to the last drop as far as cost cuttings are concerned. During the downturn, many companies adopted measures such as streamlining operations, downsizing etc to keep profitability intact. But there is a limit to this. A company cannot increase its earnings by slashing operating costs forever. There is a thought that excess of anything is bad. The same is proving right for the corporate sector now.
Industry experts have started questioning cost cutting steps being taken by companies. Their worries are definitely well founded. If the corporate sector continues with the downsizing in the name of cost cutting, it is bound to hit unemployment rates. The rising uncertainties in the US and some part of the European regions are adding further to the woes. As a result, consumers are being cautious while taking spending decisions. Their confidence levels are going down with each passing day. As per the latest data for the Conference Board's Consumer Confidence Index, it has plunged to 2nd worst level since records began in 1967.
All this is hurting the topline growth of the corporate sector badly. Companies have already exhausted the option of cost cutting measures. Hence, the sluggish growth at topline level is now going to adversely affect the performance at the net level. It is an irony that the same measures, which helped the corporate sector in the past, are hurting them now. It is high time the companies think about revenue growth rather than just profitability. They may take a lesson or two from the Indian IT majors like Infosys, Tata Consultancy Services who are on aggressive recruitment spree towards building future capabilities even in the present bleak economic conditions.