How The Recession is Saving Business (Or at least one of them)

Building materialsAmongst all the recent bad economic news, it is nice to hear a success story. It is even more surprising when the company is in the devastated construction sector, sells a commodity product and its recent success is the result of the economic downturn.

Speaking recently to a group of business leaders, the company CEO said the operation was in danger of going under due to runaway costs during the Irish “Celtic Tiger” years.

“By 2007, we were certainly hurting big time,” he told the group. “Had it continued on, we would have been out of business.”

Citing business sensitivity, the executive was speaking to the gathering under the “Chatham House Rule” and allowed his story to be told without divulging certain details.

Outlining the evolution of costs since 1997, the CEO said the company started in Ireland in 1997 and spent its first three years getting bedded in. Around the year 2000, margins were high and competitors flooded in to the market which drove prices down. In that five-year period, market prices dropped by 35 percent, he said.

Meanwhile, the economy was heating up and driving inflation. “Those were horrendous years to keep costs under control,” the CEO said.

Two big factors in Ireland’s loss of competitiveness during that time were labour and power costs, he said. Between 2005 and 2007, for example, electricity prices ballooned by 48 percent while wages jumped by 16.5 percent.

In 2007, housing markets in America, Ireland and elsewhere began to collapse while costs continued to rise. It has only been in the last two years that they have been able to stabilize, he said.

What turned the situation around for the Irish operation was the return of reality to wage costs in 2008, the CEO said. Although non-union, the company had to compete in the labour market for workers. Attempting to keep a lid on costs, it “threw in sweeteners” like extra time off. But, “We were running out of options, we were going to hit the wall,” he said.

In 2009 and 2010, wages were cut by an average of 5 percent. Management took a 10-percent hit, he said. Wages were frozen in 2010 and 2011, and look set to remain that way for the foreseeable future, the CEO said. Some staff members were upset, but the company’s tradition of open communication helped convince workers of the need for cuts, the CEO said.

Also helping the company’s position is increased competition among suppliers, he said. Salesmen are more eager and work harder to win business.

However, the company “is not out of the woods yet.” During the boom years, productivity growth kept track of cost increases. The Celtic Tiger “turned its back on manufacturing,” he said, and that has led to a lot of job losses.

Although the construction industry is still depressed – one industry executive told me before the talk that it is off 80 percent in Ireland – the CEO believes his company is well placed to take advantage of an improving economy.

Some markets look more promising than others, and the company has recently started exporting to India. But they are waiting for a U.S. turnaround since that economy is the one has such a huge impact globally.

Photo from Flickr by jurjen_nl.