One of the first things companies do to cut costs are to cut jobs and/or relocate them to a different location. But at the end of the day, does doing so actually result in lowering overall costs and create savings? Let us dig deeper into this issue.
First we will start with savings. When companies decide to relocate jobs – either domestically or internationally – the most savings come from the reduction of salaries and benefits-related expenses assuming that the salary and benefits for those specific jobs are cheaper in the new location. Additional savings come from reduced taxes and lower building leasing costs.
Besides cost reduction, other positive reasons for a company to relocate can be to expand its market and create brand awareness in that part of the world. There may be additional savings and benefits beyond what I’ve mentioned, but my point is that most companies look at or analyze the savings on relocating jobs very thoroughly, but might not consider all of the costs and pitfalls in their analysis.
The common costs that most companies look at when relocating jobs to a new location are related to severance, relocation, and real estate (i.e., depreciation and maintenance of buildings, etc.). In addition, companies may also encounter a variety of recruiting, on-boarding, and training costs to backfill the jobs. Since there is a negative perception about moving jobs, companies can also expect employee turnover to increase which will increase costs too. Productivity of the employees will not be to full potential from day one in the new location. As a result, this loss of productivity is another type of cost to be considered. Furthermore, there may be duplication of positions (more cost) for some critical job roles in the old and new locations. And one more very important thing to consider is high- performer turnover rate. Because the company may lose many high-performers in the relocation process, it may be tough to replace them, which will also negatively impact productivity.
I am not saying that there are no benefits when a company moves jobs to a new location, but companies should be more diligent about analyzing the costs and benefits of workforce relocation and optimization before they make this type of decision.
Harish Reddy Sidda