Reason For Corporate Restructuring 5g52q

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Given the recent sluggish economy and increasingly fierce competition among companies both domestically and overseas, companies are undergoing restructuring, including reassessments of business expansion and resource distribution. The objectives of this survey were to cast light upon the current state of corporate restructuring and to provide perspectives on employment, as well as looking at the circumstances of employees who have found new jobs in the past year. Company survey forms were sent to approximately 10,000 companies with 300 or more employees, and the companies were requested to give employee survey forms to a total of 5 regular employees who had entered the company as mid-career hires in the past year. Results were based on 1,683 company forms and 2693 employee forms returned to us. This survey was conducted between January 16 and February 8, 2002. For the composition of the companies and workers participating, please see the reference chart on p. 32. u ! " # " $ % #$"Ê & ' (& ) ( & When asked about the circumstances of their corporate restructuring efforts, the most common responses were ³labor-saving and rationalized investment in order to improve production efficiency´ (57.6%), ³development and enhancement of new products and services´ (44.1%), and ³mergers or closures of places of business and reduction of or withdrawal from unprofitable areas´ (43.6%). (Fig. 1) 2 #"Ê )&

()& * ( ‰ost companies responded that the biggest influences on the economic environment that lay behind restructuring were ³increasingly fierce domestic competition´ (84.4%), ³maturing markets and stagnant demand´ (73.6%). These answers were followed by ³increased burden of long-term obligations related to employment,´ at about 50%. By industry, a noticeable number of companies in the manufacturing industries cited ³increasingly fierce competition with companies overseas,´ while a noticeable number of companies in the service industries cited ³advances in technological innovation.´ (Figs. 3, 4) #$" ) + ) * ) * + ) * Asked about future employment strategies, most companies reported that they were moving in the direction of decreasing ³hiring of new graduates´ and ³hiring of

mid-career employees´ and increased use of ³contract workers and dispatched workers´ as well as ³temporary, seasonal, and part-time workers.´ The smaller a company was, the more likely it was to take a conservative view of all forms of hiring. (Fig. 5) #", -

) Nearly half the companies are dealing with personnel reductions: 17.5% of companies have instituted personnel reductions in the past three years, 25.4% are in the process of reducing personnel, and 9.0% plan to do so in the future. By industry, most of the companies in all the service industries responded, ³We have not instituted personnel reductions up to this point and have no plans to do so.´ (Fig. 6) #."/ ) * $0. The methods of personnel reduction with the highest percentages were ³natural attrition´ (81.6%) and ³hiring restrictions´ (76.9%), but 34.2% of companies, or 1/3, mentioned ³soliciting voluntary retirement or establishing and expanding a system of incentives for early retirement.´ Only 6.9% of companies resorted to dismissal. By ½ industry, the use of ³soliciting voluntary retirement or establishing or expanding a system of incentives for early retirement´ was slightly more common in the construction industry, the machinery-related manufacturing industries, the wholesale and retail industries, and eating and drinking establishments. (Fig. 9) #1" 2 3

) Of the reasons for personnel reductions, the most common were ³to deal with current major financial difficulties´ (36.4%) and ³to deal with major financial difficulties that are expected to manifest themselves in the future´ (35.8%). On the other hand, a minority of companies mentioned personnel reductions in the strategic sense, including ³to increase profits further through such means as specializing in our strongest areas´ (8.2%). (Fig. 10) #4"

5 Among the effects of personnel reductions, ³lower morale among employees´ and ³increase in employees¶ working hours´ were each mentioned by about 50% of respondents, followed by ³improved productivity by employees´ at 35.9% and ³large-scale loss of superior human resources´ at 33.0%. (Fig. 11) When we looked at the size of the effects by the scale of the personnel reductions, we found that the higher the percentage of personnel reductions, the greater the number of companies citing ³lower morale among employees,´ ³large-scale loss of superior human resources,´ and ³lower productivity by employees.´ (Fig. 12) . 6 #$" The criterion most often cited for use of systems of voluntary retirement and incentives for early retirement was ³age´ (74.6%), followed by ³years of service´ at 33.1%. The average lower age limit for availing one¶s self of these systems was 45.5 years. (Fig. 14)

#"% The details of the measures for systems of voluntary retirement and incentives for early retirement include ³a percentage increase in the retirement allowance,´ the r most common measure at more than 90%. Of those, 85.6% said that they ³applied these measures to all eligible persons.´ The mean amount of the increase in the retirement allowance was 15.7 months¶ worth, and the median was 12 months¶ worth. (Fig. 15) #." ³Responses almost as planned´ were reported by 36.5% of companies, and ³more than planned´ and ³did not meet the goals of the plan´ were reported by 14.0% and 16.4% of companies, respectively. (Fig. 17) " # " $ #$" The reason for separation most commonly given by persons who had become reemployed during the past year was ³retired at my own request´ at 71.1%. This was followed by ³company went bankrupt or went out of business´ (6.0%) and ³completion of employment contract period´ (5.7%). By age, more than 10% of those over the age of 45 said that they had ³responded to company¶s systems of incentives for voluntary retirement and early retirement.´ (Fig. 19) #" Reasons most often given for making use of the systems of incentives for early retirement were, ³I was anxious about the company¶s future´ and ³I had a good opportunity to give some other line of work a try,´ at 40% each. (Fig. 20) The most common statement about the details of the measures in systems of incentives for early retirement, was ³a percentage increase in the retirement allowance´ at 80%. This was followed by ³advice and mediation on reemployment´ at 40%. The median increase in the retirement allowance was 12 months¶ worth. (Figs. 23, 24) #." 7 )8 About 40% of respondents gave as their reason for voluntary retirement as ³anxiety about the current state and future of the company.´ This was followed by ³I was dissatisfied by the working conditions, such as wages and working hours´ and ³I wanted to try out a new line of work.´ (Fig. 29) ë #$"Ê jmployment at the current workplace was most often obtained by ³response to an ment´ (25.1%) or ³making use of a public employment office´ (23.2%). These trends differed by age, with most people between the ages of 35 and 54 responding, ³an introduction from a work acquaintance or a friend´ and people over the age of 55 responding ³through the mediation or of my previous company.´(Fig. 30) #" ) Of the elements that the company viewed most favorably upon their

employment, the greatest percentage of respondents, 64.1%, felt that they had been evaluated according to their ³job experience so far.´ (Fig. 31) #." ) ) * Comparing their current wages to their previous wages, 23.5% reported ³a decrease of more than 10% and less than 30%,´ 19.7% reported ³no change,´ and 18.9% reported ³an increase of more than 10% and less than 30%.´ By age, the older the workers, the more likely they were to report that their wages had decreased. (Figs. 32, 33) #1"% ) ) * Over 70% of respondents reported some degree of satisfaction with their current work, 43.6% reporting ³somewhat satisfied´ and 24.7% reporting ³very satisfied.´ By size of company, the larger the company the workers had moved to, the higher their degree of satisfaction. (Fig. 34) It was also true that the more people could make use of their previous experience in their current jobs, the more satisfied they were. (Fig. 35) By reasons for separation, people who said that they retired at their own request were more likely to say that they were ³very satisfied´ than people who said that they had quit their previous jobs due to ³the circumstances of the company´ or ³completion of employment contract period.´ (Fig. 36)

What is corporate restructuring? c

Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. For example, a corporate restructuring may call for spinning off some departments into subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to divert more revenue to the production process. In this scenario, the restructuring is seen as a positive sign of growth of the company and is often welcome by those who wish to see the corporation gain a larger market share. However, financial restructuring may take place in response to a drop in sales, due to a sluggish economy or temporary concerns about the economy in general. When this happens, the corporation may need to reorder finances as a means of keeping the company operational through this rough time. Costs may be cut by combining divisions or departments, reasg responsibilities and eliminating personnel, or scaling back production at various facilities owned by the company. With this type of corporate restructuring, the focus is on survival in a difficult market rather than on expanding the company to meet growing consumer demand. Corporate restructuring may take place as a result of the acquisition of the company by new owners. The acquisition may be in the form of a leveraged buyout, a hostile takeover, or a merger of some type that keeps the company intact as a subsidiary of the controlling corporation. When the restructuring is due to a hostile takeover, corporate raiders often implement a dismantling of the company, selling off properties and other assets in order to make a profit from the buyout. What remains after this restructuring may be a smaller entity that can continue to function, albeit not at the level possible before the takeover took place.

2 # )"# " By G.C.Pathak Nag | Advances in Competitiveness Research - Annual, 2009 Print

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"Whenever you see a successful business, someone once made a courageous decision"--Peter F. Drucker INTRODUCTION Restructuring refers to multidimensional process. However, the term corporate restructuring is used here for operational restructuring as long term strategy of business. Operational restructuring is an ongoing process, which includes improvement in efficiency and management, reduction in staff and wages, sales of assets (for example, reduction in subsidiaries), enhanced marketing efforts, and so on with the expectation of higher profitability and cash flow (1). Rising competition, breakthrough technological and other changes, rising „ volatility, major corporate ing scandals have increased the responsibility to managers to deliver superior performance and enhance market value to shareholders. The companies which fail to deal with the above successfully may lose their independence, if not face extinction. According to a study by the Harvard Business School (2), corporate restructuring has enabled thousands of organizations around the world to respond more quickly and effectively to new opportunities and unexpected pressures, thereby re-establishing their competitive advantage. In India, corporate houses have recently witnessed an increase of restructuring in different organizations. The main reasons for the sudden impetus to restructure in India are as follows: a) deshackling of strict ‰RTP (3) provisions and new government policy of relicensing b) increased competition is another key element for giving rise to corporate restructuring. c) mounting pressure on margins have necessitated higher volume of business, resulting in mergers and acquisitions or the grand concentration of strategy has led to demergers of non profitable businesses, and d) all round resource optimization in existing businesses to streamline operational profit and to stay fit in competition. However, some organizations have done their restructuring through acquisition and mergers and some through demergers. There is also corporate restructuring done through changes in corporate structure and optimization of resources including financial structuring. When the market price of „ „ are rising, the companies like to use their shares to acquire other companies. Acquisition is a process of taking over companies and merging with the entity in order to improve the margin. Here the advisors of the company may suggest and encourage mergers after taking over the other company. Demerger is a process of corporate restructuring in which single or multiple business units are spun off as a new entity. Demerger is just the opposite of merger. In a market of falling prices, mergers and

initial public offers are less popular and the merchant banks, who normally earn their fees from corporate activity, start to look at demerger possibilities of their clients (4). A framework of corporate restructuring shown in Figure 1 below explains all about corporate restructuring [FIGURj 1 O‰ITTjD] OVjRVIjWS There were various corporate restructurings in India during the last few years. However, this paper deals with successful corporate restructuring of three Indian companies which immensely enhanced the shareholders' market value and strengthened their competitive edge in recent times. These are Reliance m „ „ Ltd., Larsen and Toubro Ltd., and Siemens Ltd. For example, the acquisition, merger, and demerger of Reliance Industries Ltd. like their acquisition of IPCL (5) mergers of Reliance Petrochemicals Ltd., and the recent demergers of four entities like Reliance Communication Ventures Ltd., Reliance jnergy Ventures Ltd., Reliance Natural Resources Ventures Ltd., and Reliance Capital Ventures Ltd. which spun off from Reliance Industries Ltd. (RIL), and were perhaps the most prominent restructurings in recent times. jven the recent demerger of the cement division of Larsen and Toubro Ltd. (L&T), named Ultratech Cement Ltd., seems to be one of the L&Ts grand strategies to concentrate more on infrastructure, engineering, energy and turnkey businesses. Other kinds of restructuring through structural changes, to improve sales and profit, or all round optimization of products, processes and systems in ‰ultinational like Siemens Ltd. are worthy examples of successful restructuring in Indian „ . This article discusses in detail the tools and techniques used by these companies for successful restructuring in their organization. RjSjARCH ‰jTHODOLOGY The entire research was carried out into four stages, and each stage was approximately of three months duration. The first stage was solely devoted to exploratory studies. The second stage was on annual company report surveys. The third was on operational study, and the fourth was on action research. The objectives of the multilayer studies were i) to obtain insights as to why restructuring in organizations is necessary ii) what relationship exists between restructuring and competitive advantage iii) examining samples of three successful companies like Reliance Industries Ltd., Larsen and Toubro Ltd., and Siemens Ltd. which practiced restructuring processes successfully iv) drawing inferences if restructuring could lead to shareholders' market value as well as competitive advantage. CASj OF RjLIANCj INDUSTRIjS LI‰ITjD (RIL) Background At the age of 16, a young man left his rural Gujarat village for the Arabian Peninsula in 1949. His first job was pumping gas at Yemen. Soon he demonstrated his entrepreneurial spirit and

managed to negotiate for people whose insurance claims had been rejected, splitting the settlements he managed to negotiate. He returned to India in 1958 with $3,150 (in those days) and set up a trading company to export spices to Yemen. It was then called Reliance Commercial Corporation. The entrepreneur of this company was Shri Dhirubhai Ambani. By the late 1960s, with 70 employees, Reliance was manufacturing textiles with four wrap-knitting machines. To explore the need of the society, Dhirubhai applied his innovative spirit when most corporate bosses were content to sit behind India's walls of protectionism and rake in profits from obsolete, overpriced goods. For example, to overcome the wholesaler's monopoly of the cloth market, he set up a chain of franchises. Today the Vimal brand of textiles is one the industry's top sellers. At the starting stage, banks often spurned him; hence, he turned to small investors to fund his expansion plans into synthetics and petrochemicals. Reliance was one of the first Indian companies to go public in 1977. On 27th June 1985, the name of the company was finally changed, from Reliance Textile Industries Ltd. to Reliance Industries Ltd. Then there was no looking back. The company continued to satisfy its shareholders through big bonuses and hefty dividends. When India instituted market reforms in 1991, RIL was perfectly placed; it was lean, with state-of-the-art facilities, and a cadre of capable and competent managers. At this moment RIL was not very concerned about competition from Indian companies. That is why Dhirubhai Ambani once said, "‰y real competitors are DuPont, Shell and ICI." Hence RIL's next challenge was to meet its international competitors. By the mid 90s, RIL aggressively diversified into telecommunication, power, finance, and transportation. The Dhirubhai Saga Continued The RIL chairman, Dhirubhai Ambani, was listed among "Asia's 50 most powerful people for 1998" by Asia Week ‰agazine in 1998. In the same year, he was also the first Indian recipient to get the Wharton School Dean's medal (6). In 1999, the chairman of RIL was again voted as the "Indian Businessman of the Century" by a worldwide multimedia poll conducted between August to October 1999 by Business Baron ‰agazine. RIL entered into the telecom segment in the year 2000. The company also submitted open offers to take control of BSjS (7) „ „ and took over BSjS in 2002. It also planned to merge its finance company with another subsidiary Reliance Petrochemicals Ltd. (RPL). In ‰arch 2002, RPL merged with RIL. In the same yea, RIL bagged a 25 percent share of IPCL. On July 6, 2002 the great Reliance patriarch Dhirubhai Ambani ed away. ‰ukesh Ambani, elder son of Dhirubhai Ambani, was elected as chairman of RIL on July 31st 2002. RIL diversified further into the areas of biotech, life sciences, mining, and insurance. Ambani jmpire Split RIL, one of India's largest private sectors groups, was split in June 2005 due to differences between two successor brothers. The RIL struggle was not only a clash of egos between estranged brothers, but it was also about big money in the area of Rs.1000 billion which was not easy to share. Also not easy to understand were the complexities involved in running such an empire with two power centers.

On January 17th '2006, a unique trading and investment era was over. As per the demerger approved by RIL board in August 2005, both brothers, ‰ukesh and Anil--headed different businesses and five listed companies emerged as potential investment opportunities for investors by ‰arch 2006. Among the group companies of RIL, Reliance jnergy (earlier name was BSjS) and Reliance Capital, were already listed at the exchanges. The remaining four companies were listed by the end of ‰arch 2006. The New Structure The new RIL structure gave ‰ukesh complete independent control in the b„ „„ of oil exploration, refining, petrochemicals, and textile businesses through a stand alone entity in RIL along with IPCL. His shares also included biotech firm Reliance Life Sciences and Trevira, a company in jurope which manufactures polyester fibers. Anil got control over power, communication, and financial businesses through four companies which came under Anil Dhirubhai Ambani jnterprise (ADAj) as part of the Reliance group.