Vodafone Spain Sackings

Posted: August 25th, 2021

Vodafone Spain Sackings

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Vodafone Spain Sackings

Summary of the Event

In November 2018, Vodafone Group Spanish subsidiary issued a warning of possible job cuts, targeting nearly 1,200 employees. The sad news, which is likely to affect up to one-quarter of the whole Vodafons’ workforce, came as a result of the adjustments taking place in the organisation in response to changes in the market. In a statement from the Group’s website, the operator lamented over a significant fall in sales and a subsequent reduction in profit as compelling reasons for the planned action (Morris, 2019). A report from the company indicated that in the first half of the 2018 fiscal year, the service revenues from Spain subsidiary had dropped by 5.2% to about $2.5 billion compared with the previous years (Morris, 2019). The layoffs were aimed at reducing the overall costs due to the continuous fall in Vodafone’s earnings in Spain initiated by a reduction in prices (Morris, 2019). The collective dismissal procedure, which has been presented to the workers’ representatives, would come into force from January 2019.

Impacts on Displaced Employees and the Community

Mass layoffs similar to situation in Vodafone Spain result in hurting effect on the economic capacity of the locals and the entire community. First, dismissals lead to joblessness (Brand, 2015). From the data presented by Morris (2019), a gap created by over 1,200 workers is large enough to affect other organisations operating in the same market. For instance, assuming there was a food and beverage firm that regularly supplied drinks and snacks to these employees, its production capacity would most probably go down. After some time, due to the sharp decline in demand for fast food, this company could close down or further retrench a segment of its workforce. Repeated cycles of similar events would extend the chances of unemployment rates in other industries.

Secondly, on a personal level, losing a job can prompt a person to suffer economic hardships and other severe negative consequences. The financial distress, linking the sacking to one’s shortcomings, and the stigma can collectively result in poor relations with colleagues and, at worst, family members (Brand, 2015). These effects can cause anxiety, depressive outcomes, and lower self-esteem (Brand, 2015). Whereas job loss due to organisations’ closing down is an external force not controlledby the employees, the affected workers still have to survive having reduced income alongside socio-economic and psychological burden (Brand, 2015). The mass sacking and the resultant job loss trigger economic and non-economic effects whose impacts extend to the entire community. Typically, the displaced workforce might remain unemployed for the rest of their life depending on factors like age and gender; thus, reduced earnings pose threats on the psychological well-being, physicality, and relationships in their families (Brand, 2015). The decision by the Vodafone Spain will partly reduce the overhead costs incurred by the company at the expense of long-term devastations of its employees.

Effects of the Decision on Production of Goods and Services

The unemployment temporarily affects the production of goods and services. An average displaced worker can stay unemployed for an extended period before landing another job. In her article, Jennie Brand (2015) feels that displaced workers experience hardships longer, which ismarked by substantial earning losses. Reduced income-generating activities, in this case, job loss due to Vodafone’s decision, affect the buying capacity of the affected population. However, according to Ceyda Öner (2018), the natural rate of unemployment should remain consistent with a potentiallygrowing economy. This statement is a reverse of what happened in Spain’s electronic market: economic recession is prompted by changes in consumer demands trends – high demand for flexible electronics at low prices.During an economic recession, most firms will lay off some of their employees but fail to raise their prices.

Unemployed people have limited cash flow and hence tend to exhibit low buying ability. Due to their impaired purchasing power, the displaced employees will restrict their consumption to essential goods and services, thereby making businesses less profitable (Brand, 2015). Ceyda Öner (2018) argues that at the onset of the economic recession, the rate of worker evacuation increases while the prices levied on goods and services remain constant. At this point, companies respond by reducing their levels of production due to price instability. Conversely, as the market drifts towards a new equilibrium, the demand for goods and services shoots suddenly, prompting firms to resume their previous production capacity (Öner, 2018). But as Jennie Brand (2015) indicated, it is natural that as more people become jobless, their consumption levels tend to reduce significantly. The low-income induced demand focuses on addressing the basic needs leading to a constant supply of foodstuffs and other goods intended to treat routine human wants. On the contrary, additional products like automobiles, electronics, and other secondary items stand no chance in an economy flooded by displaced employees.

Who Should Produce Goods and Services

The number of people working in any economy indicates whether the economy is growing or it is in the recession. From 2008 onwards, the whole world witnessed the most significant rates of unemployment most of which were cases of laying offs. Economic growth signifies high levels of activities, hence increased rate of labour requirement. Therefore, more people will be needed to facilitate the production of goods and services. The reverse is true with a declining economy. Thus, unemployment will only be higher when activity requirement drops and the organisations no longer intend to spend more of their revenue on paying the unproductive workforce. Although the Vodafone’s case is different (increasing demand at low prices), the driving force is the economic state.

Two factors are motivating Vodafone’s move: the need to cut the overhead costs and to modify its organisational model to accommodate the changing consumer tastes and preferences. The company needs the most straightforward strategies to improve their coordination with their clientele, whomay join the competing firms such as Orange and Movistar (Muñoz, 2019). For instance, in the first three quarters of 2018, Vodafone suffered a massive loss in the electronic market. It lost 361,000 cellphone lines, 108 payTV subscriptions among other services (Muñoz, 2019). Overall, Vodafone no longer seems economically viable to produce goods and services which will not add value to its performance; rather, it should leave production to the potential competitors who still enjoy the market influence. 

The Effect of Layoff on Consumers

Laying off employees by Vodafone is not the first similarincident. It is the third one in the last 10 years. The first collective dismissal occurred in 2013, affecting over 620 employees who faced the threat of service termination (Muñoz, 2019). Another attempt was in the year 2015,when 1,509 workers lost their jobs following a partnership with ONO (Muñoz, 2019). While these repeated events have sparked trade wars with the competitors, they were not welcomed by the consumers, some of whom are the members of the displaced workforce or their closest friends and relatives. This situation could be the reason why the organisation continues to witness the alarming trends in its market control. The sacking of workers results in dissatisfaction and damage of reputation to potential investors. So far, in the nine months of 2018, Vodafone has lost 134,000 broadband clients and another 70,000 agreements on cellphone lines (Muñoz, 2019). If the trend will not change, the company will lose the remaining 84,000 fibre optic internet users. Therefore, the company needs to adjust its structure to meet the clients’ demand (Muñoz, 2019). Vodafone must treat customers’ flow as a sign of dissatisfaction by the community using their services.

References

Brand, J. E. (2015). The far-reaching impact of job loss and unemployment. Annual Review of Sociology, 41(1), 359-375. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4553243/

Morris, I. (2019). Vodafone Spain to cut up to 1,200 jobs. Light Reading. Retrieved from https://www.lightreading.com/business-employment/jobs/vodafone-spain-to-cut-up-to-1200-jobs/d/d-id/748728

Muñoz, R. (2019). Vodafone Spain announces 25% staff cutbacks, with as many as 1,200 jobs to go. El Pais. Retrieved from https://elpais.com/elpais/2019/01/10/inenglish/1547120278_721738.html

Öner, C. (2018). Unemployment: The curse of joblessness. International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/fandd/basics/unemploy.htm#author