OUTSIDE THE BOX
THE headline on the Philippine news web site Rappler.com read “80% of PHL businesses plan to increase salaries.” When you read something like that, you know you are going to an uncommon place. The conventional wisdom is that business rarely raises its labor costs without a compelling reason, usually labor unrest and dissatisfaction.
However, there are two main reasons for a business to increase wages. The first concern is that there is a looming shortage of the kind of workers a business needs and businesses does not want to lose employees to other companies.
The second reason to raise compensation is to prepare for increased business in the future that will require experienced employees. In times when sales and production are increasing, you do not want to have to train new employees. A smart business raises salaries before the wave of increased workload comes. You want your staff to be happy with their job before you start asking them for more productivity.
When only 20 percent of Philippine employers do not intend to raise wages between now and the end of the year—that is an important story.
One business consultant theorized that the reason that employers are increasing wages was that they were not hiring any additional people and that is bad. In looking at the rest of the Rappler article, I do not buy the premise behind that argument.
The increasing salary expectations came from the latest Grant Thornton International Business Report, which asks specific questions of a large variety of businesses around the globe. In response to the question of new hiring, in the second quarter only 28 percent of the businesses expect to add new employees in the next 12 months, lower than the 42 percent in the first quarter.
The reason I do not think that a slowdown in hiring is a negative is that many businesses do not necessarily require new employees to increase revenues and profits. A supermarket needs more cashiers, for example, as sales volume grows. But for other businesses like mine, I need another computer and more speed from my Internet connection. A medium-sized manufacturing or food-processing company might find it more cost effective to upgrade its machinery for use by better, more experienced employees rather than to hire more warm bodies.
The heart of the Grant Thornton survey though is business optimism. For the second quarter of 2012, local businesses are the 2nd (behind Peru and tied with Chile) most optimistic in the world regarding the local economy. The Philippines score was 90 versus 23 for Asean and globally.
The constraints and hindrances to doing business range from IT infrastructure to the shortage of long-term finance. However, about 75 percent of all the local businesses surveyed did not see any major constraints to business. While 22 percent said they had a problem with having enough working capital, that means 78 percent did not have that problem. Worry about a shortage of long-term financing was a concern for 18 percent, 82 percent did not have that worry. See what I mean?
Forty percent of all businesses expect profits to be higher. Half are concerned about a drop in revenues. 40 percent expecting higher profits is certainly a reason for optimism. And the second percentage regarding a concern about dropping revenues is not true. It should be 100 percent. Every business owner I know, no matter how good business is today is always worried about future sales going down.
And about those salary increases, 25 percent of all businesses are worried about a skilled labor shortage.
Why are businesses so optimistic? All the gloom and doom for the last four years about the global economic catastrophe hitting the Philippines, the call-center business going back to India, and dropping overseas Filipino workers remittances, among other disasters, just have not happened and show little indication of happening in the reasonable future. While the debt typhoon pounds the rest of the world, let’s build businesses and make money in the storm-free Philippines.
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