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Downsizing in Canada: Factors & Implications

In 1982, the construction materials industry in Canada was in shambles. Housing starts had stagnated and interest rates were too high to stimulate investment. Consumer demand was stalled because inflation levels had ballooned to unprecedented levels, peaking at above 12% that year. This had a devastating effect on real wages across the country. Consumer demand was also adversely affected by extremely high unemployment levels across the country. Stonewall and its competitors found themselves in a position of severe over-capacity and were laying off workers at all of their operating plants. Unfortunately for Stonewall, this wasnâ??t enough and they were forced to look at downsizing their operations. They knew that normal business cycles in the industry would occur, and they tried to protect their business with the help of the Plastics Division, but unfortunately that division was also impacted by housing start slumps and high interest rates. The Senior Executive Team at Stonewall was put in the unhappy position of selecting a gypsum operation to close.

question:

a) In 1982 it seems the company will have to downsize. What are the factors that are forcing the company to make that decision?

b) What alternatives should the company explore prior to making its downsizing decision?

c) what are the implications of the downsize decision?

Solution Preview

1. The factors forcing the company to downsize include stagnated housing starts, high interest rates, and record inflation. As a result, consumers were able to afford less. In addition, unemployment levels were high. Stonewall had too much capacity, and not enough sales. The company did not need the people it employed, based on the work it was producing. In addition, the other ...

Solution Summary

This solution deals with a company in Canada, Stonewall, that is in the midst of a downturn in the construction materials industry. The solution discusses the implications of downsizing and alternatives it should evaluate. It also discusses the factors that led to this situation. It includes a helpful link.

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