Cost-cutting practices during the recent financial crisis : a study on Maltese firms

Abstract

Purpose - The main purpose of this study is to find out about cost cutting decisions made by Maltese firms in light of the difficult situation which the world economy found itself in, as well as to determine the negative effect which the recession had on these firms. Additionally, this study also tries to identify whether local firms have stuck to traditional cost cutting, where an across the board budget cut does the job, or else decided to overhaul their cost structure through using strategic and sustainable cost cutting programmes. Design - A questionnaire was structured to fulfil these objectives and was sent to businesses operating in the Hotel and Manufacturing industries; two sectors which surely felt the brunt of the downturn when considering that our small islands depend heavily on exporting and tourism. Findings - Local firms have admitted that an efficient cost structure is very important in achieving a competitive edge over competitors and in fact, findings show that as companies started to settle down in the recession period, they changed their cost cutting measures from short-term to strategic. Conclusions - Thus, one can say that Maltese firms were not short-sighted and did not focus only on surviving this economic turbulence. They wanted to thrive iii when the economy, ultimately, settles down and therefore they analysed carefully the repercussions of their cost cutting decisions on their business' future financial performance. Values - Times like these, therefore, offer opportunities for those firms that want to stand out. Such firms have to be pro-active and distinctive by using cost cutting strategies that help in achieving a lower cost base rather than generating short-lived benefits. Furthermore, it is vital that they do not overlook the import that this study will contribute in changing the perspective of businesses towards recessions and ultimately the decisions taken during these times.