By Andy Sambidge
New study says a third of companies intend to engage in cost cutting in the near future
More than half of companies (58 percent) in the Gulf region admit to not having cut costs during the past three years despite the impact of the global economic downturn.
In a new study, McGill Consulting Group said a third of companies in the region intend to engage in cost cutting in the near future.
It said the bulk of cost cutting measures within the past three years have accounted for less than five percent of GCC companies' overall annual budgets.
In the UAE, it said 34 percent of companies have cut between 11-20 percent of their overall annual budgets, while in Bahrain just under half of companies surveyed indicated that they have cut over 50 percent of their annual budgets.
Qatar and Kuwait showed the least cost cutting, with between two thirds and three quarters of firms resisting the trend of cutting costs.
The study said legal departments were the least hit by cuts, accounting for an average of two percent in the GCC, largely driven by mounting legal issues stemming from poor payment and supplier performance.
The hardest hit, it added, was taken by human resources departments, followed by marketing, sales, and logistics.
In terms of country-specific data, the lowest cuts in human resources were in Saudi Arabia, Oman and Kuwait while the highest cuts were in the UAE and Bahrain.
Nader Sabry, managing partner at McGill Consulting Group said: "This is a healthy sign, that a balanced approach in cost-cutting has and is being taken. Cost cutting can become a habit that blinds decision-makers and weakens their ability to rebound when needed."
McGill said on average, firms in the GCC have spent between $1-2m, mostly in consulting services, to help reshape their operations.
"Most of the firms' operational structures have legacy issues dating back before the economic growth period, which started in 2005," Sabry said.
"Several firms have, and are, realizing the imperative of real organisational change at all levels."
McGill added that Qatari and Omani organisations experienced the most fruitful impacts of cuts on profitability while Bahrain saw the poorest profitability performance.
The study said 65 percent of firms who haven't cut costs intend not to do so in the future either.
But when it comes to human resources, cost cutting measures will not let up in the near future, according to the study. Logistics will also be a focus of future cuts, it said.