Tutorial-2 Indications of a sick company.

The two basic factors which may result in sickness of an industrial unit are:-

• Internal factors are those which arise within an organisation. They include:-

• Mismanagement in various functional areas of a company like finance, production, marketing and personnel;

• Wrong location of a unit;

• Overestimation of demand and wrong dividend policy;

• Poor implementation of projects which may be due to improper planning or managerial inefficiency;

• Poor inventory management in respect of finished goods as well as inputs;

• Unwarranted expansion and diversion of resources such as personal extravagances, excessive overheads, acquisition of unproductive fixed assets,etc.;

• Failure to modernise the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment;

• Poor labour-management relationship and associated low workers' morale and low productivity, strikes,lockouts, etc.

• External factors are those which take place outside an organisation. They include:-

• Energy crisis arising out of power cuts or shortage of coal or oil;

• Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries, poor agricultural output because of natural reasons, changes in the import conditions, etc.

• Infrastructural problems like transport bottlenecks;

• Problem in credit availability;

• Situations like market recession, changes in technology,etc;

• International pressures or circumstances, etc.

Industrial sickness may be caused by a combination of all such factors. It has several adverse consequences on the economy as a whole. Some of which may be enumerated as follows:-

• It leads to loss of substantial revenue to the Government and enhances its public expenditure;

• It locks up necessary resources and funds in the sick unit. This also increases the non-performing assets (NPAs) of banks and financial institutions;

• It leads to loss of production and productivity in the economy;

• It aggravates the problem of unemployment in the economy;

• It vitiates the industrial atmosphere and leads to worker-management disputes, strikes, lock-outs,etc;

• It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy.