The crisis in the troubled IT service company TietoEnator is getting deeper. The company announced on Thursday that it is reducing its staff by 800 by the end of next year.
Most of the cutbacks are taking place in the Nordic Countries, where labour costs are high: 400 jobs are to go in Finland and 250 in Sweden.
The company's Interim CEO Åke Plyhm believes that some of the employees who will be affected by the co-determination talks on the cutbacks will get new jobs within the company.
Many operations of TietoEnator will be transferred to Eastern Europe and Asia for reasons of profitability.
"The goal is that the proportion of those in our personnel who work in countries of cheap labour will rise to 40 per cent. This is necessary in light of changes in the field."
Currently about one-fifth of TietoEnator employees are in these countries.
The aim of the cutbacks is to reduce costs and improve the utilisation ratio. The company hopes to save EUR 100 million by the end of next year. The personnel cuts announced so far do not link up with the goals for cost cuts.
Analyst Pasi Väisänen of Glitnir Bank commented on the ambitious cost-cutting goal, saying that there are doubts on the market that it can be achieved.
Last year the company took a conscious risk by trying to boost its business operation by increasing its sales. Previously TietoEnator grew mainly through corporate acquisitions, which occurred fast and frequently.
The problem is that costs of consultant companies such as TietoEnator tend to increase during good economic times because of the rise in consultants' pay.
The company also became aware of the need for cheap labour far too late.
One possible reason for the difficulties suffered by TietoEnator may be that its customers have learned to compare prices and consider foreign competitors as well.
"TietoEnator has had problems in handling its business as a whole, and risk management has not always been up to par. Problems have been indicated by failed customer projects, which have cost the company tens of millions of euros", Väisänen said.
The success of TietoEnator was at its peak in the years that followed the technology boom. Its profitability has declined steadily since 2006.
