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Recent Carillion collapse highlights impact on supply chains

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The knock on effect could prove disastrous for the economy

When the news broke that construction giant Carillion had collapsed, understandably millions of workers were concerned over their future. However, it isn’t just the millions working for the company itself who face potential redundancy. Now, those working within the supply chain of Carillion are also at risk of being laid off.

Here, we’ll examine the effect bankruptcy can have on the entire supply chain of a company.

Private sector companies fare worst

In the case of the Carillion collapse, it’s private sector suppliers which are feeling the brunt of the bankruptcy. The government has agreed to pay the public-sector subcontractors, but the private sector workers will become creditors. This means, they’ll likely be pushed to the back of the queue and could potentially only receive less than 1p for every £1 that the failed company owes.

Many of these suppliers already haven’t received payment for up to six months. So, there’s a very high chance they could end up having to make thousands of their own staff redundant.    

The knock on effect could prove disastrous for the economy

It isn’t just the initial supply chain which suffers when a large company collapses. The businesses which rely upon the supply chain are also going to be impacted.

We also can’t forget the impact it has on the markets. Investors stand to lose a staggering amount of money if they didn’t get out of their shares in Carillion quick enough. It’s a blow for the construction industry, and the markets are certainly going to reflect this. Even those using a high-quality, reliable trading platform will need to pay closer attention to the markets they invest in.  

The lack of investment into the sector, could prove extremely damaging for the economy. Let’s not forget too, that in the Carillion collapse, hundreds of companies have been affected. In turn, hundreds of other small businesses will be negatively impacted. It’s a snowball effect which ultimately leads back to the consumer. Carillion may have been a public-sector contractor, but its collapse is likely to impact the private sector too.

Bankruptcy isn’t always bad for the economy

While in Carillion’s case, it’s certainly likely to have an initial negative impact on the economy, bankruptcy isn’t always a bad thing. In fact, in terms of the economy, bankruptcy can actually prove to be beneficial

This is because bankruptcy can be seen as a safety cushion if things go wrong. So, it encourages businesses to take more risks when it comes to expanding their company. For consumers, it enables them to apply for credit when they need it. Both businesses and consumers know that if they do fall into difficulty, bankruptcy could help them to start again. It may have negative consequences, but it is a lifeline if things do go wrong.

Overall, when large firms collapse, it does have a snowball effect on their supply chain; particularly those who relied solely upon the large company for their business.




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