'Global’ – now we see what it really means
23 January 2009
Globally some jobs are starting to go. Banking, construction and retail have been the hardest hit so far but there have been a few electronics manufacturers also making the headlines for the same reasons – Intel being the latest and our lead story this week.
I have said in this column before that I believe the foundations for this industry to be strong and that the stagnation that followed the dot com crash will not be repeated – we don’t currently have the same global overcapacity that we did in 2001 and so the long term consequences of that disaster won’t be repeated in the electronics sector this time round.
But there is also no hiding from some of the more depressing headlines and I have spent some time trawling the internet to put some meat on the bones. The following are some of the major companies in our sector and reports of their job losses: Elcoteq (5000), Hewlett-Packard (24,000), Xerox (3000), Motorola (7000), Sun Microsystems (6000), Dell (2000), Sony (16,000), and TDK (8000).
On the surface this looks pretty bleak. The scale of these statistics hides many individual tragedies and much stress and unhappiness, and I don’t in anyway want to belittle or ignore that. What I will do is look at it from an overall industry perspective because I think that this sums up why it might seem that some of our problems seem worse than they are.
It is clear that there are certain things that have been hit hard by consumer confidence and so if the market for TVs, mobile phones, MP3 players and so on is suffering then it has a direct consequence for manufacturing capacity. For the electronics industry this is the core problem. It is equally clear that there are other sectors – medical, defence, certain industrial products – that are actually doing pretty well, although these sectors are ‘slightly more dependent’ on local factors.
‘Slightly more dependent’ is a relevant phrase, I think. What happened in the crash of 2001 was that the industry truly became global. While they were desperate times for many companies, particularly in telecomms, it was time of re-invention, clever strategising and growth for others.
It was in 2001 that the steadily growing EMS sector started to boom and became the low risk, low cost manufacturing solution for many OEMs. That these leading EMS providers then went too far in their quest for capacity and purchased too much of it is another story, but by that time they had become established as a major manufacturing channel of high volume electronics.
At the same time both OEMs and EMS providers were looking beyond their traditional ‘low-cost’ geographies (e.g. Mexico, Eastern Europe, Singapore, Taiwan) towards China. Better still for an OEM is to have a contract manufacturer offering the cost benefits of Chinese manufacture and also have someone with local knowledge to handle the logistics. And so the industry became truly global. Above certain volumes anything could be manufactured anywhere, Certain places, most notably China, and certain types of manufacturers, EMS and more recently the ODMs, prospered in the fall-out from the 2001 crash.
This has resulted in a complete sea-change in the attitudes towards company structures and is reflected in the job cut figures above. Dell, for example, are withdrawing its manufacturing presence in Limerick, Ireland (after 18 years) and moving it to Poland with the obvious intention of being able to do it cheaper there. So 1900 jobs will be lost in Ireland – other jobs will inevitably be created in Poland, but nobody pays any attention to the positive side of anything these days.
Intel, unlike Dell a company who is retaining a huge presence in Ireland, is to close five plants, but this is largely for technology reasons - although old technology could be argued to be being squeezed out by new as sales diminish. All the plants to be closed down are older 100nm or 200nm fabs and I believe that an out of date fab needs to be replaced rather than updated like a surface mount assembly plant could be. Intel has made it clear that job opportunities could therefore appear at other plants, so all 6000 of those jobs may not be lost.
There are other cases where OEMs are cutting back their workforce to suit their latest manufacturing strategy – jobs lost in one part of the world could reappear somewhere else. Equally, within EMS companies their inherent fluidity often means that certain plants grow while other, possibly even in the same country, are shrinking. Again, it is the latter that makes the headlines.
Regular readers of this column might also expect a a slightly cynical angle to creep in, so, in order not to disappoint, I will suggest that there may be some captains of industry out there who will take a recession as the ideal time to reduce labour costs at the first hint of a profits scare, leaving the remaining workforce, presumably delighted to still have a job, to work extra hard for no extra pay to cover for their recently departed colleagues. In truth I have thought this mainly of some companies in the retail sector who may have been suffering from lack of availability of credit to cover costs, but it does seem like any loss, even only a percentage point or two, results in job losses. Surely businesses cannot all be so fragile?
However, returning to the electronics industry, I am not doubting that this recession is real, nor that it is having a profound effect on many people, all I am saying in this column is that, behind these depressing headlines, there is an element of global redistribution that is now an inherent part of our industry and also is a management tool that at times of economic hardship is more likely to be used.
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