Levi Strauss closures hit crisis-ridden Belgian textile industry

Fears about the crisis in the Belgian textile industry, which have been mounting for some months, came to a painful head on 1 October 1998. Jeans manufacturer Levi Strauss announced the closure of three factories in Belgium - with the likely loss of 1,034 jobs - as well as one in France. Overcapacity and high employment costs are the key motives for this drastic decision.

On 1 October 1998, the US-based jeans manufacturer Levi Strauss announced the closure of its Belgian factories in Wervik, Gistel and Deurne, as well as one in France. In the Belgian plants, 1,034 mainly low skilled employees will most likely lose their jobs.

Background to the closure

Overcapacity

The three plants threatened with closure made a combined profit of BEF 430 million over the last year. Levi Strauss Belgium realised a total turnover of BEF 1.6 billion and a profit of BEF 236 million. This suggests that direct financial problems are not the underlying reason for the closure.

Levi Strauss is struggling with a problem of overcapacity of several tens of thousands of pairs of trousers every day because of a dwindling demand for denim jeans. In addition, competition in this market has increased and is more and more subject to the whims of fashion that require new designs and readjustments every year. This situation has led to the "critical auditing of all European Levi production plants and to the conclusion that those with the highest production costs will have to close", according to the company's management.

High employment costs

All but one of the European Levi plants with high production costs are located in Belgium. Production costs per unit are between 49% and 75% higher in Belgium and France than the Levi group's European average. Production costs in Turkey and Hungary are only 56% of the European average. Spain (90% to 98%) and Poland (64%) also have considerably cheaper production costs. The UK plant has production costs between 17% and 23% higher than the average. These figures mean that if plants were to close down, then the ones in Belgium would be fairly obvious choices, from the company's perspective.

Chronicle of an (un)announced closure

The proposal to close down the three plants came, according to the company management, rather unexpectedly. In April 1998 it declared in a meeting with Flemish minister of economic affairs Eric Van Rompuy that the future of the plants was not in danger. In a recent discussion with Mr Van Rompuy, company chair Carl Von Buskirk apologised for the wrong information given in April. He said that Levi Strauss had been having problems at that time but expected or hoped to resolve them through better marketing campaigns and the streamlining of products and production. Unfortunately, sales were disappointing over the last few months - about 25% below the business plan. This episode has left a bitter aftertaste because of the increased flexibility and wage cuts accepted by the employees only in 1997, in order to help reduce production costs and save employment. "With what we know now, we would have never accepted these measures a year ago," concluded one of the trade union representatives.

Mr Van Rompuy announced that the Flemish government would cancel financial support for environmental investments and property taxes for which Levi Strauss had applied and was eligible.

Textile industry throws in the towel

The Belgian clothing industry employed more than 90,000 workers during the 1970s. Current employment, however, has dropped to just over 22,000. According to the Clothing Federation, this is primarily due to the relocation of production abroad. This seems to contradict a recent study carried out by the Federal Planning Bureau (Federaal Planbureau/Bureau Fédéral du Plan) which comes to the conclusion that relocation is not a significant problem for Belgian industries.

Yet this conclusion is contested in a survey published by the Clothing Federation which strongly suggests that it does not apply to the specific situation of the textile industries. Whereas 47% of companies had foreign production capacity in 1992, this figure has now risen to 70%. About one-fifth of the companies have moved their entire production capacity abroad. The most important reason centred on labour costs, which are about 10 times as much in Belgium as they are in, for example, Tunisia. The Federation calls on the government to deal with this problem. Current proposals are judged insufficient.

Another reason to relocate production is the difficulty in finding employees, even though unemployment is high. The Clothing Federation claims that "many unemployed people do not want to work in this country because the differential between unemployment benefits and net income is too small. This has to change. It is senseless for the government to start programmes to create jobs for low-skilled workers while they are up for grabs in our sector".

Relocation has created about 50,000 jobs abroad. Six years ago, these jobs were distributed fairly evenly between North Africa and Eastern Europe. The current trend is more towards Eastern Europe. The formal structure of this foreign production is mostly through subcontracting. Few companies have autonomous production units or even joint ventures in foreign countries. In terms of specific activities, cutting, sewing and packaging have been most affected. What remains in Belgium is usually design and development. However, this does not mean that companies resolve all their problems when production is moved abroad. According to the survey, the most important problems encountered are quality control, timing and administrative work.

Unions draw up alternative plans

Immediately after the announcement of the closure, strikes were declared at all three Belgian Levi plants. On 3 October, when Levi Strauss informed its European Works Council, a large demonstration was held in Brussels.

Levi Strauss is adhering closely to the procedure for closures which was changed after the débacle of the Renault closure of its Vilvoorde plant in 1997 (BE9703202F). Strict consultation and information requirements mean that the company invites union representatives to propose alternatives to the closure before the final axe will fall. An unintended consequence of this procedure is that unions become more involved in the process of the actual closure, whilst their real input into the process is only nominally improved.

On 9 October, union representatives proposed the following to Levi management:

  • cutting back external contracting (outsourcing);
  • increasing production of non-denim products;
  • spreading production capacity over all units of the concern; and
  • drastically reducing non-production related costs;

Additional measures, it was proposed, could be taken in the framework of a restructuring plan for the company. These involved possible

  • early retirement;
  • a premium for those leaving voluntarily;
  • working time reductions; and
  • part-time work.

In its reaction on 14 October, management swept all the proposals off the table. The official conciliator proposed an external advisor on the closure and on the union's proposals. For the time being, further developments remain to be seen.

Commentary

Two years after the Renault saga, a new "mega-closure" is hitting the Belgian economy. Are comparisons possible between the two cases? Yes and no. Both companies are active in a sector where labour costs are an important element in the cost structure. This has prompted both the textile and the car assembly industry to restructure drastically. The entire automobile sector is restructuring, and the textile industry is in a process of transition. Both Renault and Levi's claim that overcapacity and high labour costs are the basis for their decisions.

Yet there are also obvious differences between the cases. The textile industry is a sector full of contrasts. On the one hand, there is a segment which is in crisis because of the extreme differences in production costs between Western Europe and other countries. On the other hand, there is a segment (haute couture) which is doing very well. On the one hand there is the threat of unemployment, on the other hand there are hundreds of job openings which seem to remain vacant despite the availability of qualified workers.

Another difference concerns the approach. Levi Strauss is seen as being much less aggressive than Renault in its dealings with the unions. It has clearly learned from the Renault case. All rules are being followed, and unions are involved (for example in formulating alternatives). In addition, a unit for "crisis public relations" has guided the company through this episode. In the end though, the net result remains the closure of another major factory and another blow for employment. Differences in style do not change this. (Peter Vanderhallen, WAV)

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