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In May 2003, Schiesser Pallas, a subsidiary of the German apparel multinational, Schiesser AG, announced that it was to close down its sewing operations in Greece, citing relatively high labour costs compared with countries such as Bulgaria and Romania. Despite detailed trade union counter-proposals, consultations failed to produce results and 500 redundancies are expected soon.
Schiesser Pallas is a Greek subsidiary of the German-based clothing multinational Schiesser AG. Schiesser Pallas manufactures underwear for its parent company, which has until now bought three-quarters of its production (the other quarter goes to the Greek market through the trading company, Palco). After cutting its staff by 360 workers during the last previous three years, the company announced on 5 May 2003 that it would close down its sewing operations in Greece. Consultations failed to produce any results and 500 redundancies are expected to be announced. Prompted by the Schiesser case, the problems of the clothing industry and their impact on employees have become the subject of public debate in Greece.
At a first meeting with the Schiesser Pallas Employees’ Union, company management set out the reasons behind its decision to close its sewing operations in Greece. Unit labour costs in Balkan countries such as Bulgaria and Romania are significantly lower than in Greece: taking Italy as the base at 100, unit labour costs are 73 in Greece, but only around 15 in Bulgaria and Romania. Schiesser Pallas management also cited the even lower wages in China ('where the women workers are willing to walk for hours to come to work for meagre pay', the managing director of Schiesser Pallas told one of Greece’s major daily newspapers). Since Schiesser Pallas’s production process is labour-intensive (labour costs represent 40% of total production costs), these differences in labour costs between Greece and low labour-cost countries offer Schiesser AG’s competitors producing in such countries a significant competitive advantage. Thus Schiesser AG has stopped its orders from Schiesser Pallas, thus presenting the company in Greece with a fait accompli. The parent company will henceforth order from low labour-cost countries.
The Schiesser Pallas Employees’ Union presented proposals for the restructuring of the firm. It considered that before talks began on possible ways of alleviating the consequences of the redundancies, the two sides should jointly examine the possibilities of making changes to the company’s operation, so as to bring profitability up to the level that company management would judge to be adequate and avoid moving production to a low labour-cost country. Thus a series of meetings began with Schiesser Pallas management, the union and representatives of the General Confederation of Greek Labour (GSEE) and its Institute of Labour (INE).
At a meeting on 12 May, union representatives asked the company’s top management to provide data they deemed necessary for analysing the company’s situation, identifying problems and drawing up documented proposals for the more efficient and profitable operation of Schiesser Pallas. They believed, however, that the information they were given was far different from what they had asked for. According to the union, it had asked for data that every organised company has at its disposal. However, management reportedly gave the union either published data (the balance sheet and profit and loss account), or data not relevant to the company as such but to the clothing industry in general. It did provide some information concerning the company to which the union did not previously have access, but it is claimed that this was summarised in two pages and was vague and irrelevant to the problem.
Specifically, Schiesser Pallas management did not, according to the union, provide any unit labour cost data. Thus, the union was not apprised of: the annual amount of wages paid, in total or by category (blue-collar workers, white-collar workers and managers); the annual amount of employee and employer social insurance contributions; the number of hours worked each year and the extent to which these included overtime; the average annual number of employees; and variable labour costs (ie those varying with the volume of production) and fixed labour costs. Without these data, the union could not draw up proposals for the more efficient operation of the company, because it could not calculate indicators of critical importance such as productivity and unit labour costs. It could not answer crucial questions such as: how much labour productivity had increased during the past decade (and therefore to what extent unit costs were affected); how much the share of expenditure on wages (of blue-collar workers, white-collar workers and managers separately) in added value had increased or decreased; and to what factors changes in total costs were due.
With the scanty data it had at its disposal, the union reached the conclusion that the company’s production activity created a significant surplus of around EUR 500 per worker per month. On the hypothesis that average monthly labour costs (ie the sum of net wages and employee and employer social contributions) per head in production amounted to EUR 1,000-EUR 1,200, the added value per blue-collar worker per month amounted to around EUR 1,500-EUR 1,700, of which EUR 500 went to the company in the form of gross profit. A part of this surplus was spent to pay interest, marketing expenses and administrative expenses.
According to the union’s analysis, a 10% reduction in production costs could lead to a spectacular increase in profits. The union’s advisors from INE-GSEE proposed achieving such a reduction in costs by decreasing the working time needed to produce one item of clothing (from five to four minutes per piece). This reduction could be achieved - along with other ways that the union would perhaps have been willing to discuss - through:
In the union’s view, increased productivity and an attendant 10% reduction in production costs would have allowed sale prices to Schiesser AG to be reduced by 10% and could have allowed Schiesser Pallas to remain one of the multinational’s basic suppliers. It would have been possible to achieve a further price reduction, according to the union’s analysis, by reducing administrative costs from EUR 1,200,000 to EUR 800,000 per year, along with cutting marketing expenses, via outsourcing of certain processes and internal restructuring. According to the union’s calculations, these two sources of economies (administrative and marketing expenses) would save an extra EUR 500,000. Such savings, in conjunction with a possible reduction in employer social insurance contributions or other economies resulting from public funds for company restructuring efforts, would allow the sales prices of Schiesser Pallas products to fall to levels significantly lower than current prices (with a total reduction of around 15%).
The position taken by the company management, however, seemed extremely negative with regard to discussing these proposals. Apart from its reported refusal to provide the necessary data (which it said would take several months to collect), it reiterated its initial assessments that labour costs are high in Greece and that 'there is no demand'). At a series of meetings at the Ministry of Labour, company representatives were not only adamant about closing down the plant but also appeared to be in a hurry. Afterwards, 20 June was set as a deadline for the company to present a 'social plan' for the 500 redundant workers, including: absorbing some of the workers in Palco; finding jobs for others in other companies via individual contracts; and offering older workers early retirement and increased severance pay. After 20 June, either the collective redundancies were to be confirmed or a court decision taken on severance pay and wages to be paid in arrears. In parallel, the Ministry of Labour is planning a series of measures to support the 500 workers which will include absorption of redundant workers in municipal enterprises, payment of retiring workers’ social insurance contributions, and training programmes.
Over the last 10 years, 35,000 jobs have been lost in the Greek apparel industry and 45,000 created in neighbouring countries, according to data from the Greek Association of Knitwear and Ready-made Clothing Enterprises. Several years ago, it was already clear that the apparel industry in Greece was about to undergo a crisis that had to be dealt with. This was due to the fact that, from as early as the 1980s. for the most part the industry had grown by subcontracting sewing operations based on cheap labour. It was particularly concentrated in Northern Greece, with geographical links to western European countries, primarily Germany. Greece imported cut-out apparel parts and exported them after they were sewn. There was also a regime of export subsidies, which made the industry profitable. Today, given the competition of low labour-cost countries and Greece’s membership of the euro single currency, it is impossible to continue such a business strategy. In the meantime, some pioneering enterprises have adopted another strategy: they have abandoned subcontracting of sewing operations, designed short series of differentiated products destined for European shops and had them sewn in Balkan countries. The only way to preserve the apparel industry in Greece, under the present conditions, as a sector making a significant contribution to GDP and to employment, is to reinforce this new strategy. However, this process should be carried out in a coordinated manner so as to steer changes in the right direction and reduce the consequences for workers. Public competition policies should play an important role is this process. (Elias Ioakimoglou INE-GSEE)