Unions propose relaunch of textile company

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In September 1997 the Institute of Labour, the research and training arm of the Greek General Confederation of Labour, published a study on the modernisation, market repositioning and relaunch of the Piraiki-Patraiki textile concern. The study, which has been submitted to the Ministry of Development for evaluation and approval, may be viewed as a last-minute attempt to save the company.

During the 1980s, the problems experienced by the Greek textile and clothing industries led to major restructuring with a consequential loss of production and employment. Production alone fell 30% between 1989 and 1996. However, large-scale restructuring decisions, which have aimed at reducing costs and responding to ever increasing international competition, have also recently been undermined by a 20% re-evaluation of the Greek currency due to the Government's monetary policy (real interest rates are currently the highest in the EU).

Piraiki-Patraiki (PP), which was Greece's leading textile and clothing company during the 1960s and 1970s with a total labour force of around 7,300, was subject in the early 1980s to considerable and deepening import penetration and slow export growth. The resulting crisis led to the closure of most of the company's production plants which were located in various regions across Greece. Under these circumstances, the Institute of Labour (INE) - the research and training arm of the General Confederation of Labour (GSEE) - in cooperation with the Solidarity Union (the union of the company's ex-employees), carried out a study on restructuring, modernising and relaunching the company.

On 4 September 1997, INE published the proposed business plan and the feasibility study, outlining the key issues to be addressed. The study has been submitted to the Ministry of Development for evaluation and approval. On the success of the proposed 10-year business plan depends not only the company's future but also important additional benefits, such as improvements in the international competitiveness of the Greek textile industry, the revival of the declining industrial region of Patras (the company's location) and a reduction in the Greek trade deficit.

Proposed solution

The proposed business plan for PP covers two production units located in the region of Patras and Chalkida, two Greek cities particularly hard hit by unemployment. Early 1998 is considered a possible time to launch the implementation phase of the plan.

The plan includes two phases. During its initial implementation, the improvement of the company's position will be pursued - an aim considered to be crucial - through organisational and administrative restructuring, cost reductions and sales development. During the second implementation phase, the company should, on the one hand, shift its production towards a mix of products and services for which demand is rapidly increasing and, on the other, make efforts to gain competitive advantage. As far as the latter is concerned, competition from low-cost plants in Asia and central and eastern Europe should be met through rapid modifications in the company's production schedules to allow it to respond to changes in fashion. At the same time, this should help to reduce product delivery times, whilst competition from the leaders in international fashion should be met through reduced costs and competitive prices.

Reductions in production costs will result from organisational and administrative rationalisation, low capital-cost borrowing, the utilisation of workers' savings, and the economies of scale derived from an increase in the rate of utilisation of equipment and the vertical integration of production. During the first two years following relaunch, the emphasis will be laid on the production of products known to the market with increased added value and on improvements in marketing and the development of new products.

PP's financing will come mainly from profits, suppliers' credits, an increase in share capital and an initial loan granted by a bank or another institution. The existence of stocks of finished products and the workers' acceptance of a 20% deduction from their pay for two months - followed by further deductions for a longer period of time - will constitute important guarantees for potential investors who will meet the company's needs for working capital.

Benefits of relaunch

According to the business plan contained in INE's study, the company could make profits immediately in the first year following its relaunch, and the profitability criteria used, like net present value and the internal rate of return, will make the investment not just acceptable but positively attractive. However, besides the criteria of economic profitability, the relaunch of the company's operations presents certain additional advantages - amongst which the most important are the improvement of the country's balance in textile production (that is, a reduction in imports and an increase in exports) and the employment of hundreds of workers in an industrial region in crisis, on which a "multiplier effect" will have a positive impact. As far as employment is concerned, it is forecast that the relaunch in Patras will create 900 new jobs and have a positive effect on real income.

Commentary

The organisational and technological modernisation of PP is of great significance not only for the benefits it will create for the company itself and the regions in crisis, but also because in Greece it is unusual for the unions to participate in plans to restructure a company.

Traditionally, the institutional and legal framework in Greece does not provide for the participation of trade unions in operational decisions. As a result, discussions with employee representatives on restructuring have been rare or even absent. Against this background, the initiative of the INE/GSEE to complete a feasibility study and propose a business plan for relaunching operations at PP is of great significance, since it could establish the conditions for employees and their representatives to take a more active role in decisions affecting company restructuring and operations. (Eva Soumeli, INE/GSEE)

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