ArcelorMittal Eisenhüttenstadt, Germany: Business creation and entrepreneurship
ArcelorMittal Eisenhüttenstadt GmbH is the largest employer in the economically problematic region of East Brandenburg. The company is well known for its socially responsible practices, not only towards its employees but also in relation to the region in which it is located. Following a decision to reduce its workforce, ArcelorMittal Eisenhüttenstadt initiated a campaign to create new jobs in the region.
In the early 1950s, the government of the former German Democratic Republic (GDR) decided to build a new steelworks in a remote part of the country. Similar to the establishment of Volkswagen and Wolfsburg in the 1940s, a completely new town was planned around the steelworks, the former borrowing its title from the steelworks’ original name – Eisenhüttenkombinat J.W. Stalin; as a result, Stalinstadt was chosen as the name of the town. In 1961, five years after the beginning of the ‘de-stalinisation’ process, the town Stalinstadt was renamed Eisenhüttenstadt, while the steelworks was renamed ‘Eisenhüttenkombinat Ost (EKO)’. During its GDR history, the steel cluster in Eisenhüttenstadt was continuously upgraded, for example through the addition of steel mills or modern blast furnaces.
Following the reunification of Germany, EKO endured several difficult years during which it successfully adapted to free market conditions. In 1990, the steelworks was transformed into the stock corporation EKO Stahl AG. Subsequently, the plant reorganised its product structure, restructured its work organisation and reduced its workforce from over 12,000 workers to less than 3,000 employees. By 1994, the company was poised for privatisation and was sold to the Belgian company Cockerill Sambre, which continued to modernise the plant’s production technology and extend its product portfolio by expanding into the area of electro-galvanisation.
Since the end of the 1990s, EKO Stahl AG was part of the major restructuring processes within the European steel industry. In 1999, it was affected by the acquisition of Cockerill Sambre by the French-owned company Usinor. Subsequently, in 2001, Usinor and Arbed in Luxemburg and Aceralia in Spain decided to merge with Arcelor, forming the world’s largest steel company at that time. In June 2006, EKO was renamed Arcelor Eisenhüttenstadt GmbH. After the fusion of Arcelor and the Indian Mittal Steel Company to the now largest steel producer worldwide the company was renamed again and got its present name: ArcelorMittal Eisenhüttenstadt GmbH.
In 2006, the Eisenhüttenstadt plant had 3,001 employees and a production turnover of more than €1,2 billion. As is typical for the steel industry, there is a strong trade union presence in the company. Relations between management and the works council are described as being ‘highly cooperative and trustful’.
Description of the initiative
The region in which ArcelorMittal Eisenhüttenstadt is situated is considered to be an economically problematic area. In December 2007, the Eisenhüttenstadt region’s unemployment rate was nearly 14%, losing much of its valuable human capital as young qualified people have tended to migrate to more prosperous parts of Germany. Thus, the population of Eisenhüttenstadt has dropped from about 50,000 people in the late 1980s to around 34,000 persons in 2007. As the largest local employer in the region, ArcelorMittal Eisenhüttenstadt and its predecessors have always acted in a socially responsible way towards the surrounding region, aware that the area’s economic problems could also ultimately endanger the company’s own future.
After the integration of EKO into the Arcelor group, the former was forced to cut its costs even further: by 2007, the company would need to reduce costs by an additional €94 million. These targets necessitated further downsizing at EKO, resulting in the loss of about 350 jobs. As EKO was well aware of the disastrous impact that these job losses would have on the region, the company decided to develop a strategy aimed at easing the effects of the job cuts on the local labour market. Firstly, a 35-hour week was introduced earlier than had been planned in the collective agreement covering EKO. Secondly, EKO signed an agreement with the works council whereby the company committed itself to promoting business creation in the area, in order to compensate for the 350 jobs which were at stake at EKO. To help achieve this objective, the company adopted the following initiatives:
- establishment of the subsidiary company ‘Eisenhüttenstadt Dienstleistungsgesellschaft mbH’, which, among other things, aims at helping business entrepreneurs;
- introduction of the Prize for Business Founders in Eisenhüttenstadt in 2005;
- setting up of a competence network on metalworking and recycling at Eisenhüttenstadt and becoming one of the major partners of ‘cluster.eh’ – an initiative aimed at profiling the steel and metalworking cluster at Eisenhüttenstadt.
In addition, ArcelorMittal Eisenhüttenstadt has invested in the so-called ‘soft’ location factors of Eisenhüttenstadt, helping to make the region an attractive place for investment. For example, the company has been involved in the establishment of three local initiatives, supporting local activities in areas such as sports, culture, science, education and youth work. ArcelorMittal Eisenhüttenstadt also plays an active public role in the fight against political right-wing radicalism. Through these initiatives, the company has tried to achieve its self-chosen objective to make the company ‘an attractive employer in an attractive region’.
By 2005, some 160 new jobs had already been created in Eisenhüttenstadt, most of which were in companies with close links to the Arcelor Eisenhüttenstadt steel plant. Much of this success was possible due to ArcelorMittal Eisenhüttenstadt’s history of attracting companies that have profited from certain outsourcing activities at EKO since 1989. This explains why EKO could reduce its workforce to less than 3,000 people and yet still ensure that more than 2,000 additional employees managed to secure employment in other service or industrial companies situated on the former EKO site. Most of these companies work along the supply and/or production chain of EKO and once constituted integral parts of the former GDR steelworks. By concentrating on its core businesses and outsourcing other activities to the region, the company has managed to transform itself into a competitive steel company and, at the same time, adopt socially responsible practices in the region by creating jobs in close proximity.
ArcelorMittal Eisenhüttenstadt also makes an interesting case study for business creation and entrepreneurship in relation to its focus on ‘soft factors’, aimed at making the surrounding region attractive for companies and employees. Such an objective is particularly important in a region facing problems that could ultimately prove to be fatal for ArcelorMittal Eisenhüttenstadt in the long term. Therefore, all actors in the region, including the social partners at ArcelorMittal, recognise that one of their major tasks is to ensure that Eisenhüttenstadt evolves into a town with a bright future and a well-qualified workforce, and one which is perceived as being an attractive location for new business creation. So far, this approach seems to have been successful, at least in the steel and metalworking sector due to the efforts of ArcelorMittal Eisenhüttenstadt. It is not surprising, therefore, that in 2005 the company won an award for ‘creating and stabilising employment’ as part of a competition organised by the German government under the theme of ‘Shaping employment – Companies show responsibility’.
Exemplary and contextual factors
ArcelorMittal Eisenhüttenstadt represents one of the few success stories in relation to the privatisation of former GDR cooperatives. A particular weakness, however, is the fact that the company is situated in an area that has a poor image in terms of its attractiveness to potential investors. Therefore, ArcelorMittal has adopted a differentiated strategy in relation to new business creation in the region: on the one hand, it focuses on the stabilisation of the region’s reduced steel and metalworking cluster, while, on the other hand, it concentrates on the ‘soft factors’ in an effort to improve the region’s image and attractiveness to potential investors.