Whirlpool, Italy: Business creation and entrepreneurship
In 2005, the Whirlpool production plant in the southern Italian city of Naples signed a programme agreement with local and regional authorities. The agreement aimed to create a large household appliance business cluster consisting of a consortium of suppliers and universities which would be coordinated by Whirlpool. The project, named ‘Genesis’, sought to increase the production plant’s competitiveness by investing in product and process innovation and by focusing on quality.
Whirlpool Corporation is a global manufacturer of household appliances. The group subdivides its business activity into four macro-geographic areas: North America, Europe, Latin America and Asia. The head office for Whirlpool Europe is located in Italy in the northern city of Comerio in the Varese province, along with four production plants in the northern cities of Trento and Cassinetta, the north-central city of Siena and the southern city of Naples.
The Naples production plant employs almost 700 workers, of whom almost 600 are manual workers. Women comprise almost 30% of the total staff. The production plant specialises in front-load washing machines, and the other Whirlpool Europe plant producing the same product is located in Slovakia. The medium to high quality products are manufactured in Naples, while the lower quality products are made in Slovakia.
The industrial relations are cooperative in the Naples plant and this is underlined by the various internal joint committees dealing with safety, work organisation, quality, training and the environment. Trade union density within the production plant covers almost 70% of personnel. On the employer side, Whirlpool Europe is a member of the National Federation of Electrical and Electronic Enterprises (Federazione nazionale delle imprese elettrotechniche ed elettroniche, Anie Federazione), affiliated to the Confederation of Italian Industry (Confederazione Generale dell’Industria Italiana, Confindustria).
In 1996, Finance Law No. 662 introduced the option of programme agreements as a negotiating instrument through the company-financed part of the project. This measure is applicable in economically depressed areas in order to promote innovative measures and to boost employment rates.
Description of the initiative
The Whirlpool plant in Naples has faced increased competition due to lower labour costs elsewhere and a delocalisation process towards the Whirlpool sites in eastern Europe. In response, it has developed an innovative project, entitled ‘Genesis’, aimed at creating a business cluster consisting of the company itself as the coordinator, a consortium of 18 production and logistic suppliers, and the engineering departments of the Federico II University and the Parthenope University in Naples. The research activity will be concentrated in two applied analysis laboratories, developed in partnership with the two universities.
The synergy of the partnership will have the following effects: the reduction of transport costs, amounting to about €600,000 a year; the promotion of research and development (R&D) activities that favour the enhancement of product quality; innovative logistical processes; innovative solutions for coping with legislative changes; and the recruitment of highly skilled employees. The Whirlpool local management who developed the project idea understood the importance of focusing more on quality products than on labour cost reductions, since labour costs have a 10% impact on the total cost of the final product, while the materials and logistical processes have a 75% impact. Indeed, it appears to be more appropriate to invest in a new organisational form of the supply chain, thereby reducing logistical costs while also fostering research in new products and components.
The local management is also aware that it is impossible to compete with eastern Europe in terms of labour costs as the gap is too wide to bridge. However, investment in quality keeps the product competitive in cost terms, since it reduces the service incidence rate (SIR), that is, the proportion of final products needing to be repaired during the warranty period. In turn, this lowers the warranty costs: the SIR at the Naples site is 13%, while the eastern European competitor reaches 18%. It is important to highlight that all of the consortium enterprises are not economically solely dependent upon Whirlpool, but that they are also free to work with other companies.
The Genesis project is funded by the programme agreement, which means that part of the total cost is financed though the Interministerial Economic Planning Committee (Comitato Interministeriale per la Programmazione Economica, CIPE), set up by the Parliamentary Law No. 48 in 1967. CIPE is responsible for the general management of national economic planning. The programme agreement amounts to a total of €77 million, €20 million of which is directly financed by Whirlpool, €20 million by the other companies in the consortium and €37 million by CIPE. The Campania regional government contributes to financing the training courses for all of the workers affected by the project, with an allocation of €18 million.
Meanwhile, the municipality of Naples has been involved in completing all of the administrative proceedings related to planning permission. From an employment perspective, the project will provide new jobs for 240 people. The consortium decided to build on the former site of the metalwork manufacturer Industrie Cantieri Metallurgici Italiani (ICMI), which had been the location of shipbuilding yards. That area belongs to Fintecna, a financial management company which specialises in the valorisation and divestment of real estate; Fintecna is fully controlled by the Ministry of the Economy and Finance (Ministero dell’Economia e delle Finanze, MEF). The Municipality of Naples and Fintecna spent some time discussing how to organise the definitive layout of the area. Implementation of the project started in 2005 and is due to end in 2008.
Whirlpool’s local management has played a leading role in developing the project. The trade union role was also significant in the following respects:
- It acted as a bridge for the company to involve all of the public actors at local, regional and national level responsible for the implementation of the programme agreement.
- It intervened when the government of the Campania region – acting as a formal signatory along with the planning agreements department within MEF – asked the company to take into consideration the 50 workers who used to work on the former ICMI site, within the terms of the ‘availability list’. The Regional Labour Office drafts this list to include workers who have been dismissed due to restructuring measures. Employees who have been made redundant by companies which are eligible for special aid from the Wages Guarantee Fund (Cassa Integrazione Guadagni, CIG) are registered on the list, and this grants the workers the right to a so-called ‘availability allowance’ (indennità di mobilità) for a variable period, depending on their age. In order to find a solution concerning the 50 former employees, Whirlpool in Naples and the local trade unions underwrote an agreement providing for their employment.
- The local trade unions and the company, along with the workers on the availability list and with the support of the national organisations, staged a demonstration to prompt CIPE to schedule the final approval of the financing. The employer organisation for the province of Naples supported the local management in administrative terms.
Whirlpool’s research into innovation has generated several positive outputs over the past few years. The production plant in Naples has presented two projects related to the creation of innovative products, both of which received funds from the Ministry for Economic Development (Ministero dello Sviluppo Economico). Another project has been presented to and subsequently financed by the Ministry of University and Research (Ministero dell’Università e della Ricerca); this scheme aims at optimising the supply chain in response to the European Directive 2002/96/EC on waste electrical and electronic equipment (WEEE), that is, the recycling of old household appliances.
An important result of the initiative is the maintenance of employment levels at the Naples Whirlpool site and indeed a further increase in employment. Reduced production would not only have affected staff directly employed by Whirlpool but also companies supplying or otherwise connected to Whirlpool.
Since two worker representatives of the Naples plant are members of the European Works Council (EWC), the EWC is well aware of the Genesis project and considers it as a best practice that should be expanded to other production plants in Europe. The EWC may act as an information channel to encourage other plants to apply the same practices adopted in Naples. The trade unions intend to persuade management to try the same solution in the Italian production plant in Cassinetta.
The resolve of local management is one of the key elements of the initiative. Despite difficulties in convincing the US-based central management of the advantages of the scheme, the local management has managed to develop a project aimed at increasing productivity through a quality-based strategy rather than a strategy based on labour cost reductions.
Another significant factor in the success of the initiative is the cohesion and cooperative relationship between the trade unions – internal and external – and local management. Both sides believe in the importance of the project.
Exemplary and contextual factors
The Whirlpool production plant in Naples has forged a partnership between suppliers and universities as an instrument for increasing productivity, while maintaining – or raising – employment levels in a geographical area characterised by high unemployment rates. Furthermore, the project focuses on quality-based strategies to counter the delocalisation towards eastern Europe.
Davide Dazzi, Fondazione Istituto per il Lavoro, Bologna