Scottish plant closes as Motorola makes sweeping cuts

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The closure of Motorola's Scottish plant, announced in April 2001 and expected to be completed in November, is part of a wave of restructuring in US-based multinationals. This feature explores the background to the closure and the broader implications for European countries of cuts in US companies' international operations.

In April 2001, the US-based electronics firm, Motorola, announced that it was to close its plant in Scotland with the loss of 3,100 jobs. The move was part of a series of cutbacks the firm has made in 2001 across its operations, which have resulted in around 20,000 redundancies. The personal communications division, which makes mobile phones, digital pagers and two-way radios, has been hit hardest and it is within this division that the doomed Scottish plant is located. The announcement at Motorola is one of a wave of workforce reductions in American firms, particularly in the 'high tech' sector, which was already evident before the adverse economic impact of the terrorist attacks in the USA on 11 September 2001. This feature explores the implications for European countries of such restructuring.

Motorola in Scotland

In the early 1990s, when Motorola opened a new plant in Bathgate, located between Edinburgh and Glasgow, it was hailed as further evidence of the regeneration of the regional economy. While the decline of heavy manufacturing over the last three decades has hit the region hard, it has also been the recipient of a number of high-profile inward investment projects in electronics and information technology, giving rise to the term 'Silicon Glen'. Some of the inward investment has come from Japan, some from elsewhere in Europe, but most has come from North America with firms such as IBM, Compaq and Sun Microsystems all present in the area. In Bathgate itself, the Motorola plant has been an important symbol of this regeneration as it is located in close proximity to the ruins of a former British Leyland motor manufacturing plant.

However, the conditions in this sector have witnessed a sharp turn for the worse during 2001. After several years of rapid growth, the sales of mobile phone handsets have slowed recently, as has demand for semiconductors. Coupled with this has been a sharp slowdown in economic growth in the USA, which many fear will result in a full recession. As a consequence, the share prices of firms in this sector have plummeted creating pressure on management to embark on cost-cutting programmes. In this context, it became apparent in the early part of 2001 that Motorola was poised to make deep cuts across its domestic and international operations.

There followed an intensive period of lobbying both by representatives of the Scottish Assembly and by the UK Prime Minister, Tony Blair, who communicated directly with senior executives of the company. It was widely accepted as inevitable that there would be some job losses in Bathgate but the complete closure of the plant took many by surprise. Leaders of trade unions, which represent around a quarter of the workforce but have never been granted recognition by the company, complained that the closure of the Scottish plant reflected the ease with which British workers can be dismissed. Danny Carrigan, the Scottish regional secretary of the Amalgamated Engineering and Electrical Union, said: 'We really do have to adopt social legislation in this country that ensures that workers aren't told through the media that they are getting sacked.' Government officials, meanwhile, indicated that they would seek repayment of some or all of the GBP 17 million in grants which have been issued to the firm.

Following the announcement of the closure in late April, the company began the statutory three-month process of consultation with its workforce over the consequences for employees. When this process ended, 1,600 workers were laid off with redundancy pay of one month's pay for every year's service, with a further 400 having already left. The remaining 1,000 workers are being laid off in a series of further stages until the plant's complete closure, which is expected in November 2001. Around 230 staff will be relocated to Motorola's other operations in Scotland.

Wider developments

The Motorola case is part of a wider pattern of cutbacks in US firms. The numbers of compulsory redundancies in the USA has increased sharply in 2001. Data from the Bureau of Labor Statistics show that the permanent closure of workplaces in the second quarter of 2001 affected 78,452 workers, a rise of approximately 75% on the corresponding quarter in the previous year. The total number of workers who were laid off in the second quarter of 2001, including those laid off temporarily, also rose sharply to 371,708. There is some evidence that these cutbacks are felt acutely in the international operations of US-based multinational companies. It has been estimated that, of the 10 largest incidents of job cuts in US-based multinationals, very nearly half have come outside the USA. For instance, Whirlpool announced in January 2001 that it was to make 6,000 redundancies, of which only 1,000 were to be in the USA.

Commentary

The closure of the Motorola plant, and the wave of cutbacks and job cuts in American multinationals more generally, highlight two important points. The first is the primacy of shareholder interests in the USA. Downturns in product markets, such as that in the information technology sector currently, have resulted in bouts of cost-cutting which appear to be designed primarily with a view to appeasing shareholder interests. Indeed, developments in the American financial system over the last two decades, particularly the rise of the market for corporate control and the emergence of 'rebellious' shareholders who are prepared to challenge management, has elevated the influence of shareholders while the ability of workers to influence management decision-making has remained limited. In a context of greater instability in product markets, greater international competition and more rapidly evolving technologies, many US firms such as IBM and Kodak have abandoned previous 'no compulsory redundancies' policies in order to protect shareholder interests. In the case of Motorola, the pressure from shareholders to make sharp cuts was evident: '[Wall] Street is pounding on [chief executive Christopher] Galvin to make some big moves', as an analyst at JP Morgan put it. Similar patterns of management responding to shareholder interests in product market downturns by introducing cost-cutting programmes are becoming increasingly evident in companies based in European countries that have not hitherto been characterised by the primacy of shareholder value. One example is the recent cutbacks at Swedish-based Ericsson (SE0104193N).

The second point concerns the regulatory regime governing the way redundancies take place. During the last two decades, the UK has received a greater share of inward investment into Europe than any other country. Representatives of successive governments along with many observers have attributed this to the 'flexibility' of labour in the UK: the ease with which firms can lay off workers is greater in the UK than in most other European countries, while the cost of doing so is lower. The extent to which this factor really does motivate inward investment is in dispute, but what is becoming increasingly clear is that the flip-side of this flexibility is the ease with which multinationals can exit a country. Faced with a decision of which plant to close, Motorola could have chosen its plant in Flensburg in Germany; however, doing so would have incurred higher levels of redundancy pay than in the UK as well as protracted negotiations with trade unions. In this respect the UK is particularly exposed to fluctuations in the international economy in general, and to the current wave of cutbacks in sectors like electronics and airlines in particular. (Tony Edwards, Kingston University)

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