De’ Longhi and Zoppas cases highlight challenges of relocation
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In order to adjust to ever greater international competition, increasing numbers of Italian firms - mainly in the manufacturing sector - are reorganising production and especially taking the decision to relocate abroad, a strategy that has become widespread among companies in the North-East of Italy. Recent and significant cases of relocation have concerned two leading manufacturers of domestic appliances, De’ Longhi and Zoppas. In 2004, both of these companies drew up plans for the restructuring of plants in the North-East, with the consequent loss of around 1,300 jobs. Talks among the owners of the firms concerned, trade unions, employers’ associations and local and national political authorities have produced preliminary and partial solutions to specific problems, but also a commitment to engage in broader discussion on the structural change now affecting the entire Italian production system.
During 2004 and early 2005, crisis situations that have arisen in the Italian production system have been a cause of much concern to both the government and the social partners. 'Industrial crises' have affected almost every part of the country and the majority of productive sectors. According to figures from the observatory on manufacturing run by the General Confederation of Italian Workers (Confederazione generale italiana del lavoro, Cgil), in August 2004, 2,778 companies had placed a total of around 158,000 workers: on a 'mobility procedure', a collective dismissal/redundancy procedure that involves a 'mobility allowance' for redundant workers and some incentives for firms hiring redundant employees who are included in an availability list; or on the ordinary or extraordinary Wages Guarantee Fund (Cassa Integrazione Guadagni, Cig), an income support measure for firms affected respectively by temporary or structural difficulties, which does not involve the dismissal of the workers (IT0311306T). Northern Italy was the area most affected, and manufacturing the sector hardest hit, with a total of 93 million hours of authorised use of the extraordinary and ordinary Cig, a level which was already by August 10 million hours higher than in the whole of 2003.
The resources used for the ordinary Cig have rose from almost EUR 338 million in 2000 to EUR 593 million in 2003, while for the extraordinary Cig they rose from EUR 470 million in 2000 to EUR 528 million in 2003. As regards mobility allowances, their cost increased from EUR 1,243 million in 2000 to EUR 1,511 million in 2003 (figures from Istituto nazionale per la previdenza sociale, Inps, figures). These figures are indicative of the magnitude of the economic crisis that is affecting even the most industrialised and wealthiest areas of the country. One of these is the North-East which, thanks to a model of economic and social development based on 'industrial districts', has for years set a positive example for the growth of Italian businesses. The crisis, and reorganisation processes that mainly affect medium-sized and small manufacturing enterprises in the North-East, do not concern firms at risk of closure, but rather other industrial groups. By transferring their production plants (or parts of them) abroad, these groups seek to increase their competitiveness in international markets by reducing certain production costs (primarily the cost of labour) while at the same time seeking to enter new and larger markets.
The first, and already significant, effects of these relocation processes are apparent in the North-Eastern economy where there are increasing problems in redeploying workers who lose their jobs and in reorganising a local economic system that largely depends on the manufacturing sector (in Veneto, for example, 44% of the total workforce is currently employed in manufacturing). Two recent events well exemplify these developments: industrial restructuring plans announced by the De’ Longhi and Zoppas groups, both of which manufacture domestic appliances and have their main factories in Treviso, one of the provincial centres of the Veneto region.
The De’ Longhi case
In June 2004, the De’ Longhi group, an industry leader in air-conditioning equipment and small domestic appliances, announced a company reorganisation plan that envisaged the shedding of 650 jobs and the complete closure of the Ampezzo plant in the province of Udine (this factory produces espresso coffee machines and has 130 employees). For market reasons, the company has decided to transfer to China 70% of its production destined for countries in the Far East and the so-called 'dollar area'. The decision has been taken in response to market dynamics, and the aim is to integrate two manufacturing platforms producing different products and catering to different markets: one is the network of factories situated in the North-East of Italy and producing more expensive items with greater technological content mainly for the European market; the other is the production sites obtained by the takeover of Kenwood (in 2000) together with new plants and joint ventures in China, which are intended to serve the American, Asian and Australian markets and be competitive in the market for products with less technological content.
The trade union representatives at the Ampezzo plant reacted to the decision by announcing an indefinite workers' assembly and blockading the factory gates. Following a ruling on 15 June 2004 by a court in Tolmezzo (Udine) that all impediment to access to the works had to be removed, the trade unionists and workers continued their protest action, which was also supported by the mayors of the small towns close to the plant. This vigorous reaction by the unions and the entire local community led to postponement of company’s decisions for several months.
In early December 2004, De’ Longhi presented a new industrial reorganisation plan at a meeting with the trade unions. Three of the nine plants in Italy will be affected by redundancies (still affecting 650 jobs): the main factory in Treviso and the production units at Mignagola and Gorgo al Monticano, also in the province of Treviso. The group - which after the announced job cuts will have 2,650 employees in Italy (compared with 3,860 four years ago) out of a total workforce of 7,382 - has also confirmed its intention to increase production at Italian plants unaffected by the reorganisation by means of an investment plan that cost EUR 14 million in the first nine months of 2004. The trade unions contested the method used by De’ Longhi to implement this strategy, and in particular the fact that on 3 January 2005 the company started the mobility procedure, which will lead to the first redundancies in March 2005, without consulting the unions on use of the so-called 'social shock absorbers'. For this reason, the regional unions of Cgil, the Italian Confederation of Workers' Unions (Confederazione italiana sindacati lavoratori, Cisl) and the Union of Italian Workers (Unione italiana del lavoro, Uil) called a series of strikes and demonstrations in January and February.
From the outset, the trade unions' dispute with the De’ Longhi group has also involved other local and national organisations and institutions. This involvement has given rise to a framework agreement ('accordo-quadro', see below) between the Treviso Union of Industrialists (Unione degli industriali di Treviso) and Cgil, Cisl and Uil, while the Ministry of Labour and Social Policies has expressed its willingness to hold national-level discussions on how to reconcile De’ Longhi’s need to internationalise with minimising the possible negative impact of this industrial strategy in Italy.
The Zoppas case
The Zoppas group was founded in 1963 and currently has six brands in Italy: Irca, Iris, Rica, Sipa, Sev and Coris- companies that are now among the world leaders in the heating components sector. Since the early 1990s, it has expanded its market by pursuing a clear internationalisation policy. The group now has plants in Germany, Romania, Brazil, the USA and Mexico, and since 2000 in China. Although the company’s headquarters are still in Treviso, its industrial and commercial network now covers three continents. As part of this industrial strategy, at the end of June 2004, Zoppas announced a restructuring plan that would lead to the dismissal of 620 workers, out of a total in Italy of just under 1,400, over the next two years. The plants affected by restructuring were to be the Irca factories in the provinces of Treviso and Pordenone. The plan also envisaged the closure of two factories and the restructuring of a further two, with a large part of production being transferred to other companies belonging to the group in Romania, China, Mexico and Brazil.
In this case too, as at De’ Longhi, the trade unions organised a series of strikes and demonstrations in which the local community and authorities participated. After formal intervention by the presidents of the provinces of Pordenone and Treviso, who asked for suspension of the mobility procedures (ie the collective redundances) foreseen by the business plan, the dispute - which in September was the subject of national negotiations between the social partners promoted by the Ministry of Labour and Social Policies - was resolved following the signing in October of an agreement by the Veneto regional government (Regione Veneto), regional employers’ associations, and the regional unions of Cgil, Cisl and Uil. Under this agreement, the Zoppas group will reduce the number of redundancies from 620 to 417, with two years of benefits from the Cig - an income support measure that does not involve dismissals, unlike the mobility procedure - and an economic incentive for voluntary redundancies. There was another significant aspect to the agreement: the workers dismissed would be assisted in their search for a new job by a support and counselling service. The local governments, with the backing of the employers and the trade unions, will organise training and retraining courses for the workers affected by the reorganisation process. In the specific case of the Zoppas workers, the Veneto regional government will organise training courses with priority access for workers affected by the company's crisis in order to furnish skills demanded by other sectors, mainly services, tourism and agriculture.
Framework agreement for province of Treviso
As noted above, Treviso is one of the provinces in the North-East most affected by these processes of change in the local economic systems. For this reason, in order to meet the challenges raised by these transformations, in October 2004 a framework agreement was signed by the Union of Industrialists of Treviso and the local Cgil, Cisl and Uil union structures. The social partners undertook to 'strengthen social dialogue in order to foster change in the Treviso economy'. With this document, the social partners, 'given business decisions to relocate in order to maintain the competitiveness of the industrial system, and the consequent social uncertainty, fear of change, and the increasing difficulties for the labour force groups most significantly involved (in particular women and more elderly workers)', make recommendations for handling the change process. The main interventions envisaged in the document are:
- measures to increase the active involvement of all local actors, including local authorities, with a view to creating a new jobs market, beginning with services such as crèches and support for households, which may create new employment while at the same time enabling women to enter or re-enter work;
- the creation of an observatory to monitor the conditions in the local economy with particular regard to sectoral economic trends and the needs of the local labour market, in order to anticipate the evolution of markets and react in a timely manner; and
- enhancing local 'human capital', seeking to reconcile the economic requirements of firms with the personal aspirations of workers.
Reactions
The economic, political and social aspects of the decisions taken by De’ Longhi and Zoppas have provoked a variety of reactions at both the local and national levels. All the actors concerned have stressed the opportunities and risks arising from far-reaching change in the Italian production system. Various local and national politicians have emphasised the need for a joint effort to find efficient mechanisms with which to manage industrial processes engendered by the development of international markets and which appear inevitable.
With reference to the agreement signed in the Veneto region, the vice-president of the regional government, Fabio Gava, has stressed that 'in the next two years the area will need 2,000 new health workers. For this reason, welfare to work programmes like the one just agreed will have the priority of retraining redundant workers so that their search for employment matches the new occupational profiles needed in the region'. The Treviso employers’ association has expressed satisfaction over the local framework agreement, which it believes will facilitate the success of the restructuring of the provincial economy. For the president of the Treviso Union of Industrialists, Andrea Tomat, 'the priority today is for us to devise mechanisms with which to manage the inevitable transfer of part of the labour force from manufacturing to services'. This tendency was confirmed by the managing director of the De’ Longhi group, Stefano Beraldo, who emphasised that 'the relocation of many firms in the manufacturing sector is now necessary to compete effectively in the international market and to continue to invest in research, development, product quality and design, in Italian plants as well'.
The main trade unions, at both the local and national level, have declared that they are not opposed in principle to a reduction of the manufacturing sector. However, they maintain that the process must proceed more slowly and without excessive negative impacts on local society. For this reason, the unions have urged the government rapidly to introduce specific industrial policy measures that stimulate investments in research, training and innovation. According to the confederal secretary of Cisl, Giorgio Santini, 'the distinctive feature at the present time is not only companies at risk of closure, which mainly concerns the southern regions, but also relocation in the industrially healthy areas. This requires specific industrial policies that enable the investment of the resources available in a few strategic sectors of the national economy.' The confederal secretary of Cgil, Carla Cantone, agrees with the need for extraordinary industrial policy measures, stating that 'the government must set up sectoral observatories and create a central forum for discussion and decision-making on all situations of crisis, so that there is no longer piecemeal intervention without suitable instruments and without an overall strategy to cope with the thousands of disputes that have arisen.' The unions have also made these recommendations to employers. At the end of 2004, the secretaries of Cgil, Cisl and Uil invited firms to engage in joint discussion on developments in the Italian productive system and to find effective and shared solutions rapidly.
Commentary
The industrial relocation conducted by the De’ Longhi and Zoppas groups are only two examples of more far-reaching change in the productive system of an area, the North-East of Italy, which has always based its economic success on the development of industrial districts in the manufacturing sector. In the North-East, a multitude of small and medium-sized firms produce household and personal goods, machinery and food products. It is still one of the most dynamic components of Italian capitalism, but it is confronted by new challenges raised by the internationalisation of markets, by increased competition, and also by the possible emergence of a new structure of exchange rates between the main world currencies (EUR, USD and JPY).
The De’ Longhi and Zoppas cases highlight the fact that the social partners and the political authorities can find new solutions, not so much to change business decisions that today seem incontrovertible, as to deal with the consequences of those decisions on the local economic and social environments. The objectives, and the means to achieve them, set out in the agreement signed by the regional government and the social partners in the Veneto region and the framework agreement for the province of Treviso are intended to strengthen dialogue among the actors involved in current changes: not to halt the process, but to find suitable instruments with which to grasp the opportunities offered by those changes.
However, given that this change process is affecting the national productive structure in its entirety, the effectiveness of good yet local solutions may have only a limited impact on the system as a whole. It is therefore essential to pay close attention to what dialogue between employers, trade unions and government may produce at national level. Accordingly, debate in recent months on the country’s economic stagnation has stressed a number of priority measures to be taken in various fields:
- identifying a few strategic sectors on which to concentrate resources and the national interest;
- promoting investments in research and innovation;
- encouraging mergers and takeovers in order to achieve suitably sized companies to compete on global markets;
- promoting 'synergies' among small firms;
- streamlining bureaucratic procedures and developing infrastructures and human capital in order to increase the attractiveness of areas in Italy for direct investments;
- reforming the system of 'social shock absorbers', which at present does not adequately protect workers when a firm closes for strategic reasons and not because of a financial or productive crisis (IT0205204F); and
- introducing legislation to reform bankruptcy law and savings regulations, which could support the further development of the productive system.
Once the areas of intervention have been clearly defined, the challenge will be how to implement such a process of renewal. Decisive to this end will probably be a capacity for dialogue, a willingness to participate in decisions on the actions to be undertaken, a 'mediation attitude' and the creativity of all the actors involved in this complex process that seems to be significantly, and rapidly, transforming the Italian economic system. (Diego Coletto, Fondazione Regionale Pietro Seveso)