Multinational pull-outs prompt debate on internationalisation of Portuguese economy

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A number of major multinational companies announced in late 1998 that they were ceasing to operate in Portugal. This prompted reactions from the social partners and coincided with a debate on the "internationalisation" of the Portuguese economy. Although the trade unions are optimistic about the situation, they stress the need for a government strategy on foreign investment, while employers have expressed their desire to enjoy the same access to certain benefits as foreign investors.

In late 1998, a number of large-scale multinational companies announced that they were to pull out of Portugal. This prompted reactions from Portuguese trade unions and employers' organisations and coincided with a number of debates in business circles on the national economy and its competitiveness.

Foreign multinationals pull out

One of the first foreign enterprises to pull out of Portugal was Renault, the French-based motor manufacturer. Also in the auto sector, the press has recently announced that the USA-based Ford (with a plant in Azambuja) will not be able to continue production in Portugal after 2000. Ford has also announced that by the end of this year it will be selling off its shares in AutoEuropa. On the other hand, Opel (also in Azambuja) - part of the US-owned General Motors- is studying alternatives to the model of car it is currently manufacturing in order to keep production going in Portugal.

Nestlé, the Swiss-owned food multinational, is slated to close its plant in Matosinhos and to convert it into a logistics and product distribution centre for northern Portugal. The plant was purchased from a Portuguese dairy company four years ago and underwent restructuring and reconversion, but the operation does not seem likely ever to become profitable. Nestlé will maintain the company's brands and commercial channels, and make additional investments to boost warehouse capacity. However, the actual manufacturing of products will take place in other European plants. In other words, the plant's activity is to be converted and its productive output gradually transferred elsewhere. The company has many workers with 20-30 years of service in its employ.

Texas Instruments, the US-based electronics group, has been operating in Portugal since 1975 and in a joint venture with the Korea n-owned Samsung since 1993 for the manufacture of electronic components. The multinational is scheduled to close its Portuguese operation at the beginning of 1999, a move that will imply 748 redundancies. Although Texas is a leading company with profitable results, it has stated that with the drastic changes in global markets, it cannot remain competitive in cost terms in Portugal. The situation is largely due to competition from Far Eastern countries, whose currencies have been devalued by some 60% and whose labour costs have dropped by 40%-60%. Texas had previously signed a contract with the Portuguese government which was scheduled to last until 2004, and is now in the process of returning financial and tax benefits - which, according to the press, amount to over PTE 10 billion - as well as funding for professional training that the government had previously granted.

Siemens, the German-owned electronics multinational, opened factories in Vila do Conde and Évora a few months ago but recently announced that, due to restructuring, it will be selling off the capital in the two companies concerned. According to company sources, the manufacture of semiconductors is no longer financially attractive, and Siemens will be selling off part of its capital for strategic reasons. The contract it holds with the Portuguese state is scheduled to terminate in 2005.

A further case of restructuring and potential job losses, linked to developments in the wider European economy, relates to the steel industry. Steel production in Portugal is carried out by three companies which came about after the restructuring of a single state enterprise that initially employed 12,000 workers. The employees of one of these, Siderurgia Nacional de Produção de Aço, a publicly-owned entreprise, currently feel threatened by unemployment. The company is studying the possibility of converting its industrial park to take advantage of the infrastructure and space it owns to attract other businesses. According to the trade unions, the state has signed an agreement with the European Community on a medium-term plan to terminate steel production. In the meantime, Siderurgia Nacional de Produção de Aço has stated that it has no specific plans to close, and that the plan is rather to transfer the public corporation's activities to SN Longos, which is 90% privately-owned, primarily by Spanish capital. The Ministry of the Economy has stated that in the accord with Brussels it has pledged to transform the company's blast furnaces into electrical furnaces, which will imply a reduction in infrastructure. The company presently employs 1,400 workers, all of whom now fear unemployment. Local government in the area where the factory is located has claimed that the central government is planning to turn the company into a giant commercial emporium.

Reactions and debates

The trade unions have taken positions regarding both the specific multinational company pull-outs and the way the whole process has been handled.

The General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) states that, in the case of Texas Instruments/Samsung, the government must be firm and make the companies abide by the commitment they made and that, in the future, the government cannot let foreign capital set up short-term facilities simply to take advantage of cheap labour. The Social Democratic Workers organisation (Trabalhadores Sociais Democratas, TSD) accuses the government of not having an effective strategy to keep multinationals in Portugal.

October and November 1998 were marked by a number of debates in Portuguese business circles on the national economy. The Oporto Industrial Association (Associação Industrial Portuense, AIPortuense) celebrated its 150th anniversary by holding a seminar on conference on Taking responsibility to be competitive which was preceded by a series of debates entitled "Portuguese business talks." "Internationalisation" and the new" value chains" were important issues in the discussions. The Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP), which took part in the discussions, called attention to the role of employers' associations in improving the competitiveness of companies. A further initiative was a round of debates on Competitive scenarios for the 21st Century sponsored by AERLIS, a Lisbon-based business association. AIPortuense reacted to the recent exit of the multinational corporations by declaring that it is time that the state began treating national and foreign companies equally in terms of advantages and benefits offered.

The two union confederations, the CGTP and the General Workers' Union (União Geral de Trabalhadores, UGT) met with the Minister of Labour and the Secretary of State for Industry to discuss the pull-out situation. The unions agreed that the current position does not warrant a climate of panic. They recognise that foreign investment is necessary, but say what is really needed is strategic planning regarding the conditions under which investment is made. Foreign investment has not been contributing towards improving Portugal's model of development. In the opinion of the unions, investment should create connections within the country. Texas Instruments/Samsung is a case of breakdown of relations, but they believe Portugal must respond in the same way as Belgium did in the Renault Vilvoorde closure case in 1997 (BE9703202F).

The Ministry of the Economy states that the multinationals are not leaving Portugal for Asia or Eastern Europe and that the Texas Instruments case is an extreme and unusual one that should not cause panic. The Ministry has announced that Portuguese companies will have the same advantages as foreign companies.

Foreign investment in Portugal has been high - PTE 809 billion in the first quarter of 1998, while the state has spent PTE 100 billion in this area. In the process, 5,500 jobs are being created. In general, investment is not leaving Portugal and there are many contracts for new plants in the country (an investment contract with the state must be drawn up for any investment greater than PTE 5 billion).

According to the Ministry, sometimes plant closures have nothing to do with the economic climate in Portugal or with the profitability of the company. Furthermore, the Ministry believes that because the relationship between foreign direct investment in Portugal and commercial trade relations in Asia is not very strong, Portuguese small and medium-sized companies in particular are still able to attract direct investment. However, the state can do nothing about companies pulling out of Portugal, except where they do not fulfil their contractual obligations. But even these companies are, in the long run, valuable to the economy during this period of internationalisation since they attract further investment. Outside investment is, ultimately, not a risky proposition, because overall outcomes have been positive. Many multinationals continue to set up plants in Portugal and others are strengthening their position in the country.

Commentary

The unions have shown interest in participating in the debate over Portuguese involvement in globalisation of the economy and in the closures and restructuring of companies. Although the announcement of the Texas Instruments pull-out did not set off conflicts, the unions are firm in saying that globalisation cannot lead inevitably to redundancies in Portuguese industry.

Meanwhile, the national debate on industrial relations remains open. The CGTP continues to reject the recent package of new labour legislation (PT9807186F), especially as it relates to part-time work and some of the procedures for applying the 40-hour working week law. The UGT would like to see further meetings held for social dialogue, which lately has been scarce at the level of the Economic and Social Council (Conselho Económico e Social, CES). (Maria Luisa Cristovam, UAL)