{"56531":{"#nid":"56531","#data":{"type":"news","title":"Old World, New Labor Lessons","body":[{"value":"\u003Cp\u003E\n\u003C\/p\u003E\u003Cp\u003EGeneral Motors recently waded into battle with its workers in Europe, specifically\u003Cbr \/\u003E\n  in Germany-a struggle that, on the surface, looks much like the \u0022life-or-death\u0022 battle\u003Cbr \/\u003E\n  between VW and its German workforce. The differences between these two companies\u0027\u003Cbr \/\u003E\n  approaches highlight the differences between the European and U.S business\u003Cbr \/\u003E\n  environments. At the heart of these differences is the fact that companies\u003Cbr \/\u003E\n  in Europe are more formally and deeply integrated into the social fabric of\u003Cbr \/\u003E\n  their countries. As a consequence, they view labor more as a fixed cost than\u003Cbr \/\u003E\n  do their United States counterparts.\u003C\/p\u003E\n\u003Cp\u003EBut European labor relations are now evolving in response to two major influences.\u003Cbr \/\u003E\n  One is European integration. The other is increased wage competition not only\u003Cbr \/\u003E\n  from China and India but also from such new European Union (EU) member countries\u003Cbr \/\u003E\n  as Poland and Slovenia and EU candidates Romania and Bulgaria. In the European\u003Cbr \/\u003E\n  auto industry, Japanese imports are mounting competition of the sort experienced\u003Cbr \/\u003E\n  in the United States in the 1980s and 1990s.\u003C\/p\u003E\n\u003Cp\u003EBusinesses in the United States may learn some lessons from watching Europeans\u003Cbr \/\u003E\n  address these changes. But both Europe and the United States already agree\u003Cbr \/\u003E\n  that the buzzword of the day is \u0022collaboration,\u0022 the sharing of risks and returns\u003Cbr \/\u003E\n  with supply chain partners. It only makes sense, then, to collaborate with\u003Cbr \/\u003E\n  your closest and most important business partner: your workforce. \u003C\/p\u003E\n\u003Cp\u003EOne way to collaborate is to improve workforce morale and productivity by\u003Cbr \/\u003E\n  lifting some of the employment risk from workers\u0027 shoulders. How businesses\u003Cbr \/\u003E\n  approach this collaboration may hold the key to success. GM and VW\u0027s current\u003Cbr \/\u003E\n  struggles with their European workforces offer an excellent illustration. \u003C\/p\u003E\n\u003Cp\u003EGM to Cut Jobs\u003Cbr \/\u003E\u003Cbr \/\u003E\n  GM employs 63,000 people and operates 11 plants in 8 countries in Europe, including\u003Cbr \/\u003E\n    multiple Opel plants in Germany, a Saab plant in Sweden, and a Vauxhall plant\u003Cbr \/\u003E\n    in the United Kingdom. These operations have posted losses each year since\u003Cbr \/\u003E\n    1999, and GM\u0027s share of the European auto market has dropped a full percentage\u003Cbr \/\u003E\n    point to 9.2% since 2001. This past October, GM announced that it would cut\u003Cbr \/\u003E\n    12,000 jobs over the next two years-nearly 20% of its European workforce-with\u003Cbr \/\u003E\n    most of the cuts coming in Germany in 2005. \u003C\/p\u003E\n\u003Cp\u003EOpel Workers Fight Layoffs. Workers at the oldest Opel plant in Bochum,\u003Cbr \/\u003E\n  Germany, the likely target for more than a third of these cuts, walked off\u003Cbr \/\u003E\n  the job demanding that the company rule out compulsory layoffs. Despite the\u003Cbr \/\u003E\n  urgings of Opel management, union leaders, and local and national politicians,\u003Cbr \/\u003E\n  these workers continued their strike for six days until members of the works\u003Cbr \/\u003E\n  council convinced them to return to the job. \u003C\/p\u003E\n\u003Cp\u003ERestructuring: Battling for Worker Buy-In. But getting the Opel workers\u003Cbr \/\u003E\n  back on the job doesn\u0027t mean that GM\u0027s labor challenges are over. Under German\u003Cbr \/\u003E\n  law, the company must come to an agreement with Opel workers before it can\u003Cbr \/\u003E\n  implement its cost-cutting plan. Klaus Franz, head of the general works council\u003Cbr \/\u003E\n  at Opel, stated, \u0022We have two major targets-the first is no plant closures,\u003Cbr \/\u003E\n  the second is no forced redundancies.\u0022\u003C\/p\u003E\n\u003Cp\u003EFranz proposed three directions for further discussions. First, he indicated\u003Cbr \/\u003E\n  that GM management would need to participate in the belt tightening. Any savings\u003Cbr \/\u003E\n  plan would have to include executive pay cuts of \u0022much more\u0022 than the benchmark\u003Cbr \/\u003E\n  10% that Mercedes-Benz executives agreed to in a resolution with their workforce\u003Cbr \/\u003E\n  back in July. \u003C\/p\u003E\n\u003Cp\u003ESecond, Franz noted that while the workforce at Opel\u0027s main R\u0026uuml;sselsheim\u003Cbr \/\u003E\n  facility had fallen to 5,600 from 18,000 workers over the past 15 years, the\u003Cbr \/\u003E\n  size of GM Europe\u0027s managerial workforce has gone \u0022in a different direction\u0022 over\u003Cbr \/\u003E\n  the same period. To facilitate reductions in management, he proposed that the\u003Cbr \/\u003E\n  company revise its European restructuring, which had brought its three European\u003Cbr \/\u003E\n  operations under one regional manager based in Z\u0026uuml;rich-outside the European\u003Cbr \/\u003E\n  Union. Franz proposed that GM substitute the newly created \u0022European Corporation\u0022 or \u0022Soci\u0026eacute;t\u0026eacute; Europ\u0026eacute;ene\u0022 structure\u003Cbr \/\u003E\n  and operate out of Brussels instead of Z\u0026uuml;rich.\u003C\/p\u003E\n\u003Cp\u003EThird, Franz observed that becoming a European company would significantly\u003Cbr \/\u003E\n  simplify GM\u0027s legal structure. It could combine its 100 legal European entities\u003Cbr \/\u003E\n  under one set of rules and a unified management and reporting system. This\u003Cbr \/\u003E\n  structure would also allow European labor unions to negotiate directly with\u003Cbr \/\u003E\n  GM management in Detroit. \u003C\/p\u003E\n\u003Cp\u003EVW to Reduce Labor Costs\u003Cbr \/\u003E\u003Cbr \/\u003E\n  VW employs more than 320,000 people worldwide, 176,000 of them in Germany.\u003Cbr \/\u003E\n    Discounting by competitors and the strength of the Euro slashed VW\u0027s operating\u003Cbr \/\u003E\n    profits by 47%, from 4.7 billion Euros in 2002 to about 2.5 billion Euros\u003Cbr \/\u003E\n    in 2003, and its share price has fallen 21% this year. Consequently, the\u003Cbr \/\u003E\n    company has stated the goal of reducing labor costs by 30% over the next\u003Cbr \/\u003E\n    7 years. \u003C\/p\u003E\n\u003Cp\u003EA Different Labor Relations Model. In contrast to GM, VW\u0027s shareholder\u003Cbr \/\u003E\n  structure dictates a distinctly different approach to labor relations. The\u003Cbr \/\u003E\n  state of Lower Saxony, where VW is headquartered, holds 18.2% of Volkswagen\u003Cbr \/\u003E\n  ordinary share stock and controls two seats on the company\u0027s supervisory board.\u003Cbr \/\u003E\n  In fact, Gerhardt Schroeder, the German Chancellor, was a member of the VW\u003Cbr \/\u003E\n  supervisory board when he was governor of the region. It\u0027s as if George W.\u003Cbr \/\u003E\n  Bush and Jennifer Granholm, the Governor of Michigan, held seats on GM\u0027s board\u003Cbr \/\u003E\n  and controlled 20% of the company\u0027s shares.\u003C\/p\u003E\n\u003Cp\u003EAs inconceivable as that scenario would be in the United States, it is not\u003Cbr \/\u003E\n  unusual in Europe. (And that helps explain why the German press felt justified\u003Cbr \/\u003E\n  in leveling what I consider a ridiculous charge: that the GM shift of jobs\u003Cbr \/\u003E\n  from Germany to Poland was politically motivated because of the two countries\u0027\u003Cbr \/\u003E\n  different responses to the war in Iraq.) The German system reserves half of\u003Cbr \/\u003E\n  the supervisory board seats for union representatives, so management is aware\u003Cbr \/\u003E\n  of the realities of downsizing in Germany and knows very well that workers\u003Cbr \/\u003E\n  must agree to any restructuring plans. \u003C\/p\u003E\n\u003Cp\u003ELong-Term, Collaborative Change. In contrast to GM, VW\u0027s goals are\u003Cbr \/\u003E\n  long-term and include no explicit statement about job cuts. Given its roots\u003Cbr \/\u003E\n  in the European system, the company recognizes that it will have to collaborate\u003Cbr \/\u003E\n  with its employees to determine just how it will realize the necessary savings.\u003C\/p\u003E\n\u003Cp\u003EAccordingly, although VW is no stranger to reductions in labor costs, these\u003Cbr \/\u003E\n  reductions have typically come in the form of concessions on wages and hours\u003Cbr \/\u003E\n  rather than layoffs. For example, after a $1.3 billion loss in 1993, the company\u003Cbr \/\u003E\n  and the union agreed to forego planned raises in exchange for cutting back\u003Cbr \/\u003E\n  to a four-day workweek, a move that reduced wages by 20% over the contract\u003Cbr \/\u003E\n  period. \u003C\/p\u003E\n\u003Cp\u003ELeveraging Wage Differences. In dealing with unions, VW has also been\u003Cbr \/\u003E\n  able to leverage the stark differences between the 30 Euros\/hour (nearly $40\/hour)\u003Cbr \/\u003E\n  average wage for autoworkers in Germany and the 6 Euros\/hour the company pays\u003Cbr \/\u003E\n  its workers in Slovakia. In 2000, VW announced that its upscale sport-utility\u003Cbr \/\u003E\n  vehicle, the Touareg, would be built in Bratislava, Slovakia. VW personnel\u003Cbr \/\u003E\n  chief Peter Hartz observed, \u0022For every car VW makes, the plants have to apply\u003Cbr \/\u003E\n  to get the assignment. If Wolfsburg [Germany] wants to get a new model, it\u003Cbr \/\u003E\n  must make an offer\u0022 that is competitive with VW plants in Spain, Mexico, Slovakia,\u003Cbr \/\u003E\n  and elsewhere. \u003C\/p\u003E\n\u003Cp\u003EVW\u0027s Toran, a compact minivan, offers another example. To win production of\u003Cbr \/\u003E\n  that vehicle for the VW plant in Wolfsburg, union representatives offered flexibility\u003Cbr \/\u003E\n  in working hours and a commitment to repair defects in vehicles off the assembly\u003Cbr \/\u003E\n  line with unpaid hours.\u003C\/p\u003E\n\u003Cp\u003EThe Outlook for European Workers \u003Cbr \/\u003E\u003Cbr \/\u003E\n  Things are changing rapidly for the Europeans in several significant ways.\u003Cbr \/\u003E\n    For one thing, Europe\u0027s expansion eastward has added to the European Union\u003Cbr \/\u003E\n    10 countries with significantly lower labor costs. For another, the emergence\u003Cbr \/\u003E\n    of China and India as sources of inexpensive goods and destinations for manufacturing\u003Cbr \/\u003E\n    and service jobs is having a significant impact. In fact, imports from China\u003Cbr \/\u003E\n    have grown significantly faster in old Europe than in the United States in\u003Cbr \/\u003E\n    recent years. In addition, \u003C\/p\u003E\n\u003Cp\u003EThese pressures (and others) mean that whatever the results of the GM and\u003Cbr \/\u003E\n  VW negotiations with their workforces, labor in Europe faces challenges that\u003Cbr \/\u003E\n  are likely to bring dramatic changes in the coming years.\u003C\/p\u003E\n\u003Cp\u003EOld Europe No Longer the Center. The new European Union members and\u003Cbr \/\u003E\n  candidate countries have shifted the center of Europe eastward-not only geographically\u003Cbr \/\u003E\n  and demographically but also economically. The GDP growth in Poland, the Czech\u003Cbr \/\u003E\n  Republic, and Hungary was close to 3% in 2003 compared with 0.7% in Western\u003Cbr \/\u003E\n  Europe. The eastward shift is philosophical as well. As Eastern Europe rebuilds\u003Cbr \/\u003E\n  its labor market structure, it appears that it will more closely resemble the\u003Cbr \/\u003E\n  Anglo-American structure than the European model.\u003C\/p\u003E\n\u003Cp\u003EHigh Wages or Plenty of Work? As VW\u0027s situation illustrates, wage differences\u003Cbr \/\u003E\n  are a powerful lever for gaining concessions from labor leaders. France offers\u003Cbr \/\u003E\n  another good example. The country\u0027s transport union negotiated more restrictive\u003Cbr \/\u003E\n  hours of service rules for their workers than those imposed from Brussels.\u003Cbr \/\u003E\n  This agreement applies only to French companies, however, and it proved to\u003Cbr \/\u003E\n  be the \u0022last straw,\u0022 the one that drove many French transport operators to\u003Cbr \/\u003E\n  relocate to places like the Czech Republic or Romania, where driver wages are\u003Cbr \/\u003E\n  significantly lower. As a result, France lost about 15% of its trucking industry.\u003C\/p\u003E\n\u003Cp\u003ELosing Traditional Protections. In Western Europe, integration is untangling\u003Cbr \/\u003E\n  the political involvements that have protected European laborers in the past.\u003Cbr \/\u003E\n  The European Commission has taken Germany to court over the 44-year-old \u0022Volkswagen\u003Cbr \/\u003E\n  law,\u0022 which gives Lower Saxony undue control over the carmaker by allowing\u003Cbr \/\u003E\n  it to use its two seats on the supervisory board to block many company decisions.\u003C\/p\u003E\n\u003Cp\u003EAt the same time, larger European companies are now listing on U.S. stock\u003Cbr \/\u003E\n  exchanges, which means that they must reveal their margins and profitability\u003Cbr \/\u003E\n  to shareholders quarterly. So such tactics as layoffs of workers in other countries\u003Cbr \/\u003E\n  to compensate for falling revenues in Europe will be harder to justify or disguise. \u003C\/p\u003E\n\u003Cp\u003EFacing Growing Threats from Asia. The auto industry is also facing\u003Cbr \/\u003E\n  increasingly serious threats from Asian competition. Although Asian carmakers\u003Cbr \/\u003E\n  command only 17.4% of the European auto market compared with their 25% share\u003Cbr \/\u003E\n  in the United States, they are gaining share rapidly. September sales figures,\u003Cbr \/\u003E\n  for example, showed that while total European auto sales declined slightly,\u003Cbr \/\u003E\n  Toyota sales in Europe increased 2.3%, and Honda, Hyundai, and Mazda posted\u003Cbr \/\u003E\n  gains of 12% to 30%. Europeans are just beginning to feel the pain of Asian\u003Cbr \/\u003E\n  competition because European Union trade policies had kept the Japanese car\u003Cbr \/\u003E\n  makers out with a complex quota system. That system was dropped at the end\u003Cbr \/\u003E\n  of 1999. \u003C\/p\u003E\n\u003Cp\u003EAlong with the other changes we\u0027ve looked at, this Asian competition has brought\u003Cbr \/\u003E\n  tougher times for European Union workers. Lehman Equity strategists note a\u003Cbr \/\u003E\n  3% reduction in total payroll costs for publicly traded companies across Europe.\u003Cbr \/\u003E\n  And the transformation is just beginning. VW currently employs nearly 30% more\u003Cbr \/\u003E\n  people than Toyota worldwide even though it produces 10% fewer vehicles. That\u003Cbr \/\u003E\n  kind of labor expense just won\u0027t survive in the global marketplace. \u003C\/p\u003E\n\u003Cp\u003ELessons for U.S. Employers\u003Cbr \/\u003E\u003Cbr \/\u003E\n  European employment structures are distinctly different from those in the United\u003Cbr \/\u003E\n    States, and they will remain so. Still, in an international environment,\u003Cbr \/\u003E\n    we can\u0027t ignore what is happening there. Although it would be presumptuous\u003Cbr \/\u003E\n    to judge GM\u0027s strategy from this distance, the company\u0027s recent tussle with\u003Cbr \/\u003E\n    its European workers will probably speed VW on its path to labor reductions\u003Cbr \/\u003E\n    and certainly created enmity within GM. Strong medicine may be needed to\u003Cbr \/\u003E\n    fix the profitability problems in Europe, but recreating the confrontational\u003Cbr \/\u003E\n    labor-management relationships typical in the United States-antithetical\u003Cbr \/\u003E\n    to principles of lean business structures and kaizen (the Japanese philosophy\u003Cbr \/\u003E\n    of advocating continuous improvement in both personal and professional life)-is\u003Cbr \/\u003E\n    not the right prescription.\u003C\/p\u003E\n\u003Cp\u003EInstead, collaborative relationships with employees may prove the most effective\u003Cbr \/\u003E\n  and profitable. For example, in 1998, Frank Russell Co. discovered that investing\u003Cbr \/\u003E\n  in the public companies on Fortune\u0027s list of the 100 best companies to work\u003Cbr \/\u003E\n  for and then reinvesting in the new list each year, earned 10.6% annually compared\u003Cbr \/\u003E\n  with the S\u0026amp;P 500\u0027s 5.7% annual return over the same period. \u003C\/p\u003E\n\u003Cp\u003EPerhaps the Old World can offer some new lessons on how to profitably collaborate\u003Cbr \/\u003E\n  with your closest supply chain partner: your workforce. \u003C\/p\u003E","summary":null,"format":"limited_html"}],"field_subtitle":"","field_summary":"","field_summary_sentence":"","uid":"27279","created_gmt":"2004-12-02 01:00:00","changed_gmt":"2016-10-08 03:06:15","author":"Barbara Christopher","boilerplate_text":"","field_publication":"","field_article_url":"","dateline":{"date":"2004-12-02T00:00:00-05:00","iso_date":"2004-12-02T00:00:00-05:00","tz":"America\/New_York"},"extras":[],"groups":[{"id":"1242","name":"School of Industrial and Systems Engineering (ISYE)"}],"categories":[{"id":"145","name":"Engineering"},{"id":"135","name":"Research"}],"keywords":[],"core_research_areas":[],"news_room_topics":[],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[{"value":"\u003Cstrong\u003EBarbara Christopher\u003C\/strong\u003E\u003Cbr \/\u003EIndustrial and Systems Engineering\u003Cbr \/\u003E\u003Ca href=\u0022http:\/\/www.gatech.edu\/contact\/index.html?id=bt3\u0022\u003EContact Barbara Christopher\u003C\/a\u003E\u003Cbr \/\u003E\u003Cstrong\u003E404.385.3102\u003C\/strong\u003E","format":"limited_html"}],"email":["bchristopher@isye.gatech.edu"],"slides":[],"orientation":[],"userdata":""}}}