Mapping the course of economic globalization

The Philips factory, which was the pride of the Belgian city of Hasselt, closed its doors in 2002 and the jobs were “outsourced” to Eastern Europe, Taiwan and China. This story is emblematic of what’s happening today as the economic centre of gravity shifts to Asia. Ode traces Philips’ footsteps to offer a firsthand view of the global economy.

Marco Visscher | July/Aug 2005 issue
The factory grounds are a mixture of a yet-to-be-redeemed promise and faded glory. The first piles are being driven to convert an extensive parking lot into a new office complex in the Business Park in Hasselt, in northeast Belgium. Meanwhile, buildings remain empty, waiting for an owner who can offer work to hundreds of people. But in Hasselt they know they might have to wait a long while.
It is difficult to imagine that only a few years ago this was a hot spot in the emerging knowledge economy, thanks to a single company: Philips, Europe’s largest manufacturer of electronics products. The cassette recorder, the CD player, the DVD player and the very first CDs: they were all either invented or developed here. “Made in Belgium” was printed on the label at the bottom. And Hasselt was proud. The local economy grew swiftly thanks to the opening of the factory in 1954-back when record players were made at this location. In 1970, over 5,000 people were on Philips’ payroll, which was one-eighth of Hasselt’s population at the time.
But in the 1990s tension started to build at the factory. Reorganisation and restructuring were the order of the day and many assembly line jobs were transferred to new factories in Poland and Hungary, prompting employees to fear the worst. But Philips promised that the Hasselt plant would focus on the development of new applications for CD and DVD players. Small production lines would remain for the manufacture of the prototypes.
Confidence grew in 2001 when the DVD recorder that was developed and manufactured in Hasselt won a prestigious European prize. Philips declared that the full manufacturing division would stay on in Hasselt. The future looked bright.
But a year later, on December 3, 2002, 1,415 employees heard what they had long feared: their division was being closed. A strike, staged several weeks before, had led to nothing. Royal Philips Electronics NV had decided to transfer the development of DVD recorders to the company’s headquarters in Eindhoven, Netherlands, and production to Taiwan. A couple of months later the doors of the Hasselt “knowledge centre” were closed.

“Western Europe used to be the Mecca of the electronics industry, but due to the increased communications opportunities, the world has become so small that you can carry out the same activities all over the planet.”
“That’s globalization for you. That smaller world has led to cutthroat competition.”

This is not a discussion between two economists or intellectuals offering their vision of the global economy. It’s between Johnny Nijs and Albert Mouchaers, who both worked at Philips’ Hasselt factory when it closed. Nijs worked there 30 years, Mouchaers 16. They discovered what it means when people living far away start to participate in the global economy-and do it cheaper.
The Philips Company’s stance on the global economy is clearly expressed on its website: “The world economic battle is being fought on a knife-edge,” it states. Indeed, Philips, Sony, Samsung, Toshiba and Panasonic, along with all the other manufacturers of quality electronics products, are continually competing to win the favour of consumers and investors. The need to be both cheaper and better than the competition is obvious; new inventions and gadgets are being launched on the market at a record pace.
“In this race, if you fall behind a bit you’re losing money before you know it. It’s nearly impossible to catch up.” This analysis comes from Frits Schuitema, the former chairman of Philips Belgian division. Sitting at his desk in Brussels he makes it clear that the Optical Storage division (data storage for CD and DVD applications), of which the Hasselt factory was a part, was losing at least 11 million euros ($14 million U.S.) a month, largely in Hasselt. An untenable situation. “If you look at the figures over the longer term,” Schuitema says, “you realize there was no choice.”
The division in which Hasselt was such a weak link, had to become profitable Philips’ management decided. And fast. The Dutch company had suffered a disastrous year in 2001, booking an historic loss of 2.6 billion euros ($3.75 million U.S.). The problem was mostly in the consumer electronics division. Gerard Kleisterlee, Philips’ recently appointed board chairman, announced plans to save an annual one billion euros ($1.3 billion U.S.), nearly 700 million euros more than was previously foreseen.
Philips maintains that Hasselt was warned that the factory’s lights would be switched off.

“Philips stood for solid wages, good working conditions and security until your pension-that’s certainly changed.” (Jean Bos, employed at Philips Hasselt from 1970 to 2002)

During the 1990s-when Philips nearly went bankrupt-radical reorganisations followed in quick succession. Rounds of cuts worldwide and tens of thousands of layoffs resulted. Philips was the victim of decreasing demand for electronics products in the key Western markets and of a stock market that remained stuck in the doldrums.
There were also a number of innovation flops. The CD-i, for example, was completely blown out of the water by competitor Sony, which came up with a much more exciting alternative. Sales of mobile telephone handsets were disastrous and the product was discontinued. Flat screen TVs, which were initially priced at $15,000 U.S., failed to sell at first, especially in the United States where Philips has a reputation for cheapness. When consumers developed an interest, competitors quickly launched their own flat screen TVs and priced Philips out of the market. This is the tragedy of an innovative company (with over 100,000 patents) that saw many of its inventions become great successes-mainly for the competition. According to some critics, the blame lay with a poorly functioning marketing department that was unable to sell the work of its brainy inventors.
Shareholders are capricious today. In order to achieve much-needed cuts and anticipate every downturn, Philips would have to outsource even more labour to places where people work for less.

“I know I lost my job; the Hungarians don’t yet know it’s coming.” (Carine Put, employed at Philips Hasselt from 1985 to 2002)

Starting in 1997, work that was done at Hasselt was increasingly shifted to Philips’ factory in Györ, Hungary, west of Budapest. It’s easy to guess why the Hungarian location was attractive; companies there enjoy a tax exemption and can choose from a pool of well educated, disciplined workers who don’t know the meaning of the word union and accept low wages.
Depending on the work load, between 2,000 and 3,000 people have worked at this Philips factory, mostly women. Inside the facility, production lines are placed closer together; regulations on working conditions are more relaxed than they are in Belgium.
“Truly pathetic,” Julika Kovacs called the circumstances in the factory when she came to work here at the CD and DVD department eight years ago. But she has seen improvements since then: there are now better chairs, there is air conditioning, a cafeteria, a smoking room, a shower and dressing area. The basic wage has doubled and the company now pays overtime. Yet Kovacs still has trouble meeting her bills. Her gross pay is 445 euros ($560 U.S.) a month, 320 ($400 U.S.) after tax.
The unrest that began several years ago at the factory in Hasselt is now felt at the Györ facility. “CD production has already been transferred to the Ukraine,” says Kovacs, who is aware that wages are lower there. “And we’ve heard that Philips wants to move our production to China.” That means layoffs.
It’s clear why they fear for their jobs. A taste of the future for Philips workers in Györcan be seen in the city’s expansive industrial park. Many factories are empty or only operating at half-capacity; at Hungary’s largest car manufacturer Rába, the number of employees has plunged from 21,000 to 2,500.
Of the 2,800 Philips employees at Györ, only 1,500 will remain at year-end, management says. Many employees have temporary contracts that won’t be renewed. Of those with fixed contracts, only a few are union members; Kovacs estimates the number at around 70. That small group is probably insufficient to negotiate favourable terms for those who will lose their jobs-in stark contrast to workers in Hasselt. They benefited from a plan worked out for them to help find other jobs. But who will take care of the laid-off staff in Hungary?

“With our social security system, we have to compete with people who have no social security. That makes us expensive. That’s unfair competition.” (Marc Deckers, employed at Philips Hasselt from 1985 to 2002)

So now that even Eastern Europe is becoming too expensive, other countries clamour for jobs. China, which is undergoing tremendous growth, leads the pack. Philips has been building facilities in China since 1985. With 20,000 employees spread over 35 divisions (primarily working to manufacture TVs, DVDs, audio equipment and light bulbs), China has become a major Philips production centre-as is the case for many other Western companies. Around one-quarter of all Philips products are made in China, representing turnover of between eight and 10 billion euros ($10 to 13 billion U.S.).
This is not only due to low wages and well-educated employees. China is an increasingly important sales market. In 2003, for example, sales in China increased by 34 percent. China is working on toppling the United States from its position as Philips’ number one sales market.
Philips’ migration eastwards is a symbol of the shift in the economic centre of gravity towards Asia, where China and India in particular-with a combined population of over two billion people-are making their way up the global economic pecking order at a furious pace. Gerard Kleisterlee, who headed up Philips China before taking over as the company’s board chairman, once let slip that in China and India “there are still major untapped markets, such as rural areas.” He used the example of a radio Philips sells in India for $1.50 U.S. These are the prices used to pique the interest of poor consumers. This seems to indicate that Philips has declared the hunt on for a new, even bigger sales market.
Work once done in Hasselt was transferred to a factory in Taiwan, and then shifted again to Shangai. To get there, you leave behind the expanding sea of skyscrapers in the “old” centre of this huge city, cross the “new” city centre of Pudong and head towards the Wai Gao Qiao free trade zone.
Philips’ factory, which has been operating day and night, seven days a week since 1996, is just one of the many, many factories in this immense industrial area. During busy periods there are nearly 4,000 people working here, nearly all women from China’s rural areas. They earn 70 euros ($88 U.S.) a month after taxes for a workweek that has officially been set at 48 hours. They sleep in enormous rooms in special dormitories. Philips is a better job than most. On top of their salary, Philips pays for housing and money is set aside for medical care, a pension and unemployment benefits. These may not be unusual benefits in the West, but in China many companies try to sidestep the rules.
In Shanghai, Danny Ceunen is the “quality manager” at the Philips factory. Standing next to a production line where a DVD application is being assembled, he points out where the laser and the lens-which represents the heart of all electronic equipment-is located. “This line was developed in Hasselt in 1998 and operated there until 2001. Then it was moved to Shanghai. This is actually the only thing left from Hasselt.”

“I think the next trend will be that production will no longer be carried out in Shanghai, but further inland in China and other low-wage countries in Asia. There are still a lot of them: Vietnam, Cambodia.” (Heinz Esser, employed at Philips Shanghai)

Although the factory in Hasselt was closed a few years ago and the factory in Lommel (600 employees) has just been sold, Belgium still has Philips plants in Turnhout (2,300 employees), Bruges (800), Louvain (400) and Dendermonde (400). But the question is: how much longer?
The management at Philips Belgium won’t say, but Henk Coppens, director of the Lighting division and responsible for the Turnhout factory, is remarkably open. “You won’t see simple light bulbs [being manufactured] in Turnhout anymore,” he explains. “Products where [our skilled workers] can’t make a difference go to Poland or China. Time and time again we ask ourselves: why are we still doing this here? If we’re no longer able to answer that question, we’ll shut down in Turnhout. After all, we’ll never be the cheapest. Ultimately, wage costs are what determine where you produce and it’s clear that it is not in Turnhout, or Belgium, or Western Europe.”
Coppens’ words illustrate the survival strategy in the West: stay on top in the development of new products, while shifting the production of simple work to low-wage countries. Turnhout is called a “knowledge centre”, the worldwide frontrunner in lighting technology-a status was also once given to Hasselt. Reminded of this Coppens says, “More than ever the truth is: you’re never sure.”
Coppens has opened a factory in China for his division. Not in Shanghai, but further inland in Malu, because as Coppens says, “We used to be in the centre of Shanghai, but precisely because of the wage cost issue we ended up a bit further outside the city. If it gets too expensive for certain products here as well, we’ll move further: in China or to Vietnam, or Russia where we’re also active. This train will never stop.”

“A multinational exists to make a profit. We’ll simply have to learn to live with that.” (Johnny Nijs, employed at Philips Hasselt from 1972 to 2002)

And what’s happened to the 1,415 employees who were working at the Hasselt factory when it closed? Exactly one year later Philips announced that “a suitable solution” had been found for 800 of them. Administrative and managerial staff were, in certain cases, transferred to other Philips locations or hired by other companies located on the Philips complex in Hasselt.
But for the hundreds of employees who worked the assembly line it was a lot tougher to find another job. Another 200 plus employees were offered a “bridge pension,” a structure in Belgian law allowing people over age 50 who have been laid off to retire. Others, like Carine Put, opted for a one-time payment and are still looking for work through the Career Crossroads program Philips set up for its staff. “We don’t want any money or a pension,” Put says, “we want to work. At least I was planning on working until retirement age.”
 

Solution News Source

Mapping the course of economic globalization

The Philips factory, which was the pride of the Belgian city of Hasselt, closed its doors in 2002 and the jobs were “outsourced” to Eastern Europe, Taiwan and China. This story is emblematic of what’s happening today as the economic centre of gravity shifts to Asia. Ode traces Philips’ footsteps to offer a firsthand view of the global economy.

Marco Visscher | July/Aug 2005 issue
The factory grounds are a mixture of a yet-to-be-redeemed promise and faded glory. The first piles are being driven to convert an extensive parking lot into a new office complex in the Business Park in Hasselt, in northeast Belgium. Meanwhile, buildings remain empty, waiting for an owner who can offer work to hundreds of people. But in Hasselt they know they might have to wait a long while.
It is difficult to imagine that only a few years ago this was a hot spot in the emerging knowledge economy, thanks to a single company: Philips, Europe’s largest manufacturer of electronics products. The cassette recorder, the CD player, the DVD player and the very first CDs: they were all either invented or developed here. “Made in Belgium” was printed on the label at the bottom. And Hasselt was proud. The local economy grew swiftly thanks to the opening of the factory in 1954-back when record players were made at this location. In 1970, over 5,000 people were on Philips’ payroll, which was one-eighth of Hasselt’s population at the time.
But in the 1990s tension started to build at the factory. Reorganisation and restructuring were the order of the day and many assembly line jobs were transferred to new factories in Poland and Hungary, prompting employees to fear the worst. But Philips promised that the Hasselt plant would focus on the development of new applications for CD and DVD players. Small production lines would remain for the manufacture of the prototypes.
Confidence grew in 2001 when the DVD recorder that was developed and manufactured in Hasselt won a prestigious European prize. Philips declared that the full manufacturing division would stay on in Hasselt. The future looked bright.
But a year later, on December 3, 2002, 1,415 employees heard what they had long feared: their division was being closed. A strike, staged several weeks before, had led to nothing. Royal Philips Electronics NV had decided to transfer the development of DVD recorders to the company’s headquarters in Eindhoven, Netherlands, and production to Taiwan. A couple of months later the doors of the Hasselt “knowledge centre” were closed.

“Western Europe used to be the Mecca of the electronics industry, but due to the increased communications opportunities, the world has become so small that you can carry out the same activities all over the planet.”
“That’s globalization for you. That smaller world has led to cutthroat competition.”

This is not a discussion between two economists or intellectuals offering their vision of the global economy. It’s between Johnny Nijs and Albert Mouchaers, who both worked at Philips’ Hasselt factory when it closed. Nijs worked there 30 years, Mouchaers 16. They discovered what it means when people living far away start to participate in the global economy-and do it cheaper.
The Philips Company’s stance on the global economy is clearly expressed on its website: “The world economic battle is being fought on a knife-edge,” it states. Indeed, Philips, Sony, Samsung, Toshiba and Panasonic, along with all the other manufacturers of quality electronics products, are continually competing to win the favour of consumers and investors. The need to be both cheaper and better than the competition is obvious; new inventions and gadgets are being launched on the market at a record pace.
“In this race, if you fall behind a bit you’re losing money before you know it. It’s nearly impossible to catch up.” This analysis comes from Frits Schuitema, the former chairman of Philips Belgian division. Sitting at his desk in Brussels he makes it clear that the Optical Storage division (data storage for CD and DVD applications), of which the Hasselt factory was a part, was losing at least 11 million euros ($14 million U.S.) a month, largely in Hasselt. An untenable situation. “If you look at the figures over the longer term,” Schuitema says, “you realize there was no choice.”
The division in which Hasselt was such a weak link, had to become profitable Philips’ management decided. And fast. The Dutch company had suffered a disastrous year in 2001, booking an historic loss of 2.6 billion euros ($3.75 million U.S.). The problem was mostly in the consumer electronics division. Gerard Kleisterlee, Philips’ recently appointed board chairman, announced plans to save an annual one billion euros ($1.3 billion U.S.), nearly 700 million euros more than was previously foreseen.
Philips maintains that Hasselt was warned that the factory’s lights would be switched off.

“Philips stood for solid wages, good working conditions and security until your pension-that’s certainly changed.” (Jean Bos, employed at Philips Hasselt from 1970 to 2002)

During the 1990s-when Philips nearly went bankrupt-radical reorganisations followed in quick succession. Rounds of cuts worldwide and tens of thousands of layoffs resulted. Philips was the victim of decreasing demand for electronics products in the key Western markets and of a stock market that remained stuck in the doldrums.
There were also a number of innovation flops. The CD-i, for example, was completely blown out of the water by competitor Sony, which came up with a much more exciting alternative. Sales of mobile telephone handsets were disastrous and the product was discontinued. Flat screen TVs, which were initially priced at $15,000 U.S., failed to sell at first, especially in the United States where Philips has a reputation for cheapness. When consumers developed an interest, competitors quickly launched their own flat screen TVs and priced Philips out of the market. This is the tragedy of an innovative company (with over 100,000 patents) that saw many of its inventions become great successes-mainly for the competition. According to some critics, the blame lay with a poorly functioning marketing department that was unable to sell the work of its brainy inventors.
Shareholders are capricious today. In order to achieve much-needed cuts and anticipate every downturn, Philips would have to outsource even more labour to places where people work for less.

“I know I lost my job; the Hungarians don’t yet know it’s coming.” (Carine Put, employed at Philips Hasselt from 1985 to 2002)

Starting in 1997, work that was done at Hasselt was increasingly shifted to Philips’ factory in Györ, Hungary, west of Budapest. It’s easy to guess why the Hungarian location was attractive; companies there enjoy a tax exemption and can choose from a pool of well educated, disciplined workers who don’t know the meaning of the word union and accept low wages.
Depending on the work load, between 2,000 and 3,000 people have worked at this Philips factory, mostly women. Inside the facility, production lines are placed closer together; regulations on working conditions are more relaxed than they are in Belgium.
“Truly pathetic,” Julika Kovacs called the circumstances in the factory when she came to work here at the CD and DVD department eight years ago. But she has seen improvements since then: there are now better chairs, there is air conditioning, a cafeteria, a smoking room, a shower and dressing area. The basic wage has doubled and the company now pays overtime. Yet Kovacs still has trouble meeting her bills. Her gross pay is 445 euros ($560 U.S.) a month, 320 ($400 U.S.) after tax.
The unrest that began several years ago at the factory in Hasselt is now felt at the Györ facility. “CD production has already been transferred to the Ukraine,” says Kovacs, who is aware that wages are lower there. “And we’ve heard that Philips wants to move our production to China.” That means layoffs.
It’s clear why they fear for their jobs. A taste of the future for Philips workers in Györcan be seen in the city’s expansive industrial park. Many factories are empty or only operating at half-capacity; at Hungary’s largest car manufacturer Rába, the number of employees has plunged from 21,000 to 2,500.
Of the 2,800 Philips employees at Györ, only 1,500 will remain at year-end, management says. Many employees have temporary contracts that won’t be renewed. Of those with fixed contracts, only a few are union members; Kovacs estimates the number at around 70. That small group is probably insufficient to negotiate favourable terms for those who will lose their jobs-in stark contrast to workers in Hasselt. They benefited from a plan worked out for them to help find other jobs. But who will take care of the laid-off staff in Hungary?

“With our social security system, we have to compete with people who have no social security. That makes us expensive. That’s unfair competition.” (Marc Deckers, employed at Philips Hasselt from 1985 to 2002)

So now that even Eastern Europe is becoming too expensive, other countries clamour for jobs. China, which is undergoing tremendous growth, leads the pack. Philips has been building facilities in China since 1985. With 20,000 employees spread over 35 divisions (primarily working to manufacture TVs, DVDs, audio equipment and light bulbs), China has become a major Philips production centre-as is the case for many other Western companies. Around one-quarter of all Philips products are made in China, representing turnover of between eight and 10 billion euros ($10 to 13 billion U.S.).
This is not only due to low wages and well-educated employees. China is an increasingly important sales market. In 2003, for example, sales in China increased by 34 percent. China is working on toppling the United States from its position as Philips’ number one sales market.
Philips’ migration eastwards is a symbol of the shift in the economic centre of gravity towards Asia, where China and India in particular-with a combined population of over two billion people-are making their way up the global economic pecking order at a furious pace. Gerard Kleisterlee, who headed up Philips China before taking over as the company’s board chairman, once let slip that in China and India “there are still major untapped markets, such as rural areas.” He used the example of a radio Philips sells in India for $1.50 U.S. These are the prices used to pique the interest of poor consumers. This seems to indicate that Philips has declared the hunt on for a new, even bigger sales market.
Work once done in Hasselt was transferred to a factory in Taiwan, and then shifted again to Shangai. To get there, you leave behind the expanding sea of skyscrapers in the “old” centre of this huge city, cross the “new” city centre of Pudong and head towards the Wai Gao Qiao free trade zone.
Philips’ factory, which has been operating day and night, seven days a week since 1996, is just one of the many, many factories in this immense industrial area. During busy periods there are nearly 4,000 people working here, nearly all women from China’s rural areas. They earn 70 euros ($88 U.S.) a month after taxes for a workweek that has officially been set at 48 hours. They sleep in enormous rooms in special dormitories. Philips is a better job than most. On top of their salary, Philips pays for housing and money is set aside for medical care, a pension and unemployment benefits. These may not be unusual benefits in the West, but in China many companies try to sidestep the rules.
In Shanghai, Danny Ceunen is the “quality manager” at the Philips factory. Standing next to a production line where a DVD application is being assembled, he points out where the laser and the lens-which represents the heart of all electronic equipment-is located. “This line was developed in Hasselt in 1998 and operated there until 2001. Then it was moved to Shanghai. This is actually the only thing left from Hasselt.”

“I think the next trend will be that production will no longer be carried out in Shanghai, but further inland in China and other low-wage countries in Asia. There are still a lot of them: Vietnam, Cambodia.” (Heinz Esser, employed at Philips Shanghai)

Although the factory in Hasselt was closed a few years ago and the factory in Lommel (600 employees) has just been sold, Belgium still has Philips plants in Turnhout (2,300 employees), Bruges (800), Louvain (400) and Dendermonde (400). But the question is: how much longer?
The management at Philips Belgium won’t say, but Henk Coppens, director of the Lighting division and responsible for the Turnhout factory, is remarkably open. “You won’t see simple light bulbs [being manufactured] in Turnhout anymore,” he explains. “Products where [our skilled workers] can’t make a difference go to Poland or China. Time and time again we ask ourselves: why are we still doing this here? If we’re no longer able to answer that question, we’ll shut down in Turnhout. After all, we’ll never be the cheapest. Ultimately, wage costs are what determine where you produce and it’s clear that it is not in Turnhout, or Belgium, or Western Europe.”
Coppens’ words illustrate the survival strategy in the West: stay on top in the development of new products, while shifting the production of simple work to low-wage countries. Turnhout is called a “knowledge centre”, the worldwide frontrunner in lighting technology-a status was also once given to Hasselt. Reminded of this Coppens says, “More than ever the truth is: you’re never sure.”
Coppens has opened a factory in China for his division. Not in Shanghai, but further inland in Malu, because as Coppens says, “We used to be in the centre of Shanghai, but precisely because of the wage cost issue we ended up a bit further outside the city. If it gets too expensive for certain products here as well, we’ll move further: in China or to Vietnam, or Russia where we’re also active. This train will never stop.”

“A multinational exists to make a profit. We’ll simply have to learn to live with that.” (Johnny Nijs, employed at Philips Hasselt from 1972 to 2002)

And what’s happened to the 1,415 employees who were working at the Hasselt factory when it closed? Exactly one year later Philips announced that “a suitable solution” had been found for 800 of them. Administrative and managerial staff were, in certain cases, transferred to other Philips locations or hired by other companies located on the Philips complex in Hasselt.
But for the hundreds of employees who worked the assembly line it was a lot tougher to find another job. Another 200 plus employees were offered a “bridge pension,” a structure in Belgian law allowing people over age 50 who have been laid off to retire. Others, like Carine Put, opted for a one-time payment and are still looking for work through the Career Crossroads program Philips set up for its staff. “We don’t want any money or a pension,” Put says, “we want to work. At least I was planning on working until retirement age.”
 

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