3. Measures to deal with cyclical fluctuations in demand

Shipbuilding in Europe –
between Co-operation operation and Competition
19-20 June 2006, Papenburg, , Germany
Managing cyclical changes in the European shipbuilding
and ship repairing industries: Evidence from across Europe
Xabier Irastorza
Research Officer
European Foundation for the Improvement of
Living and Working Conditions
27/07/2006
1

1. Introduction
Content
2. Structure of the industries
3. Measures to deal with cyclical fluctuations in
demand
4. Effectiveness of the various measures
5. Conclusions
27/07/2006 2

Study
Dates January – March 2006
Research Team • National reports: National Experts
• Consolidated report: EMCC
Countries covered • Poland
• Denmark
• France
• Germany
• Italy
• Malta
• Portugal
• Spain
• The Netherlands
• United Kingdom
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1. Introduction
Shipbuilding and ship repairing:
• Cyclical fluctuations in demand: intrinsic characteristic.
• Inflexible production and service capacities.
Essential for European industries to:
• Increase capacity to react flexibly.
• Retain access to highly qualified workforce.
Crucial to find mechanisms to deal with cyclical changes in
demand in a socially responsible way
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1. Introduction
Content
2. Structure of the industries
3. Measures to deal with cyclical fluctuations in
demand
4. Effectiveness of the various measures
5. Conclusions
27/07/2006 5

2. Structure of the industries (1)
A. Industrial structure and developments in employment
and production
• Transition process after crisis in 1980s/1990s:
Shipbuilding: economic concentration (country-specific).
Ship repairing: geographically concentrated SMEs.
• Enterprise size consideration.
• Increased cost competition Specialisation shift from blue to white
collar employment.
• Shift from direct to indirect employment (outsourcing/subcontracting)
• Steady decrease of employment / shortage of skilled labour.
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2. Structure of the industries (2)
B. Patterns of cyclical fluctuations (1)
Nature of
production process
Patterns of cyclical
fluctuation
Shipbuilding
• Manufacturing industry.
• Capital and know-how
intensive.
• 1-2 contracts per year.
• Long cycles.
Ship repairing
• Service industry
• Labour intensive service
• 200-300 contracts/year.
• Short, frequent cycles.
• Irregularity of workload:
difficulty to plan ahead.
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2. Structure of the industries (3)
B. Patterns of cyclical fluctuations (2)
Factors Shipbuilding Ship repairing
External
Internal
Macroeconomic/political
developments:
• Demand.
• Prices.
• Macro-political
developments at EU level.
• Price quoted.
• Long production cycles.
• Several successive,
distinct, long phases.
• Volume of ship freight and variations
in freight rates.
• Price, Time and Costs.
• Difficulty in forward planning.
• Specialisation: sensitive to seasonal
fluctuations.
• Geographical proximity to buyers.
• Different conditions by submarket.
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2. Structure of the industries (4)
B. Patterns of cyclical fluctuations (3)
Remarks/Qualifications
Shipbuilding
Ship repairing
• Different conditions:
By sub-sector.
By country.
• Difficulty to distinguish shortterm
from long-term cyclical
challenges.
• Random and highly unpredictable
nature of demand.
• Low visibility of order books.
• Problems in strategic forward
planning.
• Crucial: ensure high adaptability of
workforce (quantity/quality).
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1. Introduction
Content
2. Structure of the industries
3. Measures to deal with cyclical fluctuations in
demand
4. Effectiveness of the various measures
5. Conclusions
27/07/2006 10

3. Measures to deal with cyclical
fluctuations in demand (1)
Goal
Focus of report
Caution
Adapt rapidly to changing market conditions.
Identify/analyse solutions aimed at:
• Increasing the companies’ internal flexibility.
• Retaining access to a well-trained workforce.
Transferability
Types of measures
• Working time arrangements
• Changes in work organisation
• Financial concession and
support
Aspects to be taken into account
• Nature of cycle: short vs. long.,
downswing vs. upswing.
• Temporary vs. permanent
measures.
• Measures used in combination.
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3. Measures to deal with cyclical
fluctuations in demand (2)
A. Working time arrangements (1)
Goal
Adapt volume of labour to demand variations through flexible
distribution of working hours.
Tools • Overtime/short-time.
• Working time accounts.
Differences • Overtime/short-time more complicated for employers:
bureaucratic application, overtime pay.
• Working time accounts: reduce wage bill / same flexibility.
Findings • Uneven distribution across Europe.
• No differences in use between two industries.
• Work organisation measures more widely used.
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3. Measures to deal with cyclical
fluctuations in demand (3)
A. Working time arrangements (2)
I. Overtime/short time work
Demand troughs
Use by country
Use by sector
• Temporary reduction of working hours and pay.
• Income complemented with public funds (Germany,
France, Italy).
• Limited in Germany and The Netherlands (vis-à-vis
working time accounts).
• More frequent in Italy and Portugal.
• No convincing evidence. The Netherlands.
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3. Measures to deal with cyclical
fluctuations in demand (4)
A. Working time arrangements (3)
II.
Working time accounts
Collective agreement at sectoral/ company level:
• Hours to be worked by each employee.
• Reference period for compensation of hours.
• Maximum number of working hours.
Advantages
Use
• Rapid reaction to cyclical upturns/downturns in demand.
• No overtime has to be paid in cyclical peaks.
Not very widespread throughout Europe:
• Employers in favour in most countries.
• Trade unions position.
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3. Measures to deal with cyclical
fluctuations in demand (5)
B. Changes in work organisation (1)
Quantitative adjustment of workforce size to cyclical fluctuations
I. Outsourcing and subcontracting
II.
III.
Use of temporary workers and fixed-term contracts
Secondment schemes and staff pools
Qualitative adaptation of workers to cyclical changes by fostering their
polyvalence (internal functional flexibility)
IV.
Training initiatives
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3. Measures to deal with cyclical
fluctuations in demand (6)
B. Changes in work organisation (2)
I. Outsourcing and subcontracting
Goal
Focus on core competencies and respond to rigid regulatory framework
• Reduce fixed personnel costs.
• Externalise risk of cyclical fluctuations.
Main reasons • Technological justification.
• Shifts in volume.
• Cost.
Consequences • Increased flexibility / reduced fixed labour costs.
• Coordination / loss of knowledge and skills.
Use
No clear pattern.
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3. Measures to deal with cyclical
fluctuations in demand (7)
B. Changes in work organisation (3)
II.
Use of temporary workers and fixed-term contracts
Increased flexibility while minimising costs due to reduced permanent staff
Temporary workers
Fixed-term contracts
Usually employed by an employment agency.
Directly by the company for a specified period of time.
Consequences
• Employer: lower wages and fringe benefits than
permanent staff / same problems as outsourcing.
• Employee: dramatic decrease in employment security.
Use
More common among SMEs, ship repairing and
subcontractors SIZE consideration
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3. Measures to deal with cyclical
fluctuations in demand (8)
B. Changes in work organisation (4)
III.
Secondment schemes and staff pools
Flexible adjustment within the core workforce: company-internal and inter-company
Advantage for employers • Retain highly skilled workers
• ‘Adjusted’ skilled workforce to demand peaks/lows.
• Split workforce cost among employers
Advantage for employees
Use
Employment and income security
• Sporadic. Germany, The Netherlands (Deltametaal).
• Shipbuilding vs. ship repairing.
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3. Measures to deal with cyclical
fluctuations in demand (9)
B. Changes in work organisation (5)
IV.
Training initiatives
Improve workers’ capacity to adapt qualitatively to cyclical changes
Additional function
Relevance for industry
Use
Attract new people to the industry
• Long adaptation period of young workers
• Shortage of skilled labour in both industries:
employment cuts / ageing
• Production cycle of shipbuilding
• Country-specific and company-specific measures.
• Cooperation with education centres/public authorities.
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3. Measures to deal with cyclical
fluctuations in demand (10)
C. Financial concession and support
Some examples:
• Direct state subsidies: ‘Temporary Defence Mechanism’. March 2005.
• New European Commission Framework.
• Placement of state orders for military ships (UK)
Financial measures aimed at managing periods of weak demand:
Public Income Support
Examples from several countries.
Company specific agreements • Temporary cost reductions and increase
in working time flexibility.
• Employment security.
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Summary
3. Measures to deal with cyclical
fluctuations in demand (11)
Working time
arrangements
• Overtime/short-time work.
• Working time accounts.
Changes in work
organisation
Financial concession and
support
Quantitative adjustment:
• Outsourcing and subcontracting.
• Temporary workers/fixed-term contracts
• Secondment schemes and staff pools
Qualitative adaptation:
• Training initiatives
• Public income support.
• Company specific agreements.
27/07/2006 21

1. Introduction
Content
2. Structure of the industries
3. Measures to deal with cyclical fluctuations in
demand
4. Effectiveness of the various measures
5. Conclusions
27/07/2006 22

4. Effectiveness of the various measures (1)
OPTIONS
Flexible working time
arrangements
Quantitative adjustment
PRACTICES
• Overtime/short-time work.
• Working time accounts.
• Secondment schemes.
• Public income support measures.
Externalisation of adjustment • Outsourcing/subcontracting.
problems • Use of temporary workers.
Qualitative adjustment
• Training schemes for existing
workforce.
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4. Effectiveness of the various measures (2)
Choice and effectiveness
• Heavily dependant on country and companyspecific
conditions
• Key role of training:
In-house.
State-provided institutional framework:
essential for smaller enterprises.
Important framework
conditions:
• Legal and institutional context and traditional
patterns of industrial relations.
• Structure of industries.
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4. Effectiveness of the various measures (3)
I. Legal and institutional context and traditional patterns
of industrial relations
Country specific
constraints
Cooperative relations
Adversarial relations
• Rigid/flexible frameworks.
• Cooperative/adversarial relations of social partners.
Key element.
• Needs/interests of both social partners.
• Role of the state in fostering social dialogue.
• Working time accounts, company-specific
agreements, transfer companies/staff pools.
• Limited scope of action.
• Less quantitative adjustment/flexible working time.
• Early retirement, temporary employment,
outsourcing, training of employees.
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4. Effectiveness of the various measures (4)
II.
Structure of industries
Degree of concentration
• One big company determines conditions.
• Extremely strong position vis-à-vis subcontractors.
• Risks of cyclical fluctuations externalised through sub-contracting
and outsourcing : precarious employment more frequent in small
companies.
Degree of specialisation
• High-tech and high-value added segments.
• Increased complexity of production process
• Increased need for enhanced competences and development of multiskilled
workforce: much easier for larger companies.
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1. Introduction
Content
2. Structure of the industries
3. Measures to deal with cyclical fluctuations in
demand
4. Effectiveness of the various measures
5. Conclusions
27/07/2006 27

5. Main conclusions (1)
Key factor
Size more than sector (shipbuilding vs. ship repairing)
Preferred method • Outsourcing and subcontracting, coupled with:
Technical measures.
More flexible use of own workforce.
Smaller companies
• Burden of cyclical fluctuations shifted to smaller
subcontractors.
• Greater precarious employment (temporary and
fixed-term contracts).
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5. Main conclusions (2)
No best way to deal with cyclical fluctuations in demand.
Tools
Dependant on country specific constraints, legal and institutional
context and tradition of industrial relations.
Outcomes • Dependant on perception/strategies of social partners and the
nature of their interaction. Willingness to cooperate essential.
Role of the State.
• Role of three actors in achieving increased flexibility while
ensuring employment security at the same time.
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European Monitoring Centre on Change
http://www.emcc.eurofound.eu.int/
Study available on:
• EMCC web page: end of July 2006.
• Printed format: end of August 2006.
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