'Look, the economic downturn and international competition are affecting our Australian manufacturing operations. We can't compete. It's that simple. The Chinese are beating us hands down on basic high-volume clothing items. Our productivity is too low and our costs are too high', snapped Brent Baer, director of manufacturing, Oz Clothing. 'If this company is to survive, we either outsource all our manufacturing or establish our own plants in China'.
'The latter is out of the question', interjected Rita Abraham, managing director. 'You know we don't have the capital. We are already stretched to the limit with our bank loans and our shareholders would not tolerate another share issues to raise more capital. We have to get our bank finances under control- we are bleeding to death. Is there anything we can do to improve the efficiency our domestic manufacturing problems?'
Brent shook his head. 'We are not competitive- now or in the future. Our labour costs are way too high and we have too much inflexibility in our labour utilisation. This country is not suitable for a low-skilled labour intensive industry like ours.'
'And that's not all', said Evan Costello, finance director. 'The state government talks about job losses, but won't do anything about reducing payroll tax. How can you say you are concerned about rising unemployment, but at the same time tax companies on every employee they hire is beyond me.'
'And the federal government appears to have ruled out of any further cuts to company tax rates', sighed Rita.
Marketing director Julia Plovnick pushed at the file in front of her, and then said, 'our underwear lines are commodity types products. They lack originality and are not seen as fashionable. It is ridiculous to try and manufacture these product lines with our existing cost structure. Our margins are razor thin and the large retailers are cancelling orders. Their customers will not pay the prices we need to survive. Unless we focus on premium high fashion products characterised by innovative design and niche marketing, we are wasting our time. Everyday underwear produced by high-cost, low-skilled labour like ours is a "no-no". It is the province of the Chinese manufacturers- they have lower costs, expertise in mass-market manufacturing and no workplace rigidities'.
'What I hear you saying', said Rita 'is that we should exit low-skilled, labour intensive manufacturing in Australia now'.
The executives sitting around the table nodded their agreement.
'That will not be easy', said Sharon Frieberg, HR Director. 'The Clothing Workers Union (CWU) will fight to the bitter end on this. The union has lost a large number of members and their financial situation is worse than ours.'
'There is also the federal government, which has poured hundreds of millions of dollars into this industry. They will not appreciate news headlines of mass sackings, said Brent.
'Surely the government and the unions must understand that we have no choice?' asked Rita.
'I doubt it. The CWU will push Canberra and the state government to put pressure on us', said Sharon. 'No politician is going to publicly say that they are in favour of moving Australian jobs offshore. There are no votes in it.'
'Perhaps they can stop reducing tariffs and increase our protection from Chinese competition?' snapped Brent.
'I doubt they will do that in this global economic crisis. The government has spent billions on trying to kick-start the economy and is worried about its debt situation', said Evan.
'It would also jeopardise our trade relations with China, and you know how sensitive that situation is at the moment, after the arrest of those Australian executives.'
'The union will oppose us, that's for sure, said Brent. 'they will say we have no commitment to manufacturing in Australia and the politicians will join in the criticism and offer platitudes about becoming more innovative and competitive, but do nothing to help.'
'What's more, the government's recent IR (Industrial Relations) changes may lead to cost increases and greater union power', said Sharon. 'We may have even less flexibility in managing our staff than we do now.'
'I heard that ACTU (Australian Council of Trade Unions) is going to push a "buy local" campaign, which would require federal, state and local governments to give preferences to Australian made products. That could help us', added Julia.
'What, and risk breaching our international trade treaties? I don't see how the federal government could agree to that.' 'That would mean the government would be advocating protection and free trade at the same time', snapped Evan.
'That's been done before', interjected Sharon.
'Right', said Rita. 'It appears that we can no longer rely on government assistance via subsidies and tariff protection to bail us out. Trade union power is likely to increase, company tax rates are not going to be made more competitive, our commodity-type products will not be competitive if manufactured in Australia and our major customers are seeking even lower prices and directly sourcing more and more of their products from China. We can't compete on price- that is obvious. It has to be about design, fashion, innovation and small-batch manufacturing. We need value-added brands, not volume. Given all of this, I think we have no choice but to close our Australian manufacturing operations and sell off all the machinery and equipment', said Rita.
'It makes sense', said Sharon, 'but the union problems remains. As you are aware, Pacific Brands has suffered threats from the Transport Workers Union that they would not allow the company to sell their manufacturing equipment to China. The union and the politicians will definitely raise the matter of our senior executive remuneration. You can see the headlines....How do we justify million-dollar remuneration packages when we're taking away people's livelihoods?' said Sharon.
'The real problem', sighed Rita, 'is that the clothing and textile industry has, for far too long, been protected by governments. We have become fat and lazy. The good old days are gone- the economic downturn and globalisation have seen to that. We do not have to learn to work again, instead of living on government handouts.'
'If we do this', said Sharon, 'it will be devastating for our 600 factory workers and their families'.
'It is going to be even more devastating if we don't', snapped Rita.
You are employed by Oz Clothing as a Management Consultant and being asked to write a strategic HR report that solves - or at least reduces the impact of the problems evident in the company. The report should:
- Identify and explain external and internal influences those are at play in this case.
- Explain what Oz Clothing's strategic business objectives might have been in the past and discuss how they may have affected IR (Industrial Relations) policies and practices?
- Recommend a new set of strategic business objectives for Oz Clothing and explain the likely effects of these objectives on IR (Industrial Relations) policies and practices. Identify the major stakeholders in this case. Explain what you think their various viewpoints, benefits will be for the new set of strategic business objectives.