<B>Shipyards: a question of competitiveness</B>

Rafael Pampillón. Professor. Instituto de Empresa

18 March 2004

Recently we witnessed protests by workers from public shipyards, motivated by lack of accord on a new collective bargaining agreement and demand for orders to guarantee their future.

The phenomenon of market globalization and the internationalization processes affecting companies, together with appearance of emergent economies that exert fierce competition - fundamentally in the low-technology markets - mean industrialized countries must shift production towards higher-technology markets. For 25 years this has been causing closure of shipyards in the European Union, Japan and the U.S. The same has happened to the iron and steel industry, the textile sector and, more recently, the automobile sector.

Competitiveness depends, among other factors, on labor, raw material and energy costs and exchange rates. The Asian tigers know this only too well, as they abuse not-so-orthodox commercial practices, like closing their markets to imported products to favor development of their industries (in many cases state-run and inefficient). Such is the case of Korea, which has subsidized its energy and steel for naval construction and maintained artificially low exchange rates. The European Union – led by Germany, which has nothing to lose in those sectors and lots to gain through displacement of its production – has done very little, which harms Spanish industries which lack their own technology and, as a result, cannot emigrate.

Theory determines that, in the face of increasing prices or costs, or appreciation of exchange rates, competitiveness suffers, and, as a result, exports drop. These competitiveness factors have special importance in the naval sector, particularly in Europe today, where participation in the worldwide shipbuilding business has dropped 10 percentage points over the last three years. The Asian countries have reaped the benefits, particularly Korea.

Wage Increase

Lack of agreement in the IZAR collective revolves around workers’ demands for a wage increase of nearly 7 percent, according to declarations from the public company. Both SEPI and IZAR have pointed to the sharp rise in the expense of their products that would stem from a wage increase of the magnitude indicated, especially since manual labor accounts for nearly 50 percent of shipbuilding production costs. According to data published by the Spanish Labor Ministry for the industrial sector, the average wage increase for 2003 was 3 percent for all collective agreements within the industry.

Given the requested increase, it could be argued that IZAR’s wage cost is undervalued with respect to comparable sectors. But if we look at statistics published by the Labor Ministry and data in IZAR’s annual reports, we see that the cost is much higher in IZAR. It stands over 30 percent greater when compared with metallurgy, and 50 percent when compared with the machinery and mechanical equipment production sector.

What arguments are put forward to justify such demands? This question goes beyond the desire to earn the highest possible wage, and is difficult to answer.

What seems clear is that, for a company to be able to increase or maintain its market share, and consequently, to guarantee a workload that ensures its future viability, it must be competitive. And competitiveness nowadays means being able to perform well within a market that is highly demanding in every aspect. This demand would appear to be incompatible with wage increases significantly above the collective-agreement average, that far exceed maintenance of spending power, and, to make matters worse, exist with constant fluctuations in the work rate, due to frequent stoppages and protests. All this produces great uncertainty among clients who have to make hefty investments and for whom, logically enough, stability and the fulfillment of lead times are fundamental.

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