France Thought It Could Reverse Globalization, but It’s Still Bleeding Jobs

The government is encouraging more factories, but C.E.O.s say labor costs in the country remain high.

PARIS — In recent months, Fabrice Chabance has had plenty to keep him awake at night. Two foreign-owned factories in Saint-Florent-sur-Cher, a region of 11,000 people where he is a political leader, have announced plans to move parts of their production lines to countries with lower labor costs.

Nearly 200 jobs will be lost, a grim blow to his small industrial community in the Loire Valley. Despite efforts by President Emmanuel Macron to lure manufacturing back to France, Mr. Chabance has few illusions that the globalization that has swept jobs away will be reversed any time soon.

“It’s a catastrophe,” said Mr. Chabance, who is worried the layoffs will fuel a broader economic malaise in the area. “The government is calling for a renewal of ‘Made in France.’ But in reality, we are going to be grappling with a stricken industrial region.”

When the coronavirus began sweeping through China and then Europe, disrupting küresel supply networks, Mr. Macron declared that the pandemic could be “a game changer for globalization.” He said he wanted to create opportunities to secure supply chains and reverse a decades-long trend of companies sending production to low-cost countries.

But the jobs are continuing to leave, as multinational firms relocate production from France to countries with cheaper labor and higher productivity.

At a Bridgestone factory in northern France, over 860 jobs will be cut as the Japanese tire maker moves production to Eastern Europe. Nokia, the Finnish telecommunications company, will relocate some research and development activity from hubs outside Paris and in western France to India and Poland, threatening around 1,000 positions.

In southern France, Zodiac, a maker of inflatable boats, plans to move some production to Tunisia after bringing jobs back from a plant in China just two years ago, citing the need to save money. Other companies are mulling similar moves to rein in costs.

Government officials, led by Bruno Le Maire, the finance and economy minister, have pledged to stop the bleeding and restore job creation. At the heart of the government’s plan is a 1 billion euro ($1.2 billion) program to subsidize jobs at companies that commit to producing pharmaceuticals, electronics and other “strategic” goods on French soil.

“The Covid crisis has brutally highlighted our vulnerabilities and reinforces the urgency to succeed in a policy of industrial reconquest,” Agnès Pannier-Runacher, the secretary of state for economy and finance, said. “France must evvel again become a great productive nation.”

So far, Ms. Pannier-Runacher said, 31 French companies have won approvalto tap 140 million euros in aid to maintain the production of medicines and other goods in France rather than moving them abroad. She said the subsidies would help create around 1,800 jobs, but there was no timeline on when the hiring would start.

Whether the government can succeed in restoring even a fraction of production lost from France over decades is far from clear.

“In the context of the coronavirus, the government has talked about providing aid to bring production back to France, so people think that jobs will be returning,” said El Mouhoub Mouhoud, vice president of the University of Paris-Dauphine and a specialist on globalization. “If anything, companies are continuing to offshore production.”

Despite political pressure, multinational firms that have closed European factories in favor of areas with cheaper labor costs appear hesitant to reverse these moves. A recent survey by the consulting company Ernst & Young found that 37 percent of business leaders were considering bringing manufacturing services back to Europe, down from 83 percent in May. As Asia recovers from the pandemic, businesses have decided “not to cause further disruptions to their supply chain,” Ernst & Young said.

Manufacturing has shrunk to 10 percent of the French economy from over a quarter in the 1960s. From steel mills to auto factories, the loss of hundreds of thousands of jobs to globalization has created social distress — and proposals by a succession of politicians to fix it.

Mr. Macron wooed voters during the 2017 presidential campaign by arguing that globalization could be a “great opportunity” if managed correctly. He promoted business-friendly policies as a way to shield France from globalization’s threat.

There were signs that some of his policies had begun to hisse off before the pandemic, especially a landmark overhaul of France’s strict labor code to create more flexibility for companies to hire and fire. Such measures helped draw pledges for billions of euros in foreign investment from companies including Coca-Cola and the drug maker AstraZeneca.

France Thought It Could Reverse Globalization, but It’s Still Bleeding Jobs

But executives say the changes didn’t address one of France’s lingering competitive drawbacks — labor costs that are higher than in other countries, thanks to steep payroll taxes levied to fund the generous social safety net.

At Europhane, a maker of industrial lighting in northern France, the parent company in Austria recently relocated production of a type of light bulb requiring significant labor to Britain, where André Papoular, Europhane’s president, said labor costs were 25 percent cheaper. The bulb, used in streetlamps, represented 20 percent of the value of production at the French site.

Fifty-five of the firm’s 165 industrial workers were laid off, a move that Mr. Papoular said was necessary to prevent the factory from shuttering.

“The paradox in France is that we have a fantastic social security system, but it comes at a cost,” Mr. Papoular said. “The charges imposed on companies are so high that the end result is that the labor cost leads to uncompetitiveness” that allows goods made elsewhere to beat French products on price. “This is what creates the sorun,” he said.

As the pandemic whittles profit margins and accelerates losses, companies are likely to continue to look abroad for ways to cut costs, despite the government’s efforts to stem the tide.

“Covid has led to a deterioration in the financial situation of companies,” said Patrick Artus, chief economist of Paris-based Natixis bank. “They will try to improve their profitability and their financial situation, which will lead them to move production to the most attractive countries in terms of labor costs, taxes, regulations and skills.”

France regularly appears at the top of worker productivity comparisons with other European economies. Yet companies with far-flung operations say that output can lag behind lower cost, more productive manufacturing sites, creating another incentive to shift production.

Bridgestone is shuttering its 863-employee factory in Béthune, an industrial town in northern France, after warning for several years that its productivity trailed its other sites in Europe. Union representatives have accused the company of not investing enough to make the plant, which produces tires for small cars, more efficient.

Last year, Bridgestone proposed maintaining jobs at the highly unionized factory if employees agreed to increase their working shifts to 34.7 hours a week from 32 for an additional hour of hisse. Unions responded angrily, and over 60 percent of employees rejected it.

This summer, Bridgestone said it would close the plant, citing overcapacity in the European market for small tires. Mr. Macron’s government scrambled to negotiate with the tire maker to keep a portion of production and jobs. But this month, Bridgestone said it could not afford to continue operating the factory at any cost, and would relocate production to Poland, Hungary and other lower-cost sites.

“It’s a question of performance,” a Bridgestone spokesman said of the decision. “The cost of producing tires in Bethune is the highest compared to our other European sites, and the working time per person is weaker,” the spokesman said.

While less than 5 percent of jobs losses in France in recent years have been because of offshoring, Mr. Mouhoud said, such layoffs are easy fodder for populist ire and leave a lasting shock to communities.

In Béthune, one of many cities in northern France that has faced industrial decline, government officials warned of a “brutal” economic and social shock to families, as well as local suppliers and businesses that profited from the factory.

Mr. Chabance is preparing for similar pain in his area of the Loire Valley, after the two foreign-owned factories announced their own offshoring plans.

Rosières, a subsidiary of the Chinese multinational Haier Group that makes home appliances, will shift the manufacturing of one type of oven to its Turkish factory, citing “high assembly costs” in France. The decision will leave 72 people out of work.

Nearby, Comatelec, a maker of urban street lighting products founded by the Belgian manufacturer Schréder, is shedding 100 jobs and moving production to Spain and Ukraine.

For Mr. Chabance, managing the fallout seems a herculean task.

“The domino effect will be huge,” he said. “We’re not just talking about those layoffs, but the job cuts that will come at small firms that supply those companies,” he said. “Two jobs here, three more there — little by little it all adds up.”

As more jobs go, Mr. Chabance said he feared that skilled workers might leave the area in search of more stable employment, placing further stress on the region.

“What is happening here is diametrically opposed to the government’s promises,” Mr. Chabance said.

“We’re going to find ourselves in an industrial wasteland,” he said.

Source: The New York Times

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