Little and large: partnerships for jobs

August 01, 1997

As concern about unemployment rises up the public policy agenda across Europe, the European Round Table has taken a timely look at what large companies can do to help small firms create jobs.

In countries like France and German, unemployment and the rising costs of welfare provision are a growing concern, as they struggle with the Maastricht single currency convergence criteria. In UK, the new government has placed centre stage the need to find work for young people and the long term unemployed, with an ambitious welfare-to-work programme. So across Europe the spotlight is back on the role large companies can play in job creation, by recruiting and avoiding redundancies – or by supporting job creation in small and medium sized enterprises.

For British companies this may seem like a re-run of the early to mid 1980s enterprise agenda. But this time there is at least one difference: companies in continental Europe are getting in on the act. Recently Morris Tabaksblat, chairman of Unilever, led a study of corporate practices in job creation (1), just published by the European Round Table of Industrialist (2).

Good practice

The Round Table identified a set of good practices which companies should adopt to help address Europe’s problems with unemployment. The underlying assumption is that small and large companies need each other. The continued drive for competitiveness among large firms relies on a network of small enterprises if strategies to achieve rapid technological change, flexibility, delayering and outsourcing are to succeed. Extensive shedding of jobs, without practical alternative measures to help, can risk the public ‘licence to operate’ and lead to a break down in social cohesion.

The good practices are in five areas: buying and selling, positive restructuring, support for small and medium sized enterprises (SMEs), training and education, and links with local communities.

Buying and selling

The strongest links are made when companies buy from and sell to each other. Stable partnerships are at the heart of job creation through such links.

Siemens in Germany directly employs 211,000 people, but provides work for a further 150,000 through SME suppliers. As a deliberate policy, Siemens is shifting the balance towards partnership sourcing: a new microelectronics plant, for example, directly employs 1,500 but with 1,800 in small suppliers. Siemens concentrates on those functions beyond the reach of individual small companies, namely technological developments though R&D and the financing capability to win large new contracts, especially overseas.

Telef¢nica, Spain’s leading telecommunications company, is seeking ISO 9000 certification in all its divisions and insisted subcontractors would have to comply too. So it set up a support system, costing 61 million, to help the SMEs with the paperwork, applications for EU grants, and training to understand the ISO rules. As well as meeting Telef¢nica’s needs, the SMEs now perform better and are winning contracts from other companies.

Large companies gain through:

– improved cost control;

– better production methods and stock levels;

– greater flexibility;

– savings in staff costs.

Small and medium sized enterprises gain through:

– new growth thanks to rising profits;

– improved quality ratings;

– access to new technology;

– staff training;

– easier access to finance;

– exposure to new clients and markets.

Positive restructuring

Inevitably large companies have to adapt and restructure, with jobs lost or radically changed. Outsourcing is one positive way to achieve flexibility and minimise overall job losses. It can reduce costs and sometimes increase quality.

When Lafarge in Paris decided to concentrate on core competencies, it outsourced all internal services such as security, catering and maintenance. Wherever possible existing staff were helped to set up new SMEs, with an initial contracts. But they were also required (and given help) to win work with other companies, so Lafarge retained the flexibility to cut back if needed.

When a unit no longer fits the core business strategy, a positive effort can protect jobs. Sometimes the unit can be spun-off, sold to another established company along with staff, perhaps awarding contracts for an initial period. In others cases, the management is helped to raise capital to acquire the business, often with staff participation.

When Titan in Greece decided to spin off its electronic data processing department, 25 of the existing 30 staff transferred to a new company and now, thanks to its commercial success, another 15 have been recruited. Unilever in the Netherlands decided in 1985 to exit from the animal feed business. After exhausting alternatives, a management buy-out went ahead. Unilever provided continuing R&D support, but the independent business had a difficult first few years. Eventually by 1995 success came, and now 130 new jobs have been created.

Plant closures can have a devastating effect on the local community if nothing is done to renew the area. In 1991 Philips decided to switch manufacture of production line equipment from Italy to Hungary: 408 jobs were at stake and a 15 hectare site left empty. After careful negotiation with the trade unions and local authority, the site was redeveloped for small businesses, with a nationwide inward investment effort resulting in 30 companies applying to relocate, attracted by help from Philips. Seven were selected and, together with a spun-off company, 300 of the staff found with the remainder taking voluntary early retirement. Philips successfully relocated and kept within its original budget for full closure.

SME support

The European Round Table has found that where member companies support SMEs the survival rate is 30% higher than the norm. Such support is need at three stages: start-up, survival and expansion; the key requirements are professional and managerial skills, technical expertise and help with marketing. Practical support includes transferring unfinished R&D projects from large to small companies, offering favourable financing, managers acting as mentors, and helping SMEs to get advice from local centres or enterprise agencies.

Renault in France set up Cap Entreprendre (Conseil et Assistance aux Projets) to offer practical help to employees with a business start-up idea. This offers training and advice, and also links employees with existing SMEs which want to expand. In ten years, 2,000 SMEs have been helped, creating or safeguarding 5,000 jobs.

Also in France, Saint-Gobain set up an internal development agency to offer long term unsecured loans at low cost to existing and start-up SMEs in areas where it was restructuring. Linked to each loan is a package of technical assistance and management advice, resulting in a low default rate.

Training and education

All companies need to keep pace with changes in markets and technologies. Large companies tend to make good provision for such retraining, but smaller ones often cannot. So large companies can offer support such as:

– training for SME suppliers;

– providing work experience;

– improving management skills;

– finding university recruits;

– introducing entrepreneurship into schools.

Nokia in Finland invites SME staff to join internal training courses, having first assessed their development needs. Philips in Netherlands and Renault in France both give work experience and training to school leavers. Shell in the Netherlands runs Student Enterprise Experience for undergraduates, modelled on Shell UK’s STEP.

Local focus

Large companies play an important role in the life of their local communities and offering direct support to SMEs is just one role. Other practical ways to help the local economy include setting up incubator sites and technology parks where a cluster of SMEs can then support each other.

Another practical example is to get involved with regional development programmes. Iberdrola, a company which supplies 40% of Spain’s electricity, has a dedicated unit to participate in regional development plans, along side government agencies. Among the help it offers are management courses for SME entrepreneurs, financing through venture capital funds, management mentors for new businesses and a programme of enterprise awareness seminars for university students.

(1) A Stimulus to Job Creation: practical partnerships between large and small companies was published by the European Round Table of Industrialists and is available free of charge. Contact Dominique de Garady, ERT, Avenue Henri Jaspar 113, 1060 Brussels. Phone 00 32 2 534 3100. Fax 00 32 2 534 7348.

(2) The Round Table brings 45 leaders from Europe’s major companies, drawn from 16 countries and employing 3 million employees worldwide, to address issues of concern to industry and society.

Corporate Citizenship Briefing, issue no: 35 – August, 1997