Netherlands: Eindhoven hanging on the fate of Philips.

Netherlands: Eindhoven hanging on the fate of Philips. - Geoffrey Foster reports on a Netherlands community whose fate is inextricably linked with the mixed fortunes of a multinational.

Last Updated: 31 Aug 2010

Geoffrey Foster reports on a Netherlands community whose fate is inextricably linked with the mixed fortunes of a multinational.

It might almost be a company town in recession-hit Britain. Not in appearance, admittedly. Physically, Eindhoven is just about as messy as most English industrial cities, but there is an austere north European quality about the disorder. In the town centre the streets pick their way through what looks like a jumble of outsize cardboard boxes, with never a blackened Gothic spire in sight. It is all fairly new. The place was knocked about a bit in the war, and much of it was rebuilt (or built) in the 1950s and 1960s, when architectural standards were not at their highest. It is also, like the rest of The Netherlands, relatively clean.

Comparison with the UK is prompted by the economic strains caused, in turn, by the sufferings of Eindhoven's principal employer. The town is of course Philipsburg, North Brabant. It was here that Gerard Philips began producing carbon filament lamps almost 100 years ago, and the fortunes of the town have been inextricably bound up with those of the company ever since. The gradual evolution of Philips into a multinational is what turned Eindhoven from an agricultural community into a major industrial centre with a population of more than 190,000.

Although Philips came to employ many more people outside than inside The Netherlands, Eindhoven was always the hub of the universe. It was home not only to corporate management but also to the senior administrative, planning, marketing and R and D staffs of several of the product groups that emerged as the main axis of the group's famous matrix structure. A massive raft of concrete-and-glass factories - all bearing the name Philips - formed in the heart of the town. At one time, it is said, more than half of the region's working population of 200,000-plus were in "Philips-related" jobs.

With true old fashioned paternalism, the company penetrated into virtually every aspect of the town's life. Philips ran schools, the library, the leading hotel, the fire brigade, the local football team, even the airport. Most of these links are now quite tenuous, where they have not been severed completely. The Cocagne Hotel was sold to a German group a couple of years ago, and although the home ground of PSV Eindhoven is still called Philips Stadium, the company is just one in a long list of sponsors.

Disengagement from such extra-mural activities is by no means finished yet. There has lately been talk of a management buyout of the corporate conference centre, and there are plans to privatise the group's in-house engineering company. All of this is in keeping with the spirit of the times, and usually has the effect of moving people and activities off the employer's books without necessarily affecting employment. What is now worrying people is the accelerating rate of actual job losses as Philips struggles to extract a measure of profitability from its multitudinous operations.

But there is nothing new about redundancy fears at Philips. Less than five years ago the group employed 344,000 people worldwide. By the end of last year the payroll had fallen to 273,000: that is an overall drop of 20%, which is only partly explained by deconsolidation. Inadequate profitability goes much further back.

It is 25 years since Management Today first reported on "Profitless Progress at Philips". Nothing much has changed since then. Despite an admirable record as an innovator (the sodium lamp, car radio, audio cassette, video recorder and compact disc are all Philips developments), the group has consistently failed to earn a decent return on its operations. In the mid-1980s a new, and not overly demanding, financial objective was laid down: an after-tax return amounting to 3 to 4% of sales. It has never been achieved. However, last year's loss of DFl 4.2 billion (£1.3 billion) was unprecedented.

Admittedly the whole sum, and more, was covered by provisions for restructuring, but that is small consolation for Philips employees. Earlier this year Jan Timmer, the group's tight-lipped president, told the annual press conference that a further 33,000 jobs would go during 1991. Divestment and redundancy have already reduced the number of Philips personnel in the Eindhoven area to about 11% of the working population. Nevertheless, with some 27,000 people on the books, the group still provides more than four times as many jobs as the next biggest employer, the truck builder DAF - which has troubles of its own.

Partly because of geography (it is approximately an hour's drive from Amsterdam, Antwerp and Cologne), the area has so far adjusted to contraction in the electrical sector with remarkable success. According to Theo Schut, managing director of NV REDE, the regional economic development body for Eindhoven and 21 neighbouring authorities, 46,000 jobs have been created in the past decade. Whether it will be possible to sustain that record in the short term depends largely on what happens at Philips. The centenary which the company is on the point of celebrating could well be a fairly grim occasion.

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