Novartis and Molex cuts may be tip of iceberg

Novartis and Molex cuts may be tip of iceberg

The decisions by the Swiss pharmaceutical giant Novartis to shed 320 of the 550 jobs at its Cork campus over the next three years and by Koch Industries to close its Molex manufacturing facility in Shannon, with the loss of 500 jobs, may be the tip of the manufacturing industry closures’ iceberg in Ireland.

Addressing the causes may be crucial to preventing further job erosion in the manufacturing sector.

One indicator is a statistic in the Global Competitiveness Index, which was issued earlier in the month by the World Economic Forum: Ireland’s competitiveness ranking fell from 24th to 25th in 2019.

Six of our European neighbours are in the top 10 most competitive economies globally, including the UK, Denmark, and the Netherlands.

In case there was any cause for dispute, the World Bank came out with its own global competitiveness index. This placed Ireland 24th out of 190 economies in the ‘ease of doing business’ rankings, a fall of one place from last year.

IDA chief executive Martin Shanahan warned, in May, about falling competitiveness and of a constantly changing investor landscape.

This investor landscape has moved away from traditional manufacturing to investing in services support facilities, such as Facebook’s head office in Ballsbridge and its data centre in Clonee.

The decision to cut jobs at the Cork Novartis plant was part of the ongoing evaluation by the group of its manufacturing network around the world, which has been under pressure, since 2017, from low-cost generic drug manufacturers.

Many other facilities in Ireland will be challenged by generic, low-cost manufacturers over the coming years.

The generic drug companies compete on low-cost labour or higher productivity from better-paid workers. Ireland has long since left the low-cost labour stable and, hence, must compete at the top end of productivity to justify its high-wage regime.

The labour-cost issue is perhaps more clear-cut in the case of Molex employees, where published company accounts show that the average sales per employee was €196,000 in 2017, which is about half the revenue per employee for US-based companies.

In 2017, Molex had a loss of €700,000, which made a closing decision by its owners — Koch Industries — relatively straightforward.

These two companies represent a microcosm of the wider malaise we face in Ireland, where the cost-base has risen over the past decade and the economy is becoming more and more concentrated in a number of services sectors, such as those dominated by Facebook, Google, Apple, and Microsoft, on the one hand, and aviation-leasing companies, on the other (where average salaries are €225,000).

This development is leaving Ireland exposed to the performance of a small number of firms, trading in a relatively narrow range of products and services, and giving employment in a limited range of urban areas.

Undoubtedly, the Brexit crisis and the rolling US-China trade wars are two key drivers of the uncertainty that has been holding back the kind of deep investment that is needed in the manufacturing sector in Ireland.

However, despite the fact that many of the promised structural reforms to revive productivity did not materialise, the reality is that the manufacturing sector has to improve its competitiveness, and demonstratively so, through the international rankings.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership

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