Siemens to build new German factory after securing labor concessions

Vendor had threatened to move manufacturing facility

Siemens Medical Engineering Group is going ahead with plans to build a new $115 million manufacturing facility near its corporate headquarters in Erlangen, Germany, after securing labor concessions crucial to the success of the project. The new labor pact ends Siemens' threats to relocate the headquarters of its medical imaging manufacturing facility from Germany to friendlier business climes.

The agreement will liberalize rules for scheduling and overtime pay and will affect 5000 hourly wage earners employed at the vendor's manufacturing facilities in Erlangen and Forchheim, Germany. The rules go into effect in January.

Construction on several buildings will begin in spring 1998 and will be completed in fall 1999. The floor space of the facilities will total 430,000 square feet and will house the final assembly locations for the Magnetom Symphony, Harmony, and Open MRI scanners, as well as lithotripsy systems, x-ray generators, and urology equipment. The complex will be located on 17 acres near the Medical Engineering Group's headquarters in Erlangen.

Without the labor concessions, the Medical Engineering Group was seriously considering moving to either the U.S. or the U.K., according to Erich Reinhardt, group chairman. The decision ultimately focused on labor costs that are 30% to 50% higher in Germany, he said.

"The labor cost (of operating in Germany) translates into an overall cost disadvantage on the order of 10% to 15%," he said.

The new work rules will allow Siemens to operate its German factories 12 hours a day, six days a week. Some divisions, such as parts supply, may be staffed seven days a week without requiring prior approval by the company's work council, which consists of employees elected by the workforce. Its members represent various unions, the largest of which is the Metall Gewerckshaft metalworkers union.

The agreement also allows Siemens to require work on Saturdays without overtime pay as long as those hours are part of the employee's 40-hour work week, according to Reinhardt. Over a given year, the company will be able to require 160 hours of additional work or work reduction for an employee without triggering premium wages, he said. The company also has the right to require employees to work 10 hours a day for five days a month without overtime pay or to not offer work for five days per month.

"We can now close the operation down for five straight days, if there is no work," he said.

It is too early to tell how much money Siemens will save because of the new work rules, Reinhardt said. He blamed the high cost of doing business in Germany for the exodus of Siemens manufacturing jobs to the U.S., the U.K. and elsewhere. Siemens assembles hearing aids and ultrasound, nuclear medicine, radiation therapy, and patient monitoring equipment in the U.S. The superconducting magnets for its MRI scanners are built in the U.K. Other plants are based in Spain, Sweden, India, and China, Reinhardt said. The company builds MRI, CT, angiographic, and general radiographic equipment in Germany.

The labor pact was reached as Siemens is restructuring the Medical Engineering Group in an effort to cut costs at the division. Although the moves are expected to improve the group's cost structure in the long run, the restructuring made an impact on the group's profitability for the year. Siemens, reporting its year-end financial results on Nov. 5, disclosed that the medical business finished the year with sales of 7.6 billion deutsche marks ($4.41 billion), up 6% compared with sales of $4.12 billion the year before. A one-time charge related to the restructuring resulted in a loss for the division, however.