Cover Story: The Chinese Threat To Glen Dimplex's Irish Jobs
All eyes may have been trained recently on the sale of Lochlann Quinn's Glen Dimplex stake to Martin Naughton. However, troubles at its Chilton Electric plant in Dunleer highlight a bigger issue for the company - China's growing threat to its Irish operations, writes Ciaran Brennan.
The future of Ireland as a manufacturing base for electric heating and domestic appliances manufacturer Glen Dimplex looks in doubt with it now looking increasingly likely that a second firm in the group could cease operations on the island in less than a year.
Chilton Electric is facing the axe due to increased competition from imports manufactured in lower-cost locations. Last October, Glen Dimplex announced it was to close its Morphy Richards domestic appliances factory in Bangor, Co Down with the loss of 84 jobs. At the height of its production, the Bangor plant had employed around 200 people.
Chilton Electric, one of two Glen Dimplex factories in Dunleer, Co Louth, may be forced to cease operations by the new year, due to dwindling orders for its fan heater product. It is understood that the firm's fan heaters are not being produced at a competitive rate, leading to falling orders. Cheaper imports from China have now resulted in a halving of production at the plant.
Senior executives at Glen Dimplex have reacted angrily to Sunday newspaper reports that jobs were to be axed at Chilton Electric and say that management would fight tooth-and-nail to save the plant.
"Chinese low-cost manufacturers have entered the market at an increasingly rapid rate over the past 12 months or so, and retail stores are now purchasing directly from China. Making electric fan heaters is no longer viable. They simply don't have the orders," explained SIPTU North East secretary John King.
At a Labour Court hearing between the company and staff last November in a dispute over bonus payments, the company said its competitive position had been severely eroded through high inflation and high-wage costs. It also said the company was facing significant competition from China.
Ironically, management's warnings over competition from China come just two years after Glen Dimplex established its own joint venture (Shenyang Dimplex Electronics Limited) in China to manufacture night storage heaters.
The setting up of the Chinese operation has not gone unnoticed by staff in Ireland and has prompted fears that more of the Irish operations may be wound down in favour of moving to the low-cost location. This is despite the fact that the Shenyang operation is currently focused on manufacturing for the Chinese market only.
Although founder and chairman Martin Naughton has stated in the past that he does not want to go down the road of moving production to China, the closure of the Bangor plant and the perilous situation in Dunleer have fuelled speculation in some quarters that this is the direction in which the company is now heading.
"Martin Naughton made no bones about it. He opened a plant in China and said the cost-base in Ireland was becoming uncompetitive," said John Dunne, chief executive of the Chambers of Commerce of Ireland.
"For a lot of traditional manufacturing, the long-term future just isn't there. Mass production will go where unit costs are lower. While tax is higher in China, profitability is 20 times higher for some forms of manufacturing."
Glen Dimplex has an unenviable reputation for being focused on the bottom line, cutting costs and for running a very tight ship. Commenting on the Bangor plant in a magazine interview some years ago, Naughton said: "Take for example our factory in Bangor, which is the biggest producer of kettles in the world. By and large, our competition is from China and Eastern Europe. What we have to have with Bangor is a Chinese factory in Ireland."
The fact that the Bangor plant has closed since Naughton made those comments has led some to believe that a closure of Chilton Electric in Dunleer would be the thin end of the wedge to outsource to cheaper locations.
Any future hope for Chilton now lies in efforts by its management to source a new product to replace the fan heaters. Plans to relocate the Galaxy Shower business in the UK, which Glen Dimplex acquired last year, have so far failed to materialise. Even if Chilton was to secure a contract to make electric showers, it would just amount to a stay of execution for the firm, according to union sources.
"Very much so," said SIPTU's John King. "If the company was to give us the shower products, realistically they would have a limited lifetime. Just because the Chinese aren't making them yet doesn't mean they're not going to start making them within a couple of years. That market [shower units] would have a lifetime."
Although they are considered to be less vulnerable than Chilton (because they produce a range of goods of varying degrees of complexity and size), it is felt by some commentators that the same may eventually hold true for the company's other manufacturing operations in Ireland such as Bitech in Dunleer, Glen Electric in Newry and Seagoe Technologies in Portadown. It will be hard for Glen Dimplex to ignore the cost savings it is making in China.
The future could see Glen Dimplex keeping its sales and marketing in Ireland - where Naughton's son heads up its exports business - along with research and development, while completely outsourc-ing manufacturing, some industry-watchers say.
The threat to Chilton Electric's future comes on the heels of a warning from the National Competitiveness Council that escalating business costs and consumer prices are putting Ireland's economic success at risk. Last week, it warned that Ireland was fast-becoming the most expensive country in the eurozone.
"If you look at any low-cost electrical manufacturer in Ireland, they are all suffering the same level of competition from the Chinese," said one market commentator.
Tommy McCabe, director of the White Goods Association (an IBEC trade association affiliated to ICT Ireland), said many companies have already moved from Ireland because it is more cost-effective and cheaper to manufacture electrical and electronic goods in Asia.
"Any company has to look at its cost-base - and if the cost-base is too high, they will go if they can get goods produced at a lower cost elsewhere," said McCabe.
"It is a concern because, while we have been very successful in the ICT sector in bringing ICT companies in, the basic electronics industry has suffered a lot of setbacks in recent years and it has almost gone unnoticed. A lot of companies have slipped away and I think that needs to be addressed, particularly as this is an opportune time in the light of Eoin O'Driscoll's report [on future industrial policy]."
Sources at Glen Dimplex said the company had no intention of making Chilton Electric's products at its facility in China. They said that every effort was being made to maintain production at the firm. But the bottom line is likely to dictate the firm's future.
Glen Dimplex Through The Years
1973 Glen Electric builds its first factory in Newry, Co Down, employing 34 people with a turnover of E700,000.
1977 The group makes its first major acquisition with the purchase of electrical heater manufacturer, Dimplex.
1983 Turnover exceeds E50m for the first time and over 100 people are now working for the company.
1985 There is another major acquisition when British appliances-maker Morphy Richards is taken over. Sales reach E160m and employee numbers swell to 2,000.
1990 Glen Dimplex acquires 51% of KKW Siemens (a maker of electric heating products) and agrees to be its exclusive distributor. Turnover has more than doubled to E350m and 4,000 workers.
1994 Roberts Radio is acquired in the UK.
1997 Gold Market UK is acquired. Sales for the year hit E850m.
1998 Goblin is acquired and turnover breaches the E1bn barrier for the first time.
2002 Glen Dimplex acquires Dimpco and Brownbrook, and enters into a joint venture in China. Also buys a 25% stake in Norway's NOBO. Turnover currently stands at E1.3bn and 8,500 people are employed worldwide.
2004 Glen Dimplex's Morphy Richards plant in Bangor, Co Down closes, with the loss of 84 jobs. The future of its Chilton Electric firm in Dunleer, Co Louth now hangs in the balance.