Research Paper on Management Issues in Sanmina Sci: Redundancy

This paper is focused on the problem of redundancy in Sanmina-SCI. First of all, the company’s position and development are discussed. Than, the main reasons leading to the redundancy are analysed. It should be pointed out that the reasons of redundancy are discussed both in the economy in general and in the company, in particular. Furthermore, the process of the redundancy in Sanmina-SCI that is particularly significant in the US and partially Western Europe is discussed and the emphasis is made on the fact that the plants situated in these areas suffer the most while the plants and employees in developing countries are in quite a good, if not to say privileged position because they are a cheaper alternative to those in developed countries. This fact reveals the general trend in the economic development of developed and developing countries and is typical for large multinational corporations. Finally, the consequences of the redundancy are briefly analysed.

Introduction

Nowadays, the economic processes are very complicated and they raise a number of serious problems that need immediate solution. To a significant extent such a situation is the result of the fact that the world economy undergoes the process of globalisation, when economic borders, financial barriers are disappearing and each company tends to occupy its share of the world market. In such a situation the problem of economic surviving in the market is probably more important than it has ever been before. As a result, many companies are forced to use different means in order to be more competitive and simply to survive in the market. One of such means is redundancy that is used by some companies, among which may be singled out Sanmina-SCI, which is continuing cutting jobs in order to minimize its losses and increase income. Obviously it is difficult to evaluate the actions of the company from moral point of view but it is possible to analyse them on the basis of economic theory and expediency. At the same time, it is necessary to trace whether such steps are undertaken uniquely by Sanmina-SCI or probably it is the general trend in the industry. Moreover, it is necessary to trace the general trends in the industry and economy at large and compare them to the actions of Sanmina-SCI. Anyway, the redundancy in Sanmina-SCI should be analysed in the context of the market situation and the company’s policy and strategic development and not only in terms of a evaluating its cutting of jobs in recent years. Also it is particularly important to forecast the current and possible consequences of such a policy of the company as well as the general trends in the economy, especially in the context of the human resource management.

Sanmina-SCI

Obviously, in order to understand the complicated processes that take place in Saanmina-SCI, it is primarily necessary to briefly dwell upon its policy that actually has led to such a decision made by the company’s administration. It will help to better understand the main reasons that lead the company to develop the policy of redundancy. Naturally it is impossible to clearly realise its policy if we do not take into consideration the historical development of the company. First of all, on analysing the position of Sanmina-SCI and its development, it should be said that now the company is a large electronic contract manufacturer. Also it should be pointed out that the company has been quite rapidly growing. The main reason explaining such a growth may be found in the company’s policy that has been practically unchanged since its foundation. This strategy of the company is basically focused on the market expansion in practically all countries of the world. Naturally, such expansion can be done through acquisitions and mergers, which have become the strategic direction of the company development. In fact Sanmina-SCI was “created out of $6 billion merger of Sanmina and SCI Systems in July 2001” (Sanmina to shut main plant, 2001). It is a multinational company that operates on five continents and with the number of employees close to 50,000 all over the world. It is noteworthy that Sanmina-SCI has “nearly 100 manufacturing sites on five continents and services eight primary markets: communication, high-end computing, personal computing, defence and aerospace, medical, industrial/semiconductor, and automotive” (Williamson, 2005). Despite the fact that the company’s headquarter is in SanJose, California, USA, this country is not the main one where Sanmina-SCI prefers to develop its plant. It is noteworthy that such a policy of the company is not something unique. On the contrary, nowadays it is quite a popular trend, especially among large multinational corporations. In fact, any company that expects a serious commercial success in the current situation can’t work otherwise. The reason is that the process of globalisation that overwhelmed the world economy demands a constant expansion and entering new markets, otherwise the company will give in to its main competitors and consequently will be doomed to decline, or, if possible, will end up in a merger with another company. As a result, the strategy of the constant expansion through mergers and acquisitions should be the cornerstone of the company management since it is an essential condition of the commercial success.

In recent years, notably since 2002, cutting of jobs is growing and is getting to be normal process for the company in the US as well as in European countries, such as Finland for instance. It is a very important fact because the company tends to reduction of number and size of its plants in well developed countries of Western Europe and North America and instead Sanmina-SCI is more focused on the development of its plants in Latin America and Eastern Europe, i.e. in developing regions which though are considered to be very perspective for technological development. Nonetheless, it is necessary to underline that Sanmina uses high technologies and such a shift may be quite unusual since traditionally basically well developed countries such as the US, Western European countries, Japan, and others were considered to be the main centres of high technologies production and utilization.

At this respect, the choice of Sanmina-SCI in favour of Latin America and Eastern Europe may be considered as evidence of company’s hopes for these markets and local labour force. Obviously it may be a controversial choice that may be widely criticised but it is not so important for us because what we need is to realise the possible causes of redundancy, discuss it and foresee its consequences. This is why we are interested in this strategic orientation of Sanmina-SCI on countries of Latin America and Eastern Europe only to the extent it influences redundancy.

The only thing it is worthy to note is the fact that such a decision was probably caused by the desire of the company to reduce its expanses, including expanses on well qualified and, consequently, well paid employees in the US or in Western European countries. At the same time, it is necessary to underline that it is a normal practice for multinational corporations, especially nowadays. To a significant extent it is the result of globalisation. However, it is obvious that such a profit is quite doubtful because Eastern Europe and Latin America cannot provide the company with sufficient amount of specialists absolutely equal if not superior in their qualification compared to traditional regions where the company used to concentrate its plants, i.e. the USA and Western Europe. On the other hand, it should be pointed out that a proper management may be very helpful in such a situation because often the main problem which leads to low effectiveness of work of employees in developing countries is their poor work organizations. Finally, this problem can be solved, for instance, through special training or educating programs for employees from developing countries, or through sending experienced and highly qualified employees from developed countries into problematic regions.

The causes of the redundancy

Nonetheless, the general situation within the company as well as in the economy at large does not reveal the causes of the redundancy but rather state it as a fact. However, first of all, it is necessary to trace main reasons that force companies to cut jobs. The main reasons for redundancy are actually shown in the table 1. According to Millward et al, one of the main reasons for redundancy is lower demand. As a result companies are forced to cut jobs because the goods or services they supply are not demanded as it was initially supposed. As a result, the revenues of companies decrease while costs of employment of a large number of employees remain stable. The situation is particularly difficult if the employees are well qualified because they cost much higher than specialists from developing countries, whose level may be not so low. In such a way it is really possible to find a compromise and decrease the number of employees in developed countries while sustain or even increase their number in developing countries.

The latter fact, by the way reveals another reason for redundancy. To put it more precisely, since the employment of well-qualified employees in developed countries turn to be quite expansive many companies, including Sanmina-SCI prefer to transfer them from developed to developing countries. As a result the share of redundancy because of transfer for work gradually becomes more and more significant, especially in recent years Not surprisingly that in such a situation the strategy of reduction of Sanmina-SCI’s plants in well developed countries and transferring production in developing countries influenced significantly the company’s decision to cut number of jobs in the US and Europe. The reason is that it is really not so expansive to invest in plants in developing countries. For instance, as John McManus, a research analyst with Needham and Co, indicates that “a move out of the triangle would be a logical step for the Sanmina, given the high cost of labour to assemble computers in the US” (John 2002). In such a situation, when developing countries are more attractive from a commercial point of view it would be really strange to act otherwise than reduce dramatically the number of employees in developed countries, which are considered by the company as too expansive.

Furthermore, according to Millward et al another important reason for redundancy is reorganised work methods. Obviously, it is really important factor because companies have to evaluate and improve their work methods constantly in order to remain competitive. The main reason is that technologies and management methods progress and it is impossible to imply new technologies or new management strategies on the basis of old work methods. In all probability, the gap between old work methods and innovations either in the sphere of technologies or management would result in ineffectiveness of the innovations.

Nonetheless, returning to Sanmina-SCI it should be said that the company strategy discussed above leading to the redundancy is not the only cause but rather another consequences of more complicated process. What is meant here it is the situation in the world economy at large. It should be pointed out that the world economy and the development of the industries where the company operates in does not predispose to continue develop production in the US or Western Europe where labour force is really expansive and demands high expanses. The latter cannot eventually fail to influence the price of products and services the company supply to its customers and, consequently, it affects the competitiveness of Sanmina-SCI, decreasing it dramatically. As Carmine Renzulli, spokesman for Sanmina-SCI corporate offices in San Jose, California says concerning laying off employees in Lynchburg: “With the world economy and the electronic industry still suffering, the job load for that facility just cannot support that number of employees” (Sanmina-SCI lays off 114 in Lynchburg).

By the way, it is quite noteworthy that during the fiscal year 2004 Sanmina-SCI had sales revenue of $12,2 billion, an increase of 17,8%, while adding to its workforce only 8,2%. It means that while the company’s revenues grows, the growth of its work force is practically double less compared to the growth of sales revenue and the role of redundancy in this process is one of the most important.

Furthermore, it is also very important to underline that the general trend in the economy indicates at the decrease of the role of traditional industries or spheres of employment and the development of industries which amply use innovations. At this respect, it is possible to refer to the table 2, where the number and the proportion of staff made to be redundant are analysed. Despite the fact that the proportion seems to be practically equal for different categories it is still necessary to pay attention to quantitative data. The main thing that it is necessary to understand in such a situation is the fact that the number of manual staff, for instance, reduces because new technologies are implemented which make the employment of this kind of staff unnecessary, while the reduction of the number of managers is basically the result of improvement of management strategies. Moreover, often there are simply transfers of work in the result of which managers are employed either in another plant belonging to the company, for instance, or even in another country where the company operates.

Consequently, taking into consideration the company’s strategy and the situation in the world economy and the industry, the redundancy undertaking by Sanmina-SCI seems to be quite logical and even essential for the company to start and sustain the program of redundancy basically on the plants situated in the US and Western Europe. It is very important that the company developed and progressed in new regions where employees cost less and where experienced employees as well as managers may be transferred to. In fact it is rather a question of a proper human resource management and not only of a purely economic interests of Sanmina-SCI, especially if one takes into consideration the fact that the steps of the company are not unique and are typical for the industry at large and correspond to the recent economic trends.

The process of the redundancy

Obviously redundancy and closure of plants in the US and Western Europe that have become one of the main strategies of the company are essential and objectively motivated by the current situation in the market, industry, and the world economy. In fact it seems to be the shortest and the easiest way to increase the effectiveness of the company’s work and its profitability, with relatively low costs needed for the changes that currently take place within the company. On realising the vital importance of the redundancy for sustaining Snamina-SCI competitiveness, it is now necessary to discuss how this process has occurred within recent years. Actually, it should be pointed out that since the date of merger of Sanmina and SCI Systems, i.e. 2001, the reduction of the number of employees or even closing plants have become normal. For instance, The company closed its Colorade Springs’ plant on Astrozon Boulevard “laying off about 150 in a consolidation with a Fountain plant” (Saint, 2002). In 2002 the company also has “announced it is closing about 25 plants nationwide” (John 2002). It means that the company planned to close 25 plants in the US only but the similar plans concerned Europe, notably the company announced about its plans to close its plant in Helsinki, Finland soon after the plant in Morrisville, USA had been closed. The same year the closing of the plant in Augusta left 440 employees without their jobs.

The next year, the redundancy continued to progress. For instance, the company laid off 114 employees in Lynchburg since it was quite heavy load the company inherited from Ericsson in October 2000. Furhtermore, in December 2004, the company announced that it would close its Westbrook plant early in 2005 that would result in the redundancy of 325 people (Murphy, 2004). The same year, Sanmina-SCI closed its plant in Wilmington putting 495 people out of work.

In such a way the process is sustainable and the redundancy is quite contrasting to the company’s growing investments in production and services. For instance, according to Collin C. Haley, “it is spending $4 million for a software development site in India” (2003). Obviously, one of the main purpose of Sanmina-SCI was to sustain its positions compared to its competitors such as Flextronics International, Celestica, and Solectron.

The consequences of the redundancy

At first glance, it is quite difficult to foresee possible consequences of the strategy of redundancy widely used by Sanmina-SCI. Nonetheless, speaking about these consequences, it is possible to say that in general they are quite dubious. On the one hand, it ease the financial position of the company, on the other hand, it deteriorates the position of employees. Nonetheless, it is Sanmina-SCI that is our primary concern. This is why it should be said that the reduction of expanses on well qualified and, consequently, well paid employees in the US and Western Europe decreased. Furthermore, the company acquired new perspectives in developing countries for growth because due to the local relatively cheap labour force it can much more easily compete in the market than it used to. It is particularly important in the context of the company’s enlargement strategy.

On the other hand, the competition between the employees working in the US and Western Europe has also grown since the number of well qualified employees is relatively high while the opportunities to be employed are lower than in the past. Naturally, in such a situation Sanmina-SCI can easily manage with any problems with their employees that the company may face.

Anyway, it should be said that in the current situation redundancy seems to be quite a logical step, undertaken by the company’s management, because it provides the desirable results, which potentially could really improve the financial position of Sanmina-SCI as well as its position in the market.

Conclusion

Thus, in conclusion, it is possible to say that the contemporary economy forces companies to act in a certain way, which is not always positively assessed by the society. However, economy is traditionally distant from socio-cultural moral values and often pragmatic interests of companies are much more important and dominating over moral values accepted within the society. As a result, companies, including Sanmina-SCI have to act respectively to the situation in the market, industry and economy at large. This is why they often use strategies that cannot be positively perceived by employees but it is one of the main characteristics of a good management to lead the strategy once chosen till the end with minimum losses. At this respect, Sanmina-SCI may be assessed as a dynamically developing company. Regardless certain economic problems it faced in early 2000s it partially coped with these problems and has quite good perspectives in the future basically due to its strategy of redundancy. The only thing it is worth to note is the fact that now the company is rather focused on the development of its plants in developing countries than in its traditional location, i.e. the US, and Western Europe.