In a previous commentary posted in October, we alerted our Supply Chain Matters readers to prepare contingency and risk mitigation plans concerning the deepening financial crisis occurring in Europe. In the commentary, we outlined three potential areas of risks in the coming months, and highlighted the ongoing broader risks for currency and cross-border trade. The biggest risks however unfortunately fall on small and mid-sized manufacturers.
A recent Financial Times article (paid subscription required or metered free view) brought to light a stunning effect of these risks. A Swiss based manufacturer with a 350 year record of continuous operations was forced to outsource the majority of its production activity. Cham Paper Group, a specialty producer of packaging papers indicated it would cease all production in the village of Cham Switzerland because of the dramatic appreciation of the Swiss franc. Two-thirds of the company’s 312 jobs would be lost when production is moved to Italy, a country in another fragile financial state as well.
While larger firms can often adsorb financial and currency shocks, smaller as well as some larger firms can succumb. To buffer an unprecedented level of speculation among currency traders concerning the “safe-haven” Swiss franc, The Swiss National Bank has been actively supporting a SFr1.20 floor for the Euro against the franc, but that level may be too high for firms to do business with external customers. The Swiss franc has already appreciated upwards of 9 percent. Manufacturers have had to raise prices, cut costs, raise productivity or shift production to lower-cost regions. Many Swiss manufacturers are forcing workers into longer work weeks for the same or no overtime pay in order to buffer the effects of the currency appreciation.
The FT article also makes mention of Bobst, a SFr1.3 billion producer of packaging equipment with over 90 percent of its sales focused outside of Switzerland. That company has been forced to shed 8 percent of its 5300 workers, mostly in Switzerland.
In today’s global based economy, there are just a handful of companies that boast of a 350 year existence in one manufacturing location. It is therefore a tragedy to read how a company like Cham Paper has had to forced to adjust and respond to the ongoing European financial crisis. It is yet another stark reminder that in today’s highly uncertain and turbulent business environment, no company is immune to risk.