HELSINKI, Finland-Swedish unions are threatening to “block” mobile equipment vendor Ericsson’s restructuring plans if the company refuses to “provide genuine guarantees” that future cuts in the group’s workforce are carried out in consultation with union consent.
Agitated about the prospect of a massive redundancy plan, union bosses are becoming increasingly concerned about Ericsson’s future, following the appointment of Carl-Henric Svanberg. The new chief executive was hired from Assa Abloy, the Swedish security lock maker and world market leader in its niche field.
During his eight-year term with Assa Abloy, Svanberg revitalized group revenues, profitability and operating margins. This was largely achieved through large-scale cost-cutting programs and job layoffs.
“The change of management is significant. Previously, management had consulted closely with unions. Several representatives of the 12 major unions in Sweden sit on Ericsson’s board. This helps in making decisions more transparent, but when thousands of job losses loom, it also emerges as a source of embarrassment for unions,” said Lars Els, a telecom analyst with investment bank Nordum in Stockholm, Sweden.
Unions anticipate that Svanberg will make labor restructuring within Ericsson his chief priority. The CEO is expected to implement a plan that will see Ericsson shed up to 50 percent of its workforce worldwide within four years, bringing the total number to below 58,000.
Installation of a new management team, which officially takes office 8 April, is designed to inject new force and direction into making Ericsson competitive and profitable again.
“With the profound management change we have seen, it’s a reasonable assumption that the performance of all divisions within Ericsson are currently being examined. Over time, we will undoubtedly see a leaner and fitter company emerge from all this,” said Rohit Goel, an analyst at JP Morgan.
According to Svanberg, unions will be consulted but job losses “will be inevitable.”
“I was appointed to Ericsson to return the company to profitability. This means tough decisions must be made, and if we need to cut deep in order to meet targets, then that is what we will do,” he said.
Ericsson’s cost-cutting target, in line with the downsizing or sale of non-core units and allied job losses, will see revenues fall to around US$14 billion by 2005. Group revenues dropped 31 percent in 2002 to US$18.9 billion. Revenues, pressured by falling sales, are expected to decline by 10 percent in 2003.
Svanberg is expected to model his restructuring program on archrival Nokia. Ericsson’s main mobile network equipment unit, which last year generated more than twice the sales of Nokia Networks, still employed more than three times as many personnel as the Finnish vendor’s equipment sales division.
