KEY POINTS:
The $6 million Fisher & Paykel will save by axing New Zealand jobs in favour of moving overseas might only be enough to maintain margins, an analyst says.
The company yesterday said it planned to relocate its Auckland-based electronics factory operation to Thailand at the cost of about 96 jobs.
Forsyth Barr analyst Guy Hallwright said the high dollar made it more likely that other manufacturers would follow suit.
"A large amount of that [$6 million] saving is probably necessary just to maintain margins against low-cost Asian sourced imported equipment," Hallwright said.
The latest move by the whiteware maker followed plans announced in April to move washing machine production to Thailand at a cost of about 350 jobs.
It made sense to move the electronics operations to be with the laundry manufacturing, Hallwright said.
"They haven't really talked about it [moving more operations] at all at this stage ... but you'd have to think that they're running the ruler over things," he said.
Chief executive John Bongard said the same reasons lay behind the latest move overseas.
"The high dollar and highest interest rates in the Western world and most unhelpful Government policy in terms of free trade agreements with low-cost countries are really just forcing even what politicians are calling the inevitable," Bongard said. "We're going to hang on in New Zealand for dear life I can assure you, but in the balance, putting the electronics facility closer to the laundry facility actually made sense."
The manufacture of electronic circuit boards and the laundry plant would both be located on the same site in Rayong.
Fisher & Paykel employed about 4000 people worldwide with about 2000 in New Zealand, before the latest move. It could not give any guarantees to the rest of the company.
"That applies not only to our New Zealand operations, it also applies to factories that we've got in Australia and the US and even in Italy," Bongard said. "Each one of those plants is under pressure from closure by lower cost neighbours so we've got to look at each and every one of them continuously really."
The relocation of the electronics factory was expected to save about $6 million a year when fully operational, with a one-off cost of about $5 million - both at a pre-tax level. The savings would mainly come from wage costs but also cheaper sources and closer proximity to materials.
Fisher & Paykel's share price dropped 6c yesterday to close at $3.51.
Bruce Goldsworthy, of the Employers & Manufacturers Association Northern, said the relocation was not really a surprise.
He said the move reflected "the international nature of the company and the international nature of the product and the fact that we are part of an international market".
He said it was not all bad news. A recent survey showed that a shortage of skills was the biggest issue facing local manufacturers.
"Because a lot of those people will be highly skilled ... virtually all of them will get very quickly placed," Goldsworthy said.
Bongard said when the laundry plant move was announced in April the company knew the electronics operation would be a tough call.
The company had looked hard at dividing the electronics operation between New Zealand and Thailand "but at the end of the day the economics ruled it out unfortunately".
Free trade was good for New Zealand, although Bongard would prefer agreements with countries like Canada, US, Japan and Europe.
The company would try to relocate the 96 staff affected into other vacancies within the business.
Work began last week on the new purpose built laundry products site in Rayong with manufacturing expected to start in March next year and the relocation of the electronic operations completed by December 2008.
