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Asia tech firms cut costs with forced leave for workers

  When the global recession began to take a toll on high-tech manufacturers in Taiwan, the factories gave their workers a vacation. That many would have just as soon skipped.


Putting workers on forced unpaid leave, often for one or more days a week, is a tactic being adopted around the world as firms seek to cut costs and keep skilled workers on the payroll, even if there is little work to do, so that they will have resources when orders pick up.

“When an economic downturn begins to take hold, employers knee-jerk into making dramatic changes,” said Darryl Green, president of Asia Pacific for human resources firm Manpower Inc. “But there are employers who will stop at nothing to try to retain their valuable workforce. These employers, often in the manufacturing sector where skills are hard to come by, consider innovative alternatives such as shorter working weeks and short-term shut-downs.”

Employment specialists say the phenomenon is not unique to Taiwan, and is used more broadly by manufacturers in cyclical industries, ranging from electronics makers in South Korea, to car makers in Britain, and manufacturers in Germany. In Taiwan, the trend of forcing workers to take leave without pay, euphemistically called “unpaid vacation” in Chinese, began in the memory chip sector which experienced its worst-ever slump throughout most of 2008. From there this cost savings measure has quietly spread to other key sectors such as LCD manufacturing and other chips.

In one of the clearest and most sobering signs of the times, TSMC, the world’s biggest contract chipmaker and one of Taiwan’s most profitable tech firms, said this month it will roll out its own forced leave without pay system in 2009. TSMC’s main rival, UMC, is taking similar measures. Taiwan makes 70% of the world’s made-to-order chips which are used in everything from computers to cell phones and MP3 players. TSMC and UMC, which are the biggest players in Taiwan, saw their collective sales plunge 35% in November from a year before, with TSMC posting its worst monthly sales in 3-½ years.

TSMC laid down the cold reality of its situation to employees in a Dec. 3 letter from CEO Rick Tsai, who said he feared the current economic downturn could last for a “fairly long time.” “The company must do its utmost to lower costs,” Tsai wrote. “At the same time, we will also do all we can to protect employees’ jobs. Under these circumstances ... manufacturing departments have decided to take a certain amount of unpaid furlough in December ... All other departments will begin to do the same on Jan. 1.”


According to an online survey by Taiwan’s in November, some 22.6% of the 3,197 respondents said their companies were using forced unpaid leave to save money. Among those polled, nearly 15% said they were being forced to take one, two or even three days off each week. One such forced leave day each week typically equates to a loss of anywhere from 15-20% of a person’s salary. With an average per capita income of about $17,500 and a savings rate of 28.68%, the loss of such income is making many Taiwan workers choose between maintaining high savings or cutting their spending, with many opting for the latter.

Economists expect Taiwan’s GDP to be around 1% in 2009, compared to an expected 2008 GDP of 5%. The use of such cost-cutting measures as forced leave is designed to save millions of dollars for companies, some of which have been bleeding red ink for much of this year. Taiwan memory chip makers such as Powerchip, Nanya Technology and ProMOS Technology are said to be among the most aggressive users of the practice after posting massive losses in their sector’s worst-ever downturn this year. Many LCD makers, such as industry leaders AU Optronics and Chi Mei Optoelectronics, are believed to be taking similar measures as demand slows for flat-screen TVs.

Korean companies that have adopted similar practices include electronics giants Samsung and Hynix, as well as car makers such as SsangYong, according to human resources company Mercer. Across the Pacific in the United States, a similar trend appears to be happening. The latest US unemployment data showed the number of people working part-time for economic reasons, which economists call involuntary part-time employment, rose to 7.3 million in November, nearly triple the 2.8 million figure from the same month a year earlier.

“There are several reasons for doing it this way,” said a human resources official in the Taipei office of a major international electronics firm, speaking on condition that his and his firm’s names not be used due to the issue’s sensitivity. “For one, no one knows what the future will bring, so it’s risky to cut people off completely. If companies need to downsize, they can also try this to see if people will leave on their own so they can avoid severance costs.”


Within the companies themselves, the mood often remains uneasy as many wait to see how long the cuts will last, look for ways to compensate for lost income and fret over the worst case scenario: layoffs if the situation fails to improve. “There’s no indication of how long it will go,” said one worker at a major Taiwan electronics firm, who spoke on condition that his and his company’s name would not be used.

“All they’ve said is that once business stabilizes and returns to a more normal level, they’ll take another look and see if this is still necessary. But they didn’t define what ‘stabilize’ and ‘normal’ mean,” he said. Meantime, many workers are bucking up for what looks to be a grim Chinese New Year, which falls in late January 2009, and are keeping their fingers crossed that their jobs will still be around when they go back to work in the Chinese Year of the Ox.

Newspaper reports about forced leave, salary freezes and other cost cutting moves at Taiwan tech firms have become commonplace, though mass layoffs are still rare. “As the financial crisis deepens, companies will inevitably use layoffs as the last resort,” said Jacqueline Ho, business leader of information production solutions at Mercer Taiwan. “The timing of the layoffs will depend on a company’s risk and loss tolerance.” (Reuters)