German Labor Law and Leica

[adan]

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I'd like to improve my understanding of the ways in which German business and labor laws - and general cultural tradition - influence Leica's business plans and decisions.

 

I do see complaints about, for example, the slow production rate of the M9 or availability of the X1/S2 (wondering why Leica does not just hire more workers, or closes shop for stock-taking in the face of huge demand).

 

And I get the feeling that people from other "business cultures" just don't realize the rules and assumptions Leica works under.

 

Here's what I think I know:

 

Features of German Labor and Employment Law | WilmerHale

Germany - National Labour Law Profiles - Information Resources - Social Dialogue, Labour Law and Labour Administration Department

Labor - Germany - average, sector

 

German holidays: German Holidays -- U.S. Commercial Service Germany

 

Some key points being: Something like 90% of German workers are hired under permanent or open-ended employment contracts - and those few contracts for a specific limited period of time have significant requirements for justifying the limited duration of the contract.

 

The open-ended contracts, after a probationary period, provide that termination is highly regulated, and can require notice of from one to seven months.

 

In other words, from the employees' point of view, why take a limited-term contract when 90% of jobs available to you don't lock you in to a limit.

 

And from the employer's point of view, if you need well-trained, specialized workers, you'll need to offer open-ended contracts, so they may well be with you for a long time.

 

The short version being: Hiring a bunch of good people on short notice to solve a short-term production problem is not that easy. And means long-term commitments on both sides - regulated by law.

 

Anyway - looking for knowledgable discussion from those who know something about the subject.

[Craftsman]

You either have to much time on your hands or cabin fever.

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[lars_bergquist]

You either have to much time on your hands or cabin fever.

Yes, to hell with reality. It puts a crimp in our whining.

 

The old man from the World Out There

[jaapv]

There are two more aspects, Andy

1. Firing somebody with a permanent job will cost you in court - up to a year's salary or even more, depending on the duration of the employment and the cause of the firing.

2. Firing a bunch of workers will result in a strike if you do not get consensus first. Part of that consensus will be a social plan -- read help by looking for reemployment and a financial settlement.

[Guest Bernd Banken]

Andy,

 

this has nothing to do with Germany's law or treatment of labour. The reason is Leica itself.

 

Over centuries Leica had not such a demand in their line up of film cameras as for the lenses. So Leica had no chance, no money and skills to establish a 'production line' as the other manufacturers had done so many years ago.

It is more a handmade production as I could see in a movie about the assembling of the M9.

The lady shiftet the body from the left to the right on the table, adding a small screw or shim or whatever. The impression for me was a bit 'planless'.

When we remember that for the produciton quantity of 80 pcs. M9 TWO production locations are necessary plus transport etc. we see the bottleneck which creates the big backorders.

 

For me another reason is the wrong pricing of the M9. It should cost the minimum of €6.750 in order to

1. keep the second hand value of M8

2. to have lower order quantities from the start

3. to have space to the bottom for later price pressure due to life end of the M9

4. higher profit

 

The other reason is the wrong timing of the additional launch of the X1 and parallel the S2 plus lenses.

 

Leica has too much demand from the start without knowing to solve the problems of increasing the daily quantities.

 

It's impossible to hire such a number of skilled person for such a 'robotless' style of production. Plus the missing space for the 'clean/dustfree' rooms for the production of lenses and bodies.

 

The last thirty years Leica had to learn how to sqeeze production down and they achieved this goal but now the opposit way is more complex....

 

Bernd

[stunsworth]

Hiring a bunch of good people on short notice to solve a short-term production problem is not that easy.

 

It's not only easy, it's stupid. Hiring people to assemble cameras and lenses to very fine engineering tolerances isn't the same as hiring people to work in a warehouse to get over a temporary backlog.

[bill]

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Careful, Andy. Facts are a rarity in certain parts of this Forum these days, and what you have pointed to here are definitely "inconvenient truths".

 

The sad thing is, those who could learn something from reading this will most likely never do so because they focus so much on only what is important to them at this instant, whether that be delivery issues, sensor type, r/f vs evf, Aliens vs Predator or whatever else obsesses them to the exclusion of all commonsense.

 

Thank you for continuing to be a voice of reason amid the racket.

 

Regards,

 

Bill

[UliWer]

In principle adan is right, that German labour law does - normally - not allow to employ people on a "hire and fire" basis. It would allow contracts for employance of a certain limited time, if there is a reason for this limitation.

Though I don't think that things would change a lot if German - or Portugese (!) - labour law was completely different.

 

At the present moment Leica sees more demand than they can fulfill with their production. Though if we take notice of many reports here in the forum it is possible to get a new M9 in a couple of days while others on lists have to wait for four months. Even fourt months is no extremely long time. There may be also a shortage of production for lenses (50mm Summilux). Leica's system of producing a certain type in series followed by another type has always caused some delays for some lenses: I had to wait about two months for a 90mm Summicron in 2001 and again for a 75mm Summicron in 2008, but got the 50mm lux on the same day I asked for it in dec. 2008 when it was on rebate. No great news in this field.

 

On the other hand annual reports of Leica's financial situation have been discussed here several times in the past. It was very clear that Leica had to look at costs. So it would be not very reasonable if they forgot all this, cried "Hurrah, we are selling!", and increase production costs at short notice without thinking of times, when the present demand for a M9 etc. dwindles down.

 

If you ever had the chance to see the Leica factory you may realize how small and limited it is (former warehouse for furniture). More staff and higher production needs more place and/or more modern production capacities than they have. They want to move back to Wetzlar, though the new plant isn't ready.

 

Last not least: to build a Leica camera or lens cannot be done by everybody without a long time of training. Even if they decided to hire hundreds of people now, we would not see an increase in production at short notice.

[j. borger]

Since we used to waite over a year for a new Mercedes what's the problem waiting a couple of month for a camera?? Makes the product even more desirable!

From the bright side: As long as it is not delivered it is not obsolete and holds it's price

[wattsy]

For me another reason is the wrong pricing of the M9. It should cost the minimum of €6.750

 

It's going off-topic but I agree that the M9 price does seem out of kilter with the other prices in Leica's product range and could probably be raised. If you want a laugh take a look at the latest UK price list - highlights include £3,235 for a new M7, £704 or £540 for the SF-58 flash (depending upon whether you are browsing the S or M section) and, my personal favourite, £18 for a UK mains cable.

Edited January 26, 2010 by wattsy

[tobey bilek]

When I started working for General Motors in 1971, the first General Suerintendent I had was an ex Navy captain from WW 2. He was an Annapolis graduate and a submarine capain in the war. His name is John R Martin. Look up fleet submarines on google amd you can find all the war records there including his patrols and tonnage sunk. He never talked about it at work, but I do remember one quote from him was "All your security is in your mind", meaning it is an illusion.

 

The Japanese learned this when companies that offered lifetime employment went bankrupt. The Sweeds learned when their taxes hit 60% of income to sponsor the crade to grave care. The rest of Europe will learn fully as they have high chronic unemployment just as the United stated has gotten themselves into with no end in sight.

 

The point you need to remember is government has no money with which to pay out benefits. They only have what what they tax from you and redistribute to someone else.

Printing money is simply stealing your money thru inflation. Running a balance of trade deficite with China to finance the deficit is similar. We now have the Chinese communists counseling us on deficite spending. How is that for a kick in the backside.

 

The point being is it all nice on paper, but it does not work in practice. Everyone has to learn this usually the hard way because the exact opposite is taught in schools today.

I wish it did work, but it does not.

 

Right now the United states is trying to pass some ominous health care bill that overburdens people/employers and they will not hire new people. Government can not creat new jobs, not even president obama. He has surrounded himself with known communists and 1960`s hippys who have no clue how the real world works. Jobs need to come from the private sector from people who think they can make a profit. When the future laws and regulations are uncertain, NOBODY hires or expands because the costs of lowering employment levels is too high. So now we are stuck.

 

We will see five years from now when we still have college grads still working at McDonalds. You see Leica has outsourced work to Portugal to avoid the high cost of German employees. The US is losing jobs to Mexico, China, etc There the burdenson costs do not apply.

 

The bottom line is Germany can have all the laws they want but they can not change basic economics. It is all in their minds.

[jaapv]

I don't think you have all your facts straight. unemployment over here is at the moment just over 5% with a hard core of about 2.5%, the figures for Germany are only slightly higher.

[LuxBob]

Yes in Germany it is close to impossible to fire somebody. It also means that companies are both careful when taking on new employees. It is also the case that most german workers will have job related qualifications and diplomas. The result of this is superb products and until china just took over, the position of being the world' s leading exporter. German companies aim for stability, not boom and bust ad this further unerlines teiresias success.

As I have said in other mails their attitude is also that marketing is relatively unimportant if you make good quality products. So, I agree, making the m9 quie high priced to start with would have made a lot of sense as well as spreading their launch dates.

They have just come out of a very difficult period and I suspect that financing all this is not too easy again given the german approach for conservatism in this area.

 

you may say that this thinking and this system does not work for everybody but it works for them. I for one am delighted that they have managed to turn the company round.

[UliWer]

During all the history of Leica there always has been a strong identification of employees with their products. This is true for the Wetzlar/Solms region as well as for the Portugal plant. Leica is producing goods on a high technological basis with manufactural means. All customers have to pay for this - and it looks as if increasing numbers would see this as attractive.

 

You can call this very traditional way to handle the relations between employees and "their" products as out of fashion. It seems as if the former CEO Mr. Lee did think so. If one thinks so, a hire-and-fire-system looks much more appropriate.

 

Though why producing in Germany or Portugal at all? Even if you could fire your workers more easily they would cost you a lot. In Germany ten times and in Protigal perhaps five times more than other skillful workers in many regions of Asia for example. If you want to stop to be old-fashioned, there is no reason to produce in Germany or Portugal.

 

Leica might opt for a complete different production place. Just about 1000 people to fire. Nikon, Canon, Panasonic, Sony fired many more during the last economic crisis.

 

Does anyone think we would have Leica as an independant company maintaining its own style of products and production, if they took this option? I am sure they would be nothing else than a name from the past if they did so, like Voigtländer or Rollei.

[adan]

LuxBob: Just to keep the record straight, Germany is still (just) ahead of China in dollar value of exports:

 

List of countries by exports - Wikipedia, the free encyclopedia

 

and thus the leading exporter for the moment. Of course, Germany is exporting Leicas, Mercedes, BMWs, Siemens electric locomotives and other extremely expensive items, so China is no doubt exporting far more "units".

[UliWer]

Germany is exporting so much, because it largely profits from the common market in Europe.

[LuxBob]

Uli, cannot comment on the EU effect but I am convinced that the organisation, detailed planning, team cohesion, high standard of traing and qualifications, observance of carefully prepared processes are a major contributor.

[marknorton]

It's going off-topic but I agree that the M9 price does seem out of kilter with the other prices in Leica's product range and could probably be raised. If you want a laugh take a look at the latest UK price list - highlights include £3,235 for a new M7, £704 or £540 for the SF-58 flash (depending upon whether you are browsing the S or M section) and, my personal favourite, £18 for a UK mains cable.

 

I too think Leica were too cautious with their pricing and could have priced the M9 rather higher than they did. There would have been howls of anguish but the profit per unit would have been better and allowed scope for reducing the price (through rebates or bundles if not the headline figure) over time. TBH, profit is what Leica needs to secure its future.

 

Leica's sales forecasting seems to have been pants for a while. They ran out of Digilux 2's long before demand dried up, over-compensated with the unloved Digilux 3 clunker which they couldn't give away and have now seriously under-estimated demand for the M9. I have no information but I do wonder where S2 sales are against target. Seriously adrift would be my view.

 

The latest UK price list does indeed make eye-watering reading, partly because of the weak GBP, partly because of Leica's insatiable appetite for raising prices. That £18 power cable made me smile too. The silver cardboard box it (presumably) comes in probably costs Leica more than the cable. Last time I saw an invoice for them, they were something like 27p in quantity.

[stunsworth]

 

I'm not so sure.

 

I would have thought that it's more to do with the limited production capacity at their disposal. I'm sure they would have been certain that a full frame digital M would be a run away success and there would be very high demand for it. Of course they could have delayed the launch by several months to build up stocks, but that too would have brought its own problems.

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[marknorton]

OK, let me qualify that, "seriously under-estimated demand for the M9 at the price they set".

 

I've no doubt they realised there was significant pent-up demand for a FF camera given the ballyhoo over Steven K lee's careless talk and the resulting press (OK, Amateur Photographer) frenzy. I think they could have used the pricing mechanism better to throttle demand to meet initial capacity and then eased off as demand was met.

 

I feel sure they bowed to pressure from (let's say, the US) to keep the camera under $7000 by cost cutting - LCD display, sapphire glass - where actually all it did was create demand they could not possibly meet. They really do need to understand their market better.