IR is Destroying Value

We are set to lose one of our largest and more prospective wool-processing firms.

Feltex Australia -- the largest local manufacturer of carpets, employing around 500 workers -- will almost assuredly close its doors during the next year and revert to importing product -- probably from New Zealand.

This could have been avoided.  The operation has had problems, but these could have been fixed.  The recent strike over wage rates and security of entitlements could have been resolved in a manner that enhanced the competitiveness of the firms and secured the jobs.  Instead, we have once again shot ourselve in the foot.

The plant complex in question has changed hands many time over the years.  Five years ago it was purchased by Shaw Industries which is one of the largest carpet manufacturers in the United States.  Shaw saw the potential and sought it through a program of workplace reform, new investment and innovation.  It failed and sold the complex less than two years ago to Feltex.  Feltex is not only New Zealand's largest carpet manufacturer but a leading exporter of carpets to Australia.

Given its skills base and knowledge of Australia, Feltex reasonably thought that if anyone could make a go of the plant it would be them.

Their timing could hardly had been better in terms of market conditions.  The Aussie exchange rate is super competitive.  The housing market, which is the main market for carpets, has soared to record levels both in terms of new construction and renovations.  And they have experienced good demand growth from non-residential, hospitality and public sectors.

Yet, they ran into a brick wall in the form of a destructive and intransigent workplace environment.  A them-versus-us mentality prevails in the workplace.  Management is by committee.  Innovation and structural change is frowned upon.  And the laws of the land are not conducive to resolving the impasse.

A few months ago, the firm was hit by a 15 per cent wage claim to be paid over three years.  The problem was not so much the size of the claim but the failure to get offsetting productivity improvements.  More recently the firm was hit with an industry-wide campaign by the unions designed to give the union control over worker entitlements -- not just redundancy but all entitlements.  The firm has quite justifiably refused to budge on the entitlement issue.  The union in question, the TCFU is virtually bankrupt.  Similar trust fund arrangements, such as in the building industry for long-service leave, have not served workers well.  And as a point of principle, liabilities should remain with the liable party and not be shunted to a third party.

The result has been months of rolling strikes and pickets that have not only resulted in the firm losing around $200,000 per day but undermined the firm's reputation in the market.  The dispute has seriously disrupted supplies causing financial hardship to carpet retailers and builders and left thousand of customers living on bare floors for months.  In the carpet business, as in most businesses, an aggrieved customer is a lost customer.

Although it will not admit it publicly, Feltex is now preparing to exit Australia.

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