4,000 Filipinos Lose Jobs After Barbie Takes a Walk

The Philippines’ reputation for being the one country in Southeast Asia investors should steer clear of got another unwelcome boost last month when Mattel stopped making Barbie dolls and pulled out.

Circumstances surrounding the closure of Mattel’s wholly owned Philippine subsidiary were decidedly upsetting. About 4,000 workers lost their jobs after a bitter labor dispute. At one point, unionists barricaded the company’s plants to keep equipment and materials from being transferred.

Some businessmen immediately blamed the Mattel closure on union intransigence, fueling fears that labor militants were chasing away foreign investors and wrecking badly needed opportunities to create more jobs.

The shutdown, however, stemmed at least as much from the mounting financial problems of the California-based toy manufacturer as from labor troubles in the Philippines. On Feb. 12, Mattel revealed it had lost $113.2 million in 1987.

The trouble in the Philippines erupted Dec. 11 when about 1,800 workers at Mattel’s sewing plant in Cainta, a town on the outskirts of Manila, were told that the factory would be closed and that they would lose their jobs immediately.

The reason: According to company officials, sales of Barbie dolls and other Mattel toys had dropped drastically; a huge inventory of more than 10 million items clogged store shelves and warehouses all over the world.

To save money, the company planned to consolidate Philippine operations, closing the plant in Cainta and integrating operations with the main factory located in Pasig, another Manila suburb, where the dolls were assembled.

The Mattel Workers Union called the shutdown “drastic and arbitrary.” Laid-off workers started picketing both the closed plant in Cainta and the main factory in Pasig.

By late December, workers at Cainta blockaded the premises and effectively kept the company from pulling out equipment and materials. Mattel sought and got a labor deparment order instructing the union to lift its blockade.

But the protests continued. In mid-January, barricades were set up at the Pasig plant. Soon after, J.D. Harper, president and general manager of Mattel Philippines, announced that its Hawthorne-based parent firm was shutting down all Philippine operations. He cited the company’s “worldwide situation” and the “loss of confidence in our ability to manufacture toys in the Philippines.”

Despite appeals from Philippine Labor Secretary Franklin M. Drilon, Mattel stuck to its decision.

The effects are considerable. Mattel’s operations were sizeable, producing about $75 million for the Philippine economy over the past 10 years. The shutdown has hurt suppliers and subcontractors who made Barbie doll parts. Beyond that, Mattel’s departure has added to the country’s image problems. Despite the improved stability of President Corazon Aquino’s government, foreign businessmen remain concerned: They worry about the 20-year-old communist-led insurgency, the entrenched inefficiencies in the government bureaucracy and the perception that Filipino workers are rowdy unionists who can’t be kept in line.

In fact, labor unrest--as measured by the number of work stoppages--has been on the decline. From a peak of about 580 strikes in 1986, the number went down to 420 last year, finally breaking a trend of growing worker unrest that started in 1984, prompting government officials to say that “the worst was over.”

Part of this cooling down was caused by improved economic performance. The Philippine gross national product grew by about 5% in 1987, after a 1% growth rate in 1986 and negative growth rates in 1984 and 1985.

Also, late last year, Aquino came down hard on striking unions and ordered the police and military to dismantle illegal barricades at strike-bound companies.

While that crackdown won praise from business and may have forced unions to exercise greater caution, it also produced excesses. The police and military were criticized for indiscriminately removing picket lines, illegal or not. This further politicized the labor scene, increasing the tendency for local union-management disputes to become skirmishes in a larger political conflict.

Early this month, a Labor Department official was killed--in daylight in front of his office building--by an urban assassination team, known here as “Sparrow Units,” of the communist-led New People’s Army,

The official had become a target because of his reputation for his “pro-management” decisions. He had served injunctions against several striking unions in recent months. Enforcement of these orders resulted in several violent clashes at the picket lines and the killing of at least one worker.

The Mattel dispute, however, does not appear to have been part of any communist conspiracy to punish foreign companies. It seems more like a case of a union, feeling that its back was against the wall, going for broke--and losing.

The company had warned the union in early 1987 of bad times to come because of a worldwide slump in the market for its toys. Yet the union could not absorb the shock of the Cainta closure and the sudden loss of jobs among nearly half the work force.

Union president Romeo Dionisio said the workers simply could not understand why the company had laid off so many. Mattel Philippines had just negotiated a new agreement with the union in October which, among other provisions, raised the minimum pay of workers to about $5 per day.

Fresh in the workers’ minds was the fact that barely two years ago, production was brisk and the work force reached a peak of 6,000 employees in August, 1986.

But that was before the bottom fell out of the world toy market. Virgilio Payongayong, industrial relations director of Mattel Philippines, explained that 1986 turned out to be a bad year and 1987 was even worse.

Mattel’s fortunes had slipped so much that the disruptions caused by union protest actions had no real impact. Inventories were still high and the loss of output was barely felt, a company official said. The union apparently overplayed its hand. With demand soft and the firm’s other plants in Asia working at far less than capacity, Mattel had plenty of options; the threat of continued protest gave the union no bargaining leverage.

The union did raise two interesting issues beyond the Mattel case. First, it said that the recent pay raises given employees were a major factor in Mattel’s decision to close shop. These increases came from the new contract and a new wage law passed by the Philippine Congress that raised the legislated minimum daily pay by about 17%.

Second, the union charged that after the 10-year tax holiday enjoyed by Mattel under the country’s investment incentives law expired last December, the company closed shop to avoid having to pay taxes starting this year.

Mattel officials brushed off such allegations, claiming they were “beside the point.”

Still, the impact of the pay increases cannot be ignored. Mattel had already relocated some manufacturing in China, Malaysia and Hong Kong to take advantage of lower labor costs in those countries. The firm recently closed a plant in Taiwan, where labor costs have been climbing to meet rising living standards and appreciation in the Taiwanese currency.

Now the Philippine government is rethinking the whole idea of using cheap labor as a major, if not the main, come-on for foreign investments. The appeal of that sales pitch is fading. Tomas Alcantara, vice chairman of the Board of Investments that oversees incentives to new enterprises, said recently that the government wants to move away from the emphasis on cheap local labor to focus instead on improving the productivity of the Filipino work force.

While Mattel’s shutdown was more dramatic than other cases, its problems are shared to one degree or another by other export-oriented companies. The Philippine government stresses exports to finance growth and pay off a massive foreign debt.

Closures are part of the game of business. But the volatility of markets make such events particularly wrenching for export-oriented ventures. Abrupt shifts in overseas markets, from either changes in demand or protectionist barriers, tend to place intolerable strains on labor-management relations in affected companies.

Unemployment is especially traumatic here; the reimbursement safety net that operates in developed countries does not exist in the Philippines.

Mattel did at least agree to pay a separation benefits package. Now the problem for displaced workers is finding another job. Uncertainty is what sometimes transforms local job cutbacks into larger, bitter, national disputes.