Tag: Europe

OM in the News: Europe Is Embarking on a Mining Renaissance

 Governments and companies around the world are scrambling to secure resources needed to power the energy transition, but some European countries are now thinking it may be better to look closer to home, reports The Wall Street Journal (Aug. 10, 2023). Copper, lithium, nickel, and rare earths are all key minerals crucial to powering wind turbines, electric vehicles and other clean tech, but largely have been imported from abroad in recent decades.

With demand for critical minerals surging, European governments want to exploit resources closer to home.

“No doubt there is a real demand story,” said a mining expert. “We are talking about a 35-fold increase in lithium demand and we do not have any large-scale lithium mines in Europe. It’s a massive problem.” But as governments fast-track approvals on such projects and struggle to convey the importance of efforts to secure materials for the green-energy transition, resistance is growing among locals who stand to feel an impact and environmentalists who urge caution when moving forward with projects in sensitive ecosystems.

In Germany, Vulcan Energy Resources is looking to open a lithium mine, harnessing a new technology for extracting the battery metal from brine. In Sweden, Copperstone Resources is hoping to reopen a brownfield mine site to extract the red metal, while Adriatic Metals has just started mining for silver and zinc in Bosnia, with more projects planned from Finland to Greece. In Portugal, Savannah Resources is planning  to dig out one of Europe’s richest lithium deposits.

In Europe, the mining renaissance comes after years of nearly no new mining activity on the continent. Usually, opening a new mine takes 10 to 15 years, often because permitting can take years. Local backlash against new mines isn’t uncommon. The industry has a long history of environmental destruction, poor relations with local communities and deadly disasters. In 2021, local opposition derailed Rio Tinto’s lithium project in Serbia.

However, governments want and need a secure supply chain of metals and minerals. Most critical minerals are processed in a relatively small number of countries with the threat made more apparent last month after China said it would introduce export restrictions to germanium and gallium—two critical minerals used to make semiconductors. Prices skyrocketed as consumers were suddenly unsure if they would have the raw materials needed to make chips for cars, phones and other tech.

Classroom discussion questions:

  1. What is China’s role/position in the rare earths and minerals supply chain?
  2. What is the status of that supply chain in the U.S.?

OM in the News: European Manufacturers Shift to the U.S.

“A big winner from the energy crisis in Europe: the U.S. economy,” writes The Wall Street Journal (Sept. 22, 2022). Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

Steelmaker ArcelorMittal is cutting production at two German plants

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what could be a new era of deindustrialization, the U.S. has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.  “It’s a no-brainer to go and do that in the U.S.,” says the CEO  of Amsterdam-based chemical firm OCI NV, which just announced an expansion of an ammonia plant in Texas.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by the U.S. on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Danish jewelry company Pandora and German auto maker VW announced U.S. expansions earlier this year, while Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits in the U.S. And Luxembourg-based ArcelorMittal said it would cut production at two German plants after reporting better-than-expected performance in its Texas facility that makes a raw material for steel production.

Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce. Many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is “how long can that last?”  The continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent. European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S.

Classroom discussion questions:

  1. If you were an operations manager at a European manufacturer, what would be your 2023 strategy?
  2. Is the U.S. advantage temporary?

OM in the News: Disrupting the German Auto Supply Chain

Concern is rising in Europe’s automobile heartland about the economic impact of the industry’s move to electric vehicles from gasoline-powered cars, writes The Wall Street Journal (Aug. 16, 2019). Germany fears the country’s big car companies and rich ecosystem of suppliers is insufficiently prepared for the transition, and that their leadership may not be assured in an electric-car world. Assembling electric cars isn’t as complex or labor intensive as making traditional vehicles and relies partly on imported technology. And China has made rapid forays in electrification and is shaping up as a potentially formidable competitor in the field.

The trepidation is particularly acute in the city of Stuttgart, hub to one of the country’s biggest automotive clusters. The German auto industry employs 870,000 people nationwide, almost half in Stuttgart. They work at companies including Robert Bosch, piston-maker Mahle, and hundreds of smaller businesses that form the region’s auto supply chain. Trade union leaders fear that too few auto suppliers are taking steps to prepare for the huge changes that will come as the industry’s focus shifts even more toward electric vehicles.

And it isn’t just Germany. There are 309 automotive production and assembly plants across Europe, of which 72 are engine plants. The sector supports 13.8 million jobs in Europe, or 6% of total EU workforce and 11% of all manufacturing jobs.

The prediction is that fuel-powered cars will make up just 56% of new cars sold by 2030, down from 95% now. The biggest shift will be in Europe, where regulators are pushing tough restrictions on greenhouse-gas emissions.

Classroom discussion questions:

  1. Is this an issue that will impact the U.S. auto industry heavily also?
  2. What approaches should suppliers be taking?

OM in the News: The European Meat Industry’s Supply Chain Dilemma

Europe is internationally known for its commitment to the environment and fighting climate change. “But there is still a business that continues to embody the recklessness of a bygone era of pollution and destruction: the European meat industry,” reports Mighty Earth (March, 2018). The meat industry relies on massive quantities of soy for animal feed to raise livestock: about 3/4 of the world’s soy is used for animal feed. An area 3 times the size of Germany is dedicated to growing soy in South America, with over 30 million tons of soybeans making it to Europe annually. Deforestation is the result of a supply chain that starts on the South American frontier and ends on European plates.

Large agribusiness companies like Cargill and Bunge are bulldozing and burning thousands of hectares of an ecosystem region spanning Argentina, Bolivia, and Paraguay to make way for industrial soy.  Waterways have become polluted, and local communities report a surge in birth defects, cancers, and respiratory illnesses in not only children, but pets and livestock as well.

The total emissions associated with the conversion of South American forest and grasslands to croplands is over 3 billion metric tons of carbon dioxide between 1985 and 2013, more than 4 times Germany’s annual carbon dioxide emissions from fuel combustion. And this trend has been accelerating. Argentina alone lost 22% of its forests between 1990 and 2015, mostly to establish soy farms.

One of the reasons why the agribusiness companies’ policies and actions are so important is that they are operating in a frequently lawless environment. In Argentina, licenses issued by the local government have illegally authorized the deforestation of 150,000 hectares of protected forest, leaving soy businesses to clear land with impunity. But they would not have an incentive to do so if European companies were unwilling to buy deforestation-based soy in the first place. Despite Cargill and Bunge publicly declaring their commitment to eliminating deforestation from their operations, it has continued to occur in their supply chains.

Classroom discussion questions:

  1. Should soy-farming sustainability be an OM concern?
  2. What can be done to minimize the impact on South American ecology?

 

OM in the News: Cutting Auto Overcapacity in Europe Isn’t Easy

auto wagesWith auto makers’ collective losses of $6.5 billion in Europe last year, companies are fighting tough union regulations to cut capacity, reports Businessweek (March 11-17, 2013). But Europe’s long history of worker protections means carmakers can’t simply fire employees or close plants when business sours. Workers in France, for example, must be extensively consulted beforehand. The process can take years and often results in political pressure to delay any job curbs—as has been the case with Peugeot’s proposed reductions. German labor law grants union representatives half the seats on companies’ supervisory boards—giving them considerable power to slow job cuts. Even when an automaker stops production at a plant in Europe, shutting it can take years because of worker protection laws. Fiat, which closed its factory in Sicily in 2011, still has some 850 people on temporary layoff arrangements on its payroll.

Peugeot is struggling to push through plans to eliminate about 20% of its workers in France. Ford aims to shutter two factories. Peugeot is fighting unions in court in Paris to shut a factory and cut 11,200 jobs. Labor is also fighting GM’s plans to close a German plant. Even if automakers succeed with the 5 factory shutdowns they’ve announced, their efforts may fall short of what’s needed. With sales and capacity utilization continuing to drop, they need to close 10 factories to restore profitability. Currently, 20 European automakers are running at less than 50% of capacity.

That’s in stark contrast to what happened in the U.S. after the government rescued GM and Chrysler in 2008 with an $80 billion bailout. The American industry’s recovery was made possible by job cuts, plant closings, and a UAW union agreement to half wages for new workers and eliminate traditional pensions and retiree health care. Today the 3 American automakers run 28 assembly plants in the U.S., vs. 36 in 2007. Employment at all U.S. auto factories fell to 524,200 in 2009 from a peak of 1.16 million in 2000, but by 2013, it had recovered to 662,300.

Discussion questions:

1. Why are automakers losing money in Europe?

2. What options do operations managers have when facing overcapacity at their plants?

OM in the News: Overcapacity Hits the European Auto Makers

About 3 years behind the crash of the US auto industry, Europe is now facing the same dramatic issue of too much manufacturing capacity, our topic in Supplement 7. Europe’s auto industry has suffered declining passenger-car sales in each year since 2008, and is on track to absorb an at least 7% drop this year. All told, auto makers there are selling about 20% fewer cars than they were in 2007, leaving many with mounting losses and far more plants, workers and production equipment than they can keep busy. “Europe is a mess,” says a leading industry consultant in yesterday’s Wall Street Journal (June 22, 2012)

please click on the graphic to enlarge

Powerful labor unions and most European governments have been fighting efforts to close plants because of the jobs that are lost. As a result, auto makers keep their factories open but cut their hours and assembly-line speeds to reduce production. About 30 of the 98 European auto-assembly plants  are operating below 70% of their capacity, levels that typically cause plants to run up significant losses.

Hyundai, an exception,  is gaining share because of its low-cost production in the Czech Republic. Manufacturing labor costs in the Czech Republic, at an average €9.90 ($12.50) an hour, are below Italy’s €26.10, €35.60 in France and €34.30 in Germany.  Hyundai’s CEO for  Europe says some of his regional rivals are struggling because they either lack the scale or “make cars in countries with expensive and inflexible labor conditions.” Renault, Peugeot and Fiat each have a glut of factory capacity. When the Wall Street financial crisis hit in 2008, the two French auto makers took government aid packages that required them to keep plants in France open. Now they have some of the least used plants in Europe, at a difficult time.  Renault’s small-car plant in Valladolid, Spain, is operating at just 38% of its capacity.

Discussion questions:

1. At what capacity should an auto plant operate? What are typical US rates?

2. Why is capacity such an important OM topic?