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Outsourcing in the motor manufacturing industry :
Austrian report
Outsourcing in der
Fahrzeugherstellung : Österreichischer Bericht
The motor manufacturing industry and the automobile ancillary industry are an
essential industrial sector in Austria, with large export shares. During the last
decades the sector attained increased importance, as international
corporations established several subsidiaries, supported by industrial policy.
The development of an automobile-cluster has favoured the establishment of a
highly specialised component manufacturing industry.
Die Fahrzeug-Industrie und die Autozulieferindustrie sind ein wichtiger Industriezweig in
Österreich mit sehr hohen Exportanteilen. Während der letzten Jahrzehnte hat dieser Sektor an
Aufmerksamkeit gewonnen, als internationale Konzerne Produktionsstätten mit der
Unterstützung einer gezielten Indstrieansiedlungs-Politik errichtet haben. Die Entwicklung
eines Automobil-Clusters war die Grundlage für eine hochspezialisierte Zulieferindustrie.
Die Fahrzeug-Industrie und die Autozulieferindustrie sind ein wichtiger Industriezweig in Österreich mit
sehr hohen Exportanteilen. Während der letzten Jahrzehnte hat dieser Sektor an Aufmerksamkeit
gewonnen, als internationale Konzerne Produktionsstätten mit der Unterstützung einer gezielten
Indstrieansiedlungs-Politik errichtet haben. Die Entwicklung eines Automobil-Clusters war die
Grundlage für eine hochspezialisierte Zulieferindustrie.
1. Introduction
The Austrian motor manufacturing industry, as well as the producers of components for automobiles
and other vehicles were important beneficiaries from outsourcing-strategies of large motor
manufacturers mostly during the 1980-90s. Likewise, the main patterns of the motor manufacturing
industry in respect to outsourcing resemble very much those of the whole automobile industry.
The Austrian motor manufacturers are specialised in the production of specific vehicles and their
activities are carried out within the larger scope of a group of manufacturers which they belong to.
Throughout this study, “outsourcing” will be referred to as contracting-out specific activities as well as
acquisitions or mergers of company branches.
1.1 Outsourced activities in the motor manufacturing industry
The degree of outsourcing varies a great deal across manufacturers. Traditionally, outsourcingactivities focus primarily on the production of certain components for vehicles. Aside from this, makeor-buy decisions also take place frequently, but only on a project basis with a limited duration. These
buy-decisions are primarily made because of lack of knowledge or expertise of the motor
manufacturer.
1.2 Outsourcing of services
Outsourcing of services is an important feature in this context , they include “traditional” fields of
outsourcing, such as cleaning (offices, buildings, machines), plant canteens, security and waste
disposal. Other services relate to maintenance of plant installations, which require specific services of
electricians, locksmiths and other workers. However, development of components is also subject to
outsourcing. For example, engineering offices are instructed to develop and design specific
components or to design special construction.
1.3 Core-activities of motor manufacturers
During the last decades, primarily in the 1980-90s, a substantive change in the definition of coreactivities occurred, which resulted in the outsourcing-strategies of activities/services mentioned above.
The Austrian motor manufacturers followed the main trend in this industry by reducing the number of
production chains of their companies.
1.4 Modes of outsourcing
The Austrian manufacturers are mostly not free in choosing their own suppliers but are subject to
framework agreements concluded with the central company in this respect. However, the location of
the component-producers differ considerably. A large share of components is produced in specific
facilities of the central companies, others are mainly obtained from producers in Europe, which are
altogether fairly dislocated from the Austrian manufacturers. The production outside Europe is only a
small proportion. The share of component manufacturers located in Austrian varies to a great extent,
but may account up to 80%. Providers of services are based in the area of the motor manufacturer,
and the provision of services predominantly takes place within the location of the manufacturers.
1.5 Reasons for outsourcing
By considering the economic reasons for outsourcing-activities, it appears that the search for a greater
degree of specialisation and the ability to obtain economies of scale is the most important motive. Cost
advantages guide outsourcing or make-or-buy decisions, as the production of certain components that
cannot be produced cost-efficiently is contracted-out by the motor manufacturers. In respect to labour
costs, outsourcing-strategies are primarily respond to fluctuations in demand, respectively in the
phases of intensive production. However, another labour-cost related reason for outsourcing is that
smaller companies tend to have lower labour costs due to their company organisation.
4. Outsourcing and trade unions
The organisational structures of trade unions have not been altered by outsourcing-activities.
However, outsourcing-strategies may have an immediate effect on company bodies, especially works
councils. Representative bodies at the plant level are those more affected by outsourcing, rather than
trade unions. But the ultimate effect on employee representation on company level is very dependent
on the specific form of outsourcing. Their position is likely to be weakened through splitting-up of a
company or its production, and under certain conditions works councils even cease to exist. On the
other hand, central works councils are to be established, if two plants with works councils form one
economic entity.
When dealing with outsourcing trade unions and works councils focus on the representation of
employees’ interests. They see all forms of outsourcing as a threat to the employees, especially in
terms of job losses. In fact, trade unions/works councils not only oppose outsourcing-initiatives, but
also tend to refuse to include this topic into negotiations.
5. Outsourcing and employer’s organisations
Though outsourcing-activities are booming with an annual growth potential of 15-20% for the Austrian
economy, employer’s organisations so far have not been remarkably influenced. Nearly all companies
operating in the private sector are legally required to be members of the Chamber of the Economy
(Wirtschaftskammer Österreichs, WKÖ), thus the establishment of new companies due to outsourcing
has only minor effects on the internal membership structure of the WKÖ, if at all. Furthermore, the
Austrian economy is traditionally dominated by small and medium-sized companies, so that no
tendency towards smaller companies and thus no significant shift in the composition of the WKÖ in the
course of outsourcing-strategies of large firms is observable.
The WKÖ has not presented any statements in respect to outsourcing, but regards entrepreneurs as
free to opt for such strategies if deemed necessary. Experts at the WKÖ underline the long-term
effects of outsourcing, this means that despite short-term income reductions for employees,
outsourcing-strategies are an appropriate means to maintain workplaces and high levels of
employment.
Commentary
Despite the successful realisation of a capable automobile cluster, some future problems result from
the structure of its sales markets. The Austrian motor manufacturing and industry/automobile
(ancillary) industry has traditionally been linked to the German market and manufacturers.
Globalisation trends as well as the establishment of new production facilities in emerging countries
and new channels of sales require a strategy towards internationalisation by entering new markets. In
order to meet the increased price competition associated with the opening of Eastern European
countries, further innovations and quality-improvement of Austrian companies seem necessary
(Angelika Stueckler, Univ. of Vienna).