The Complexities of Relocation and the Diversity of Union Responses:
Efficiency-oriented FDI in central Europe
G Meardi, P Marginson, M Fichter, M Frybes, M Stanojević, A Tóth
1. Introduction
Drawing on research findings from a study of the operations of German- and US-owned
multinational companies in the automotive components sector in three central European
countries, the paper has two main aims. The first is to examine the widely invoked, but
loosely defined, claim that much foreign direct investment into central Europe in the
manufacturing sector involves relocation from western Europe, and thereby to refine the
conceptualisation of relocation. It is argued that in a sector where investment flows are
primarily determined by efficiency considerations, the EU’s eastern enlargement has
prompted the international reconfiguration of production, entailing complex multidirectional shifts in production across borders. Despite an apparent structural shift of
manufacturing from the old to the new member states (Pilat et al. 2006) and some media
alarm (e.g. ‘All roads in Europe are pointing East for carmakers’, Financial Times,
15/6/2006), relocation is a contingent, not a pre-determined, outcome. The second is to
present and account for the range of responses from trade unions, in central Europe but
also in the west, to this international reconfiguration of production. Appropriate trade
union strategies, it is argued, can be focused at the local as well as at cross-national level,
according to circumstances.
The paper is organised as follows. A first section will outline the different forms of
contingency that affect the nature of relocations and, subsequently, trade union responses.
The following ones will examine these factors in detail through sector-level information
on the automotive parts sub-sector and through company case studies: three sections will
discuss, respectively, sub-sector-level, company-and plant-level, and actor-level
contingencies. The conclusion will consider implications for the Europeanisation of
industrial relations in multinational companies.
2. The contingency of relocations
a) The complexity of relocation decisions
Despite widespread fears of, and attention to, the potential employment consequences of
relocation amongst the EU-15 the available evidence suggests that relocation in its
strictest sense, when productive activity is directly transferred eastwards from a location
in the old member states to one in the new, is relatively rare. Of the job losses arising
from company restructurings across Europe documented by the European Monitoring
Centre on Change, around 5 per cent are attributed to relocation over the period from
2003 up until the end of 2005. These involved over 70,000 redundancies in some 200
companies (Pedersini, 2005). Even if the EMCC, given its methodology based on press
reports, probably greatly underestimates the volume of restructuring cases, the proportion
of relocations is unlikely to be overestimated, as these are exactly the cases that attract
most media interest. An assessment prepared by the European Commission (2006: 65)
cites findings on the employment effects of relocation from selected studies relating to
Germany, Austria and the Netherlands. Estimates of job loss between 1990 and 2001
directly attributable to relocation in these countries varied between 0.3 and 2% of total
job losses.
In addition to ‘direct’ relocation, there is also scope for ‘indirect’ relocation. This is
where investment projects which might previously have been located in the EU-15 are
instead located in one of the new member states. Because of the dynamic nature of
investment decisions, and where to locate them, it is frequently less than clear cut
whether an indirect relocation has indeed taken place; hence there are no reliable
estimates of their possible magnitude. A further effect on employment comes from the
threat of relocation, which frequently has the effect of inducing cost-reducing and/or
efficiency-enhancing changes in existing operations in the EU-15 which themselves have
employment consequences. Examples include the high profile cases of Siemens in
Germany and Bosch in France, over the summer of 2004 (Pedersini, 2005). Again there
are no reliable estimates of the scale of such ‘threat’ effects available.
In order to understand both why actual relocations appear to be less widespread than
feared, but also to uncover the circumstances under which relocations – direct and
indirect – and the threat to relocate are more (or less) likely to be occur, it is productive to
adopt a contingent approach. The approach is based around a number of distinctions,
each of which has bearing on the scope for relocation, actual and threatened. The focus is
relocation of activities across borders within multinational companies, and not with
international outsourcing of production to independent suppliers in other countries (for
elaboration of this distinction see Galgóczi et al, 2005).
A first distinction is between market- and efficiency-oriented motivations for foreign
direct investment (FDI), in which the potential for relocation largely arises under the
second. An important part of inward investment into the new member states is ‘market
seeking’ in nature, motivated by the opportunity of opening up new markets for products
and services (European Commission, 2006: 64). Such investment by its nature is market
expanding, and the largest share involves service activities which by their nature need to
be produced close to the point of consumption. Scope for relocation is minimal and jobs
may actually be created for some functions in western sites. In contrast, efficiencyoriented FDI is motivated by considerations of comparative labour costs and/or labour
quality and/or labour productivity, in which companies are looking to take advantage of
superior unit labour cost conditions in the new member states as compared to those
prevailing in the EU-15. Given significant differences in labour costs, the presence of
workforces with established skills and qualifications, and improving labour productivity
amongst the new member states (Marginson and Meardi, 2006), the resulting scope for
relocation is potentially extensive.
Second, a crucial distinction has been drawn between a first wave of efficiency seeking
FDI into the new member states, which involved outward processing activity based
almost exclusively on the search for cheap labour, and a second wave, in which the
emphasis is on labour quality, flexibility and productivity as well as costs (Fichter, 2003;
Radosevic et al., 2003; Rojec and Stanojevič, 2001). This structural shift in the nature of
efficiency-oriented inward investment into central eastern Europe, which has been
underpinned by declining unit labour costs as productivity has risen faster than wages,
has been widely documented (e.g Graziani, 2002; Ladó, 2001; Tholen and Hemmer,
2005). The Czech Republic and Hungary in particular have increasingly specialised in
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medium-high technology manufacturing: the share of high and medium-high technology
in total gross value added in these countries rose from 6% in 1994 to 10% in 2002,
against an unchanged average of 8% in the EU (Pilat et al. 2006). Whereas the first wave
essentially involved the transfer of labour-intensive, low skilled operations, the second
wave of efficiency seeking investment involves the reconfiguration of production
networks in Europe. This results in a more complex reorganisation of activities across
different locations than the direct relocations associated with the first wave of efficiencyoriented FDI. As both Galgóczi et al (2005) and Pedersini (2005) recognise, it becomes
more difficult to assess the employment impact, either overall or at specific locations.
Moreover, given the role of human capital in second-wave activities, employer
commitment to the workforce (including job security and scope for social dialogue and
compromise) tends to be stronger.
Third, the nature of these international production networks and the role of new and
acquired sites in the new member states within the network is likely to have a bearing on
the scope for relocation. Considering the nature of these networks, three possibilities can
be identifed. The first two flow from the possibilities that the twin processes of market
integration and enlargement open up for multinational producers to simultaneously
segment and coordinate their operations on a pan-European scale. As a result numbers of
MNCs are radically adjusting their ‘value chains’, in which different activities are
segmented across borders, depending on skills and cost considerations (Kaplinsky, 2001).
Such segmentation can vary in the extent, if any, of the vertical integration of sites within
the international production network that it involves. This can range, first, from instances
where sites solely supply other sites that are final assemblers of products (which we call
segmentation) to, second, those where each site is itself the source of distinct products for
the market, and sites compete for product mandates from the multinational parent (which
is best defined as segregation.) Edwards and Zhang (2006) draw attention to an
alternative logic for organising international production networks.This third possibility
involves standardisation of production at a series of different locations that are
comparable to each other. This is ofclear relevance in the service sectors where FDI is
motivated by market access. But they show that it is also relevant in those parts of
manufacturing under two conditions. The first is where products might be perishable
and/or transportation costs high and/or major customers require just-in-time delivery or
after-sales service, conditions which are consistent with a market access logic for FDI.
The second is potentially relevant to efficiency-oriented FDI, and arises where production
is technologically difficult to separate across borders. An example is large machinery
manufacturing, where segmentation is not pursued. Relocation could occur if unit labour
cost considerations prompted the establishment of a parallel operation in the new member
states to source part of the enlarged European market. In other words, the similarity of
sites across borders can lead to direct competition, relocation, and possibly vertical
restructuring if a segregation strategy is followed; to coexistence, but under conditions of
ongoing review of product mandates, if a segregation strategy is preferred; and to the
establishment of new capacity, with potential future relocation consequences, is a
strategy of standardisation is pursued.
A fourth consideration is the extent to which location decisions of companies are
autonomous, or are driven by those of major customers. In some sectors, such as
automotive components, the location decisions of powerful customers who demand just-
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in-time delivery effectively require suppliers to follow them to new locations (UNICE,
2005). In other sectors, companies have greater discretion over the choice of which
locations to supply their customers from.
Fifth, the potential for relocation is far from being bounded by the enlarged borders of the
EU; relocation has a global as well as intra-European dimension in which some
production activities (not all low skilled) are moving to Asia, North Africa or extra-EU
European countries. The extent to which there is scope for extra-EU relocation would
seem likely to vary between and within sectors, according to factors such as technology,
skill requirements and the need for proximity to major customers.
b) Implications for union responses
Potential union responses to relocation have been distinguished, in an actor-centred way,
by Erne (2004) along the twin axes of democratic/technocratic and European/national. In
drawing on this framework an analytical – as against normative – approach to actors’
strategies must, as urged by Ramsay (1997), be sensitive to the contingencies affecting
both axes, such as product market, role of labour costs and vertical integration.
On the European-national axis, the nature of the product market (including the incidence
of labour and transport costs, and the degree of production standardisation, segmentation
or segregation) may make ‘European’ answers appropriate whenever the product market
more or less coincides with the European space. By contrast, where Asian competition is
stringent and relocation beyond Europe a distinct possibility, union interest in Europeanlevel action will be undermined. Alternatively when local production systems have a
degree of autonomy, the strategies of local ‘competitive solidarity’ (Streeck 2000) could
be most appealing.
On the democratic/technocratic axis, contrary to Golden (1997) the choice to mobilise
against job losses does not necessarily follow from a shortage of information, a
misunderstanding of the situation, or specific political conditions. In multinationals,
information on inter-site comparison may be available (e.g. through the EWC), and there
is potential for union cross-border information and therefore ‘informed’ democratic
strategies (events at Renault and GM Europe contain elements of this). The range of
available options depends on the seriousness of competitive pressures on labour costs
stemming from ‘coercive’ employer comparisons if they are weak, local development
strategies may be preferred to European solutions, while if they are extreme, there are
unlikely to be any market-viable solutions, and therefore political intervention remains
the only safety net. Only in mid-way situations of serious but not extreme threats, and
when the product market is European, will European answers be appropriate and viable.
In such situations there is potential for EWC intervention, starting from informationsharing in order to assess the real nature of the threats.
In addition, integrated production is more conducive of union strategic action; so too is a
degree of similarity of business activities across sites in different countries (Marginson et
al, 2004). An important implication is that, as argued by Huzzard et al., 2004, the
technocratic and democratic approaches can be combined, at both the local and the
European level.
Table 1 shows the effects of each contingency on union responses to relocations. The five
contingent factors are not mutually independent, though. The first, in particular, affects
the second, third and fourth. The second in turn affects the third and fifth. However, all
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should be considered in a multi-level analysis (sector, sub-sector, company). Higher level
constraints limit the choices available at lower level, but do not obliterate them, as the
variety detected in section 4 will illustrate.
3. The automotive component sector in the enlarged EU
Through a comparison of the motor, apparel, and maritime industries, Anner et al (2006)
highlight how union answers to international competition are sector-dependent. Here we
add the importance of sub-sector and geographic contingencies: the specific product and
labour-market contingencies on the one side, and the regional dimension on the other. In
this regard, the automotive component sector in the new EU member states differs from
both the motor industry as a whole, and from the ‘global’ and the former EU15markets.
As a whole, the automotive sector is considered as among the ‘winners of globalisation’,
due to its high fixed- and human-capital intensity. Its process of internationalisation has
allowed a specific form of trade union cross-border co-operation, focusing on firm-level
European (and in some cases global) works councils, which have coexisted with the
maintenance of national union strategies in each country in the form of pacts for
employment and competitiveness (Zagelmeyer 2000). Fixed capital means that labourcost driven relocation are not that a viable short-term option, and high human capital
involves space for employee ‘voice’ and participation, as well as the possibility of
defending high wages through high quality and productivity. As an effect, national-level
compromises have remained distinct in spite of converging global pressures (Katz and
Darbishire 2000.)
The opening of global markets and the increase of foreign direct investment in this sector
has reduced neither employment nor relative wages in the triad of core producers (Japan,
USA and Western Europe) between the late 1970s and the late 1990s (Spatz and
Nunnenkamp 2004.) In 2003, the opinion-making German magazine der Spiegel could
still title ‘Autoindustrie: die Job-Maschine’ (Spiegel, no 37, 8/9/2003), referring to the
major planned investments of Daimler, BMW, Porsche and Volkswagen within
Germany. Such a rosy picture, however, hides important sub-sector and regional
differences. Notably, the parts and components sub-sector (whose importance is
increasing due to the parallel process of outsourcing and value chain fragmentation)
reacts differently to globalisation than vehicle production. The degree of labour intensity
differs: in Germany, the ratio of workers to sale is 2.5 higher in the production of
autoparts than in that of automobiles and engines (Spatz and Nunnenkamp 2004.) Weight
and therefore the transportability of the product also differ: because they are more easily
transported, parts are more exposed to foreign competition.
The implication for trade unions in traditional car-making countries is that in the
component sub-sector it is more difficult to keep both high wages and employment.
Liberal-market economies such as the USA have witnessed an increase in intra-industry
wage differentials, while a country with centralised sector-level wage bargaining such as
Germany has avoided this but could not prevent a decline in employment in the
components sub-sector (ibidem).
This divergent intra-industry process must be seen in the context of internationalisation.
While in 1978/79 the German automotive industry imported only 6% of its inputs from
low-income countries, by 1997/98 the figure was 30%, and increasing (ibidem). The
main origin of these parts (over a half of electrical parts, and a rapidly increasing share of
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engines) is Central Europe. Internationalisation of automotive production chains does not
involve far countries (such as the Asian ones, where foreign direct investment in this
sector is market-seeking) but proximate, lower unit-labour cost countries within the
context of regionalisation: NAFTA and the enlarged EU.
In the new EU member states, the automotive sector is the most important industrial
sector for inward FDI, second only to financial services (which is mostly marketseeking.) Within this sector however there has been a clear transition at the end of the
1990s, with the progress of EU integration, at the same time as a ‘second wave’ of
investment replaced labour-intensive activities with more human-capital intensive ones
(Rhys 2004). In the 1990s, investment was mostly in car assembly using imported parts,
for market-access reasons (most Central European countries still had tariffs on car
imports.) In the 2000s, car parts and components rapidly gained importance and
overcame car assembly. This is particularly visible in Poland as well as in the Czech
Republic, where the government agency CzechInvest claims that ‘nearly every car
produced in Europe contains Czech-made components’ (as quoted in Sperling 2004:
190). EU access, by eliminating the last non-tariff trade barriers, has made cross-border
production reorganisation extremely easy, and 90% of components – as against 60% of
finished cars – produced in the region are re-exported.
Regional integration involving areas with much lower labour costs changes the
employment effects of internationalisation. While classic theories of trade assume mutual
advantages through specialisation, this holds true only between similarly advanced
countries. When countries differ strongly in their factor (labour and capital) endowments,
the adjustment pressure can be much greater. The analysis by Spatz and Nunnenkamp
(2004) finds that the negative correlation between share of imports in production and the
relative wage of low-skilled workers in Germany is stronger for automotive parts and
components than for automobile assembly. Not all automotive workers are among the
‘winners’ of globalisation, then. After EU enlargement, and only a year after its abovementioned confident analysis, the same German magazine had to headline ‘Bye-bye
“made in Germany”’ (Der Spiegel no 44, 25/10/2004.)
Yet the view – still frequently met among western experts and employee representatives
– of Central Europe as late industrialising (or even less developed) countries (and
therefore comparable to Mexico within NAFTA) is misplaced. Post-communist countries
were heavily industrialised and still have a large pool of skilled workers, even if technical
education has become less popular after 1989. Indeed, former Czechoslovakia, Hungary
and Slovenia are, in terms of employment, more industrialised than Germany, and their
market share in total OECD manufacturing market has doubled in 1995-2003 (Pilat et al.
2006). Even if in communist-times industry was lagging technologically, the shortage
economy paradoxically required, to compensate for the frequent lack of appropriate tools
or components, particularly flexible skills on the part of employees. This has been
quickly discovered by foreign investors. Volkswagen, which originally expected the
newly-acquired Skoda to be a low-segment platform, found that Czech employees were
even better qualified than its German ones and that Czech-made cars quickly
‘cannibalised’ its more upmarket western brands (Sperling 2004), while Fiat upgraded its
Polish factories to ‘models’ of innovation for the Italian ones (Meardi and Tóth 2006.)
Spatz and Nunnenkamp (2004) expectation that readjustment would concentrate high
human capital production in the West applies only to some niches. The low productivity
6
levels in aggregate of the new EU member states’ economies are due to the enduring
technological and infrastructure gap, and to the enduring weight of agriculture in some
countries, rather than to human capital. In the internationalised sub-sectors where
investment in technology has taken place, productivity has reached western levels very
quickly, leading to widening gaps in unit labour costs (Dyker 2004). Given the
competitiveness of human capital in CE, relocations are potentially more attractive in
human capital intensive productions than in other – because the impact of labour costs is
higher. The Czech Republic has quickly become the fourth most attractive country in the
world for R&D projects in the automotive sectors (Czechinvest 2005), but Slovenia and
Hungary follow close behind, with large companies such as Audi and General Electric as
frontrunners. It is likely that extra-EU owned companies (especially American) are more
prone to concentrate R&D in the new EU member states than west European ones, but in
the medium-long term it remains that competition affects all employee groups in the
sector.
Such competition manifests itself in forms that evoke the image of ‘social dumping’.
Large investors take their location decisions after tenders remaining ‘beauty tests’ giving
the impression that labour costs and employer-friendly labour regulations are crucial.
Local foreign investment agencies treat labour considerations as an important asset in
open competition with the neighbours: the Slovaks stress low overall labour costs, and
that the World Bank has awarded them the title of most flexible labour market in Europe
(www.sario.sk); the Czechs highlight the low indirect labour costs, that ‘there is no
history of large-scale strikes’, and that union membership has fallen from 2,292,000 to
610,000 (11% membership) between 1995 and 2005 (www.czechinvest.com); the Poles
are proud of having the longest working hours in Europe (www.paiz.gov.pl); the
Hungarians argue that they have the lowest earnings for highest productivity in the
Central and Eastern European region (www.itdh.hu).1
The implications for European trade unions are twofold. First, given the lower impact of
fixed and of transport costs, relocations are likely to be a greater threat for component
factories than for assembly ones. Second, cross-border restructuring could be expected to
lead to concentration of human-capital intensive production in western Europe, and of
lower skilled production in the cheaper new EU member states. Keeping in mind Anner
et al (2006)’s observation that in the automotive sector cross-border union co-operation
takes place at firm level, these implications would expose employee representatives to a
particular difficult situation . Not only would international competition be stronger, but
those auto-component workers working in smaller firms (excluding ‘mega-suppliers’
such as Delphi) would lack the stronger firm-level representation channels (e.g. EWCs)
of large car makers. Moreover, the geographic divide could overlap with professional
divides making cross-border understanding more difficult. Fichter et al (2004), while
studying German FDI in Hungary, had already noticed how international restructuring in
some cases changed the nature of the German sites’ works councils: from blue-collar to
white-collar dominated, leading to a changed union ethos and diminished mobilisation
capacity. In manufacturing, it has not always been easy for trade unions to combine the
representation of production workers, specialists, and white-collar employees. Indeed, in
some countries these categories are organised in different trade unions, and there have
been historical cases of direct opposition between the two (e.g. the Fiat strike in Italy in
1
All websites accessed on 24th July 2006.
7
1980 and the counter-mobilisation of clerical workers.) In an extreme scenario, western
EWC white-collar reps would sit alongside eastern blue-collar counterparts: they would
become less directly competitors, but also less able to understand each other on working
conditions and employment prospects. The evidence from Central Europe to date – as the
next section will show in detail – mitigates such a radical scenario, but does not provide a
rosier one: competition is widespread even if not in just one direction or on one
dimension.
To summarise, the automotive component sector is particularly interesting for
considering relocations for a number of reasons: it is regionalised rather than globalised
(90% of production sold in the EU is produced in the EU); both labour skills and labour
costs are important (lower capital intensity than car assembly), and human resources in
the new EU member states are comparable to the western European, while much cheaper;
foreign investment in this sector is purely efficiency-seeking (90% of production in
Central Europe is re-exported), more so than final car assembly. This makes this subsector different from others, where investment is market-seeking (e.g. food, services) or
only labour costs matter (e.g. apparel), and the enlarged Europe different from other
regional blocs such as NAFTA, where human resources are less similar. It is a valuable
test bed for the possibilities of negotiating and regulating international employee
competition.
4. Case studies from the new frontiers of European autocomponent production
As discussed in the previous sections, sector-level contingencies are integrated by
company-level ones, relating to both product- and labour markets. This can be shown
through the findings of research conducted from 2003 to 2005, involving a total of 12
plant case studies in the automotive component sector, four each in Hungary, Poland and
Slovenia. In each country, the research design contemplated two German- and two USowned cases, but in Slovenia (where the number of investors is not large) two cases are
actually hybrid, with a history of different investors from different regions. Interviews
were conducted with management representatives (plant directors, production and human
resource managers), employee representatives (either trade union or works council), trade
union officials, local actors and, where possible, management representatives at the
European headquarters and employee representatives on the European Works Councils.
Of the five contingencies mentioned in section 2, the first (efficiency v marketorientation) is constant within the sector, and therefore is excluded from the analysis. The
other four factors, together with the effects on relocation threats and industrial relations
responses, all appear to be relevant, as summarised in Table 1. Plants are indicated by an
acronym indicating home and host country (A: American, G: German, M: mixed,
followed by H: Hungary, P: Poland, S: Slovenia.)
Overall, across the case studies the examples of direct cost-driven relocations are rare:
three among twelve companies, and of these one was from Poland to western Europe, for
broader efficiency reasons than just labour costs. However, relocations as a threat and
coercive comparisons are a daily reality in most plants. In the most integrated companies,
it is usual for production teams to have open displays with their weekly production and
8
quality results compared to those of the other company plants.2 International competition
is a direct experience for most employees, and not just an issue for the strategic level.
The intensity of inter-site competition affects employees differently, though, depending
on the role of labour costs in investment motivation. In none of the case studies labour
costs are the only motivation: both employee representatives and, especially, managers
stress the importance of skills, supply network reliability, public incentives and tradition
(especially in the cases of brownfield investment). However, labour costs have played a
primary role in three cases, and an important one – besides others – in another seven. In
the former, relocation are an explicit issue in two cases (GH2 and, if on a minority of the
production lines, AP2) and an indirect issue in the third (AS), where inter-site
competition occurs in the form of contest for attracting future investment projects. This
form appears to be overall more frequent, and although less urgently critical, it remains a
constant consideration in industrial relations.
Competition for the new investment exists also in the seven companies where labour
costs are important, but beside other considerations such as quality and flexibility, while
actual incidents of relocations are rare (and in one case, AP1, from the East to the West).
At AH1 threats have materialised, first for blue collar workers and then also for white
collar ones (finance, accounting, logistics and customer service.) In the other three cases
relocations have occurred in the past (GH1, AH2) or are still currently threatened (GS).
In the other two (AH2 and MS2) relocation threats are rather remote or very indirect.
Finally, there are two cases (GP1 and MS1) where labour costs were a secondary
consideration in comparison to quality, development and flexibility. As expected, here
relocations are only remotely threatening.
The second important issue is location autonomy. Most of the case studies come from
rather autonomous producers of easily transportable components, and they have sufficient
market power to have an own location strategy. Only for two of them location choice
followed client choices (AP2 and GH2). As expected, relocations in these cases are
decoupled from employment relations considerations: in one case they are not an issue,
and in the other they are only within regional boundaries, in competition with
neighbouring countries but not with western Europe. In both, however, later upgrading
has increased the site autonomy. The situation can be obviously very different in the large
number of smaller, often second- or third- tier suppliers, which are not covered by our
research.
The third important company-level contingency relates to the degree of vertical
integration and standardisation. The process of outsourcing and fragmentation in the
automotive industry has been particularly fast since the mid-1990s, and combined with
the parallel process of internationalisation, causing strains on sector-level arrangements
and allowing diversification of employment policies for different segments of the value
chain, often located in different countries (Faust, Voskamp and Wittke 2004.)
In case of vertical integration, there can be organisational integration or deep
segmentation. This variable affects not only (in various way) relocation threats, but above
all the industrial relations implications. Vertically and organisationally integrated or
standardised companies relying on continuous transfer of semi-products, technology and
2
CE employees also frequently show their pride for their high position in such tables: for instance in Ger1
the Polish employees stressed how they outperformed their German colleagues on ‘Ordnung und
Sauberheit’ (order and cleanness.)
9
information between different sites, indirectly encourage stricter standardisation of work
organisation and a degree of industrial relations harmonisation. The continuous flow of
information and contacts, and the requirement for highly standardised production imply
that employment practices cannot be divergent. Research on the eastward extension of
the EWC (Meardi 2004, Voß 2006) has shown that these are the cases where avoiding big
cultural or employment conditions gaps between sites is in the employer interest, for the
sake of joint projects and common understanding of productive issues. More generally,
multinationals’ recent concern with business techniques such as program management,
benchmarking, performance measurement may lead to more general mutual learning
between stakeholders, and encourage ‘global strategies’ of ‘local players’ (Kristensen and
Zeitlin 2005). The situation is different in plants working on specific products or semiproducts, often allocated to them on the basis of cost considerations, with little
integration with other sites. Here, cross-border dialogue has less space to develop.
The company with the strongest operational integration, GP1, is also the one with the
strongest employee-side network of co-operation and information sharing. The
establishment in the Polish location of industrial relations more similar to the German
than to the Polish model is a welcome outcome for the corporation. Just as the company
actively promotes the use of the German language, cross-border contacts between works
councils and trade unions are seen as a tool to avoid conflicts and distortions of corporate
projects. A broader socialisation process, including corporate culture, takes place, and
even the EWC is instrumental in this goal. To a lesser extent this has occurred also in
GH1 – and interestingly, only after the Hungarian subsidiary had been substantially
upgraded. By contrast, plants such as GP2, AP1 and GS are entirely responsible for
specific products, and while they are in competition with some other sites, cross-border
co-operation is occasional, and mutual knowledge limited to little more than anecdotes,
stereotypes. Although GP2 is covered by a long-established EWC, the 500-employee
Polish plant in 2004 was still not represented in it, and the German works councillors did
not see their integration as a relevant issue.
A final factor affecting both the extent of relocation threats and the forms of employee
responses is competition with extra-EU sites and – more indirectly – competing
companies. Direct competition with China subsidiaries is most compelling in AH1, while
GP2, GH2, AS feel the pressure from cheaper Eastern European locations: Romania,
Ukraine, Croatia. The emergence of this problem is relatively new and combined with the
already mentioned process of transition from ‘first’ to ‘second-wave’ FDI at the end of
the 1990s. At GH2, for instance, relocation of part of the production to Romania in 2003
came as a shock and changed plant-level industrial relations that had been previously
improving. In these cases, EU-level institutions such as the EWCs become largely
redundant, because they do not correspond to the geography of the product market. While
in the case of Romania, and to a lesser extent other European countries such as Turkey
and Ukraine, an extension of the EWC is realistic, when competition is with Asia the
difference between Europeanisation and globalisation of industrial relations (Müller,
Platzer and Rüb 2004) becomes apparent, and Hungarian employee representatives at
AH1 feel very distant from their western European counterparts.
To conclude, the four company-level factors examined all exert some effects on the
problem of relocations, determining both the nature of the threat to employees and – for
the last two contingencies, i.e. vertical integration and extra-EU competition – the space
10
for employee responses. The latter will be examined in the next section, to assess if
further, actor-level factors need to be considered.
5. Trade union responses
While in aggregate terms the significance of relocation threats is more limited than in
popular representations, in those situations where the threat - with its often dramatic
social implications – is real the answers by trade unions are important for both the
understanding of local outcomes and the possible further developments of union
strategies as strategic actors.
Removing from the analysis the three case studies where the relocation threat is currently
only remote (AP1, AH2, MS), we are left with nine cases where the capacity for crossborder employee reactions and arrangements varies sharply. Four different scenarios are
particularly clear.
One extreme, if isolated, case, which may be labelled as ‘pro-active’ strategy, is detected
in GP1: here there has been an early union engagement in internationalising companylevel industrial relations, through the European Works Council, a global works council,
and a number of other international projects which translate into daily contacts through
specific international teams on both works council and management sides. An important
limitation of such strategy is that it does not cover the Chinese operations – but these are
mostly market-seeking and therefore not in competition with European sites.
Management, as already mentioned, has supported such efforts. The main strategy is an
attempt at exporting the German model rather than defending it at home, and to enforce a
spirit of ‘fair competition’ between sites. Through early consultation and information
sharing, important investment in the NMS has not involved job cuts in the German sites –
although these have come later under strong competitive pressure. According to the
German works council, investment in the East has, through market expansion,
createdthousands of new jobs for the German plants, although the net, direct employment
effect is impossible to determine precisely. All investment decisions abroad have
obtained preliminary approval from the German works council and have been discussed
in the European Works Council. Such international procedures explicitly exclude,
however, the discussion or negotiation of wages.
Union engagement also took place in the case of the similar plant GH1, although in this
case it was slower, and it was initially resisted by management. Company-specific factors
that allowed consensual expansion of western solutions were missing, and therefore some
preliminary ‘organising’ effort (as against a ‘social partnership’ approach) was required.
Also, in this case a net negative employment effect for groups of German employees
could not be avoided, and location decisions had not been subject to consultation. GH2
resembles this second scenario of co-operation through organising, even though in a more
difficult market situation.
An opposite, more defensive strategy from German unions is detected in GP2, another
large German company, andprovides a third scenario. The Gesamtsbetriebsrat chair
defends German arrangements rather than proposing their extension eastwards, arguing
that ‘fifty years of union experience cannot be acquired in ten years’ (our interview.) A
similar argument is used about production, to defend German employment: ‘in terms of
productivity you can’t compare people who have 200 years of industrial experience with
people who have nearly no industrial experience’ (ibidem). The German union has had
11
some success through local strategies: it has negotiated restructuring in several German
sites and obtained (through a mix of resistance, mobilisation, expertise and political
exchange involving local authorities) some social guarantees, but could not avoid
continuous cost competition from Central Europe and cuts of hundreds of jobs directly
due to relocations eastwards. The European Works Council is active but in a rather
‘reactive’ way, with no negotiation role. In 2004, it already covered some operations in
central Europe (those more vertically integrated with the German ones), but not the
Polish plant, of 500 employees, on the grounds that it was not in direct competition with
German sites (although it is with Spanish, Italian, French and especially Turkish sister
factories.) In spite of business similarities with the two previous case studies, the
different degree of vertical integration and of geographic competition has meant that EUlevel cross-border employee co-operation has had much less space to develop. The
company, in spite of its business being definitely global, has an adaptive approach in
industrial relations, which in turn promotes local union strategies rather than coordination. The German views mentioned above are reflected by similar – and equally
misinformed - views among Polish staff about their German counterparts. Defensive
views in this case lead to a scenario of weak or missing cross-border links. AP2, a nonunionised factory where Polish workers deem trade unions to be ‘western luxuries’, can
also be associated with this scenario.
A fourth scenario is that of competition and diffidence. One of the case studies (AH1)
includes experiences of tensions between western and eastern employee representatives,
which were catalysed by the apparently technical issue of how to share seats in the
enlarged EWC. Here, inter-site competition operates not only on employment and
relocations, but also through ‘coercive comparisons’ on employment conditions, with for
instance management trying to introduce ‘Polish practices’ in an Italian plant against
local union resistance. Diffidence among western trade unions towards their eastern
counterparts is even more apparent than at GP2, with questions raised as to whether ‘they
are really unions’. Europeanisation through the EWC had worked well within western
Europe, but is struggling to cope with the new geography of production, including the
company decision to relocate their European headquarters from Spain to Hungary and the
increasing direct competition from Chinese subsidiaries.
We finally have to add the rather specific situation of the Slovenian plants (AS, GS and
MS2), which does not fit with any of the above-mentioned scenarios. Here, trade unions
are relatively strong, organisation is quite internationally integrated, but company-level
cross-border links are still rather weak. The reason may be similar to the one that has
discouraged Scandinavian unions from Europeanisation for some time (Andersen, 2005).
Labour strength in Slovenia is rooted in the national industry and in national-level
arrangements. Unlike in the other central European new EU member states, union density
and influence is weaker in multinational companies than in domestic ones. The path
towards Europeanisation may be then perceived as a risky undermining and departure
from the traditional and safer national arrangements. The actor-level contingency which
operates here is linked to national socio-political conditions.
The findings are relevant for discussions on the Europeanisation of labour and of
industrial relations. Our findings show how sector and company contingencies affect
actors’ strategies on both axes suggested by Erne (2006): democratic/technocratic and
European/national. Such contingencies explain the variety of union reactions even within
12
the same trade union in the same country (e.g. IG Metall), in spite of the apparently
common institutional and ideological background (see GP1 and GP2). Unions in
vertically integrated companies with product markets closely overlapping with EU
boundaries will embrace Europeanisation as an appropriate response more readily than
others. Also, direct inter-site cost competition and location autonomy will lend itself to an
‘organising’ approach (labelled as ‘democratic’ in Erne’s framework.) Other, more
autonomous and development-oriented sites may tend to strategies of local ‘competitive
solidarity’, including risks of concession bargaining. A problem with these situations is
that such strategies tend to be self-enforcingly path-dependent and keep being followed
even when their efficacy is declining, preventing the development of more courageous –
but initially risky – lines, as seen in GP2.
As to union strategies, the findings suggest that often much can still be done to increase
cross-border information, and so far only integrated production networks have been
conducive of union strategic action (e.g. GP1). Also, as argued by some recent
comparative studies (Huzzard et al. 2004), technocratic and democratic approaches
appear to be compatible, at both the local and the European level. Steps in this direction
are detected at GH1, GH2 and AH2, where period of ‘organising’ and of ‘social
partnership’ have alternated and have both been instrumental for union development
(Meardi 2006).
6. Conclusion
Instances of relocation are infrequent, even in a sector marked by considerable flows of
efficiency seeking FDI into the EU’s new central European member states. Cases of
indirect relocation (involving decisions on where to locate new investment projects)are
more common. The threat of relocation is, however, a widespread phenomenon. A major
reason accounting for the gap between threats and actual instances of relocation is that
the threat to relocate has real effects, resulting in concessions at established sites which
themselves diminish the potential benefits of an actual relocation for multinational
producers.
The nature of the threat and occurence of relocation emerges as a contingent one. The
five contingencies examined proved influential: investment motivation (mostly sectorlevel), labour costs influence (sub-sector and company levels), location autonomy
(company level), vertical integration (company level) and extra-EU competition (subsector and company levels.) In particular, the latter two affect the potential for crossborder union responses. As relocation threats are contingent and actual instances are
mostly indirect, time is available during which unions can elaborate responses. The
implication of our analysis is that there is no ‘one best response’, but rather a need for
evaluating each situation. In particular, a ‘European’ response should not be seen as
necessarily the best: depending on the circumstances it may be unviable, suboptimal or
even inappropriate. The paper has illustrated the different situations through case study
examples. Being plant-level studies from a non-representative sample in one sub-sector,
they should be treated as indicators of a minimum degree of variation, rather than an
exhaustive representation.
The findings demonstrate that the scope for local actors’ ideologies and strategies is not
obliterated, but must be located in the contingent constraints they face in order to avoid
misplaced prescriptions. Notably, actors’ ideology (and history) still plays a role in
13
explaining the higher propensity for technocratic answers in the East than in the West:
trade unionists in the new EU member states are generally better educated than their
western counterparts, and much less prone to call a strike. Also, union strategy is
detectable in some ‘offensive’ (as against reactive) use of the EWC (GP1), as well as in
local strategies of upgrading (AH1). The importance of indirect competition has not led
to open, structural competition between eastern and western sites, but to a more variable
geography of situations where the competing sides may be shifting. Cross-border
information sharing on the union side is still not common, but in those companies where
it takes place, there are margins for ‘negotiated competition’ (Kädtler and Sperling 2002).
East-west union co-operation within multinationals is still at a very early stage of
development and faces serious structural constrains. Even in famous cases of crossborder mobilisation such as Renault (1997) and General Motors (2005, 2006) the
participation of sites from Central Europe was limited by regulations (no right to
solidarity strikes), implicit competition (the eastern sites were objectively benefiting, at
least in the short term, from restructuring in the west), and insufficient interests (the
Polish union leaders at Opel acknowledged that they would never win a strike ballot in
solidarity with German colleagues.) However, open conflicts have been avoided, and
mutual understanding and support have been growing. In the cases of competition,
EWCs’ most common strategy has been that of avoiding forcing the situation through
majority voting, in the hope that time will narrow the distance between the different sides
(Carley and Hall 2006). In the meanwhile, the scenarios popular in the media of a radical
‘new international division of labour’ within Europe or of ‘wild competition’ and ‘social
dumping’ are hardly borne out by the paper’s findings. The evidence is, so far, extremely
varied, and at least in sectors where fixed costs are important a number of both local and
international strategies are available to harmonise the pace of economic restructuring
with that of social acceptance.
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Table 1
Contingent factor
FDI motivation (efficiency v
market)
Human resources
consideration (skills v cost
priority)
International configuration of
production (standardisation v
segmentation/segregation)
Location decision
(autonomous v dictated by
customers)
Extension of product market
(EU v global)
Level
Sector
Implications for union
responses to relocations
Seriousness of threat
Sector, sub-sector
Potential for social
compromise, dialogue
Sub-sector, company
Degree of competition and
of international
integration/socialization
Level of response
(company or
sector/political)
Suitability of European
response
Sub-sector
Sector, sub-sector
17
Indirect
Cross-border
union
responses
Relocation
threats
Relocation
incidents
Exposure to
extra-EU
competition
Integration
Location
autonomy
Plant
Primary
competitive
advantage
Table 2 – Case study summary: company contingencies and EWC effects
GP1
Poland
Germanowned
Quality
Yes
Very strong
(standardisation)
No
GP2
Poland
Germanowned
Cost
Quality
Yes
Weak
(segregation)
Yes:
Turkey,
Eastern
Europe
West-toEast
Direct &
indirect
AP1
Poland
US-owned
AP2
Poland
US-owned
Cost
Quality
Flexibility
Cost
Yes
Weak
(segregation)
Yes
East-toWest
Remote
indirect
Partial
Medium
(standardisation)
Yes
Limited
West-toEast
(on few
lines)
Indirect
None, no union
Scenario: national defence
GH1
Hungary
Germanowned
GH2
Hungary
Germanowned
AH1
Hungary
US-owned
Cost
Quality
R&D
Flexibility
Cost
Yes
Very strong
(standardisation)
No
Strong
direct &
indirect
Partial
Medium
(standardisation)
Yes:
Eastern
Europe
Direct
Strong
Local organising
Scenario: Euro-local
organising
Medium
Scenario: Euro-local
organising
Cost
Quality
Flexibility
Yes
Very weak
(segregation)
Yes:
China
West-toEast
Direct &
indirect
AH2
Hungary
US-owned
Cost
Quality
Yes
Very weak
(segregation)
No
West-toEast (one
incident)
Remote
GS
Slovenia
Germanowned
AS
Slovenia
US-owned
MS1
Slovenia
Domestic
(formerly
German)
MS2
Slovenia
UK-owned
(formerly
Austrian)
Cost
Quality
Flexibility
Yes
Weak
(standardisation)
Yes
Direct
Weak
Scenario: Euro-scepticism
Cost
Yes
Medium
(standardisation)
Indirect
Quality
Yes
Medium
(standardisation)
Yes:
Eastern
Europe
No
Weak
Symbolic EWC
Scenario: Euro-scepticism
Weak
Local strategies
Scenario: indifference
Cost
Quality
R&D
Flexibility
Yes
Medium
(segmentation)
Yes
Indirect
Remote
Very strong
EWC + information
networks
‘Expansion’ of homecountry compromises
‘Fair’ competition and
‘negotiated’ globalisation
Scenario: pro-active
None
Plant excluded from EWC
Defensive ‘competitive’
strategies in western sites
Scenario: national defence
None
Scenario: indifference
Medium
Some conflicts, diffidence
within the EWC
Relations with US union
Scenario: competition
None
Scenario: indifference
None
Scenario: Euro-scepticism
18
19