Relocation of production and industrial relations

The transfer by multinational companies of production activities from one country to another has become an important issue in industrial relations across Europe - and especially in those western European countries that have seen a number of high-profile cases of outward relocation over recent years. This comparative study looks at the nature and extent of relocation of production and its significance for industrial relations, before examining national debates on the matter and the influence of industrial relations on relocation decisions and their implementation. The study covers 23 EU Member States, plus Bulgaria, Norway and Romania.

Relocation of production, whereby a firm transfers all or part of its production facilities from one country to another, is becoming an increasingly important topic for industrial relations - sometimes more than might be expected from what appears to be the actual extent of relocation processes. Relocation of production (also known as 'offshoring' or 'delocalisation') represents one of the most concrete and potentially visible aspects of the internationalisation, or globalisation, of the economy and, at the same time, usually involves restructuring and often workforce reduction in the countries where the activities to be relocated were formerly carried out.

For these reasons, relocation processes concern those who are responsible for economic policy at local and national level, since they can have an impact on economic growth and employment levels and represent an indicator of the attractiveness of specific locations for direct investment. Similarly, they attract the attention of the social partners. Trade unions are mostly interested in the economic and social impacts of relocation on the areas affected and are notably concerned about the consequences for the workers involved. Employers' organisations often underline the pressures of international competition and demand the promotion of conditions favourable to businesses, in order to avoid deindustrialisation and ensure the development of domestic economic activities, with a view to fostering economic growth and preserving employment levels. At the same time, relocation of production is usually a source of conflict and disputes at company level and often becomes a topic of collective bargaining, thereby becoming an obvious industrial relations issue.

Relocation of production is a source of concern for industrial relations actors essentially when it relates to outward transfers of production, as it is far less conflict-ridden when it comes to inward movements. However, the state of industrial relations at the 'destination point' of the relocation should not be regarded as unproblematic. In fact, when labour regulation and industrial relations systems are among the reasons for relocation, it becomes evident that the question of supporting appropriate collective labour relations in destination countries may be part of the objectives of social partners and policy-makers at both the originating and destination locations.

Since the start of the debate on the consequences of the internationalisation of the economy and the emergence of global production networks in the early 1990s, industrial relations researchers and practitioners have focused attention on the possible impacts on labour relations of the increased mobility of capital and of the growing bargaining power of firms vis-à-vis workers and trade unions. According to some observers, actual or even threatened relocations might trigger forms of concession bargaining and lead to 'regime shopping', whereby firms search for the locations that they believe can guarantee the most convenient regulatory regime (supposedly with a low level of labour protection), while governments and unions find it increasingly hard to resist the demands for deregulation of labour markets and reduced labour protection, since they try to preserve existing economic activities and employment (or to attract new activities and increase employment). From this perspective, a possible outcome of such pressures on regulatory frameworks may be a 'race to the bottom' in terms of labour standards.

However, many analyses and comments have underlined that this can be regarded as only a partial picture of the mechanisms at work, since institutional arrangements, including labour regulations, can represent valuable assets for firms insofar as, for instance, they can support workforce cooperation or help to provide high skills. Moreover, the costs of relocation may in many cases outweigh the expected, but often uncertain, benefits. Therefore, incentives for relocation are far from being straightforward and patterns of capital mobility do not show any general tendencies and are quite complex and varied.

Some relocations attract particular attention. Two examples are the cases of Siemens in Germany (DE0407106F) and Bosch in France (FR0408101N), which emerged in the summer of 2004 and were sometimes presented, especially in the general media, as specific instances of how relocation processes might endanger and erode established labour standards that were previously taken for granted, such as a reduced working week. In these two cases, threatened relocations led to negotiations that redefined some aspects of the regulation of labour, with a view to increasing the competitiveness of the company in its present location compared with possible offshore alternatives. The measures agreed by company management and unions were, however, richer than usually presented in the general media and include other elements, such as commitments to investment and special provisions on training and variable pay, which might reduce the characterisation of these cases as 'pure' concession bargaining. In fact, in some cases the boundary between concession bargaining and so-called pacts for employment and competitiveness may be blurred and not so easy to identify (see the 1999 European Foundation for the Improvement of Living and Working Conditions publication, Pacts for employment and competitiveness: concepts and issues).

This comparative study seeks to clarify these aspects and aims to investigate the role of industrial relation in the relocation of production in 23 EU Member States (Luxembourg and Portugal being the exceptions) plus Bulgaria, Norway and Romania. For the purpose of this study, 'relocation of production' refers to both: a) the downsizing or closure of existing sites in order to locate production of goods in a foreign country (outward relocation); and b) the transfer into a country of production activities that were formerly located abroad, by creating 'greenfield' sites or significantly enlarging existing ones (inward relocation). The study examines relocation of manufacturing activities and excludes services. The study presents:

• some considerations on the different aspects of relocation of production, with a view to understanding its relevance for industrial relations;
• a general assessment of the trends and prevalent features of relocation of production in European countries in recent years;
• a brief description of the importance and content of national debates on relocation, focusing in particular on the positions of the social partners; and
• an overview of the influence of industrial relations on the management and implementation of relocation of production at decentralised level.

The study is based mainly on contributions from the European Industrial Relations Observatory (EIRO) national centres in the 26 countries concerned. It provides an overview, and readers should refer to the individual national contributions for further and more in-depth information on specific countries.

A complex phenomenon

Relocation of production is much discussed in public debate and often treated as a relatively straightforward issue. However, in reality, it is quite a complex phenomenon and should be considered as one of the effects of other dynamics rather than a process in its own right. As will be seen below, even data collection is quite difficult, since production transfers are hidden in the broader data on foreign direct investment, and discussions can often rely only on media reports, anecdotal evidence or, at best, ad hoc analyses.

Offshoring is a component of an increasingly internationalised economy, with higher mobility of capital and a different and more dispersed organisation of production, where firms search for the most convenient locations, depending on their branch of activity and key market features, including notably the main drivers of competition. In this broad context, however, individual cases of relocation can relate to quite different situations which, in simple terms, may be exemplified by three distinct circumstances:

1. a long-term trend, whereby certain activities face a steady decline in a particular country and domestic production is replaced by imports either from foreign competitors or from domestic producers relocated abroad (or sometimes through domestic producers subcontracting to foreign firms);
2. a reorganisation of a multinational company, whereby production (as well as investment) is allocated among different existing plants. These relocation decisions may depend on the internal company structure as well as on the opportunities provided by local conditions. For instance, the existence of underutilised capacity or of pre-existing large investment in equipment in certain locations can favour the concentration of production in such sites (due to the influence on decisions of 'sunk costs'- ie costs that have been incurred and cannot be recovered). In general, it is possible to say that the logic of these decisions can be similar to company restructuring within national boundaries; or
3. a decision to discontinue production at one site and to transfer it to a new one abroad, with a view to reaping the benefits provided by the new location.

Relocation in the sense used in this comparative study is closer to the situations depicted in the second and third examples above, since we refer essentially to cases where all the locations involved belong to the same transnational employer. Therefore, both substitution of domestic production by imports and subcontracting to foreign firms are excluded here. In particular, domestic production replaced by imports from domestic producers relocated abroad falls under the third situation, while subcontracting to foreign firms would be defined as restructuring, even if it must be said that the reasons underlying this strategy are probably very similar to those on which relocation of production would be based. The main differences between this sort of restructuring and relocation are probably the lack of capacity to establish a foreign location, as may be the case for many small and medium-sized enterprises (SMEs), or the wish to increase the adaptability of the production structure by relying more on external and possibly flexible contractual relationships than on internal structures, in other words relying more on 'buying' than on 'making'.

Moreover, relocation should not be confused with expansion abroad that leaves existing sites untouched in terms of production or employment levels and merely increases the overall production capacity or intends to create platforms to serve foreign markets. However, it should be noted that reorganisation and relocation decisions are not a one-off exercise. Once a foreign site is established, the opportunity to relocate production there could emerge for the same reasons outlined above (for instance, lower production costs and easier market access) and with far less expense or uncertainty, since the potential of the new plant has already been tested. Similarly, relocation can be a progressive and cumulative process, whereby more complex and critical activities are transferred after simple and low value-added ones have been successfully moved initially. At the same time, activities that were formerly transferred can be moved back to the original location, if the decision proves to have been misplaced and the expected benefits are not achieved. This inherent dynamism of business decisions adds further to the complexity of relocations and makes it even more difficult to appreciate the scope and extent of the phenomenon.

The role of industrial relations

Despite all the different possible situations that can involve a transfer of production capacity abroad, there is a basic common feature that characterises all relocation processes, as they are defined for this comparative study: a comparison among different locations, whereby one is eventually preferred over another for hosting certain activities. Whether this amounts to a 'zero-sum game' among the various sites, with clear winners and losers, depends on the specific conditions that accompany the transfer of production and whether it is a simple relocation or a more complex reorganisation of activities across different locations, with more balanced pay-offs.

In general, relocation decisions are likely to prompt conflict between trade unions and employers, notably at the plants affected by outward transfers. As a consequence, industrial relations processes and structures often contribute to defining the actual impact of offshoring at decentralised level. However, the role of industrial relations is potentially and often practically more significant, since they may influence relocation of production in different ways, as follows.

1. On a general level, industrial relations can contribute to setting the conditions that make specific locations more or less attractive for investment. This can refer to the role of social partners in the definition of economic, industrial and social policies. Policies and conditions set with a contribution from social dialogue may help not only to attract foreign investment, but also to retain domestic investment.
2. More specifically, industrial relations and collective bargaining contribute to defining the regulation of labour and some decisive components of labour costs, notably including collective wage rates. The degree of labour market flexibility can be significantly influenced by industrial relations, as can the features of vocational training systems and, as a consequence, workforce skill levels. Moreover, the collective relations climate and the balance between conflict and cooperation at all levels may be taken into consideration when a relocation decision is being considered, together with all the other variables affected by industrial relations.
3. Finally, turning to probably their most evident role, industrial relations are often involved in the management of relocation processes, since information, consultation and negotiations generally have a role in defining some elements of transfers of production. This notably refers to the impact of outward relocation on the workers involved, since consultation and collective bargaining may contribute to, for example, introducing and setting severance payments and redundancy compensation, or making available retraining and outplacement services. These collectively-agreed conditions may supplement the mandatory schemes that exist in many countries to handle restructuring and collective dismissals (TN0107201S). Indeed, the same mandatory schemes may require the involvement of the social partners and promote the role of industrial relations, as with the rules on collective redundancies set out in EU legislation.

Therefore, it is possible to distinguish between the impact of industrial relations on the reasons for relocation (points 1 and 2 above) and on its effects (point 3). Such a distinction is also linked to a difference in time horizon, since reference to the drivers of relocation decisions implies a medium- to long-term perspective, while management of the impact of transfers of production often imposes short-term goals. Rather than pointing to a structural difficulty or even contradiction in addressing the issue of transfers of production, these different aspects draw attention to the importance of an integrated approach, whereby due consideration of short-run effects can be combined with awareness of the reasons underlying relocation decisions and the need to design policies to foster both the attractiveness and the competitiveness of domestic locations. As will be seen below, the positions of the social partners underline the importance of this challenge.

Importance of relocation processes and recent trends

Attempts to assess the scale of relocation processes and recent trends in this area are confronted with a substantial lack of clear-cut indicators. One approach might be to analyse data on employment levels in different sectors in order to identify branches where there has been a net decline in a particular country - these jobs might have been transferred to other countries. In a sense this is probably true, but in fact this simply means that they have been substituted by jobs in firms abroad. When we talk about relocation, according to the definition adopted in this comparative study, we refer to firms that deliberately transfer production from one country to another. In other words, we need data on transnational companies that reallocate their production capacity to existing or new foreign locations.

Foreign direct investment

A first indicator of the processes and choices connected with relocation is probably foreign direct investment (FDI), ie 'an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate)' (as defined by the United Nations Conference on Trade and Development, UNCTAD). However, this definition is quite general, as it includes all investment that amounts simply to expansion in foreign locations. Moreover, as this comparative study is concerned with relocation of manufacturing activities, we should exclude all transactions that are linked to services, which represented overall more than 70% of FDI outflows in the period 2001-3 (according to 2005 UNCTAD data).

For these reasons, we should consider data on FDI as a general indicator of trends, rather than a direct indication of relocation of production. We thus focus here on developments over time and on broad groups of countries. Most FDI is known to remain confined to homogeneous areas, in terms of economic development, and regional blocks. This segmentation of FDI is often explained by the existence of three economically and regionally integrated areas that attract a great part of FDI, which mostly takes place within or between the three blocks. This 'triadic' structure involves: North America, centred around the USA; Europe, and mainly the EU; and East Asia, with a key role for Japan. As a consequence, flows of FDI that go to areas outside the core of this triad may be of particular importance as an indication of relocation of production, since they signal the increasing attractiveness of hitherto peripheral economies, which may provide incentives for relocation, in terms of lower costs of production and developing markets. Finally, inflows are generally more significant, since they allow us to discriminate among the destinations of FDI. Outflows originate mainly from the economically advanced areas, while stocks are principally the results of the long segmentation of flows and show the continuing predominance of the three main blocks (and especially of the USA and EU, given the fact that Japan has traditionally been relative closed to inward foreign investment). However, inward stocks can provide some indications of the longer-run effects of trends in short-run flows.

A growth in the share of FDI inflows of less economically advanced countries may indicate the shifting business opportunities in a more internationalised economy and the increasing challenges of previously peripheral areas to more advanced economies. These challenges may also affect the existing regulation of labour and established industrial relations institutions, due to the usually wide differences between these areas in terms of the relative levels of labour protection .

Table 1. FDI flows and stock by geographical area, 1980-2004, percentage of world total

Areas	Inflows				Inward stock
	1980	1990	2000	2004	1980	1990	2000	2004
'Old' EU 15 and Norway	38.87	47.00	48.79	30.59	43.73	43.18	36.42	43.20
'New' EU 10, Bulgaria and Romania	0.22	0.51	1.71	4.32	NA	0.14	1.84	2.87
USA and Canada	41.24	26.94	27.27	15.76	25.88	28.71	25.40	19.97
Mexico	3.79	1.27	1.20	2.56	NA	1.27	1.68	2.05
Japan	0.50	0.84	0.60	1.21	0.62	0.56	0.87	1.09
Korea, Malaysia, Singapore and Taiwan	4.27	4.94	2.42	4.67	2.85	3.15	3.80	3.38
Indonesia, Philippines and Thailand	0.70	2.03	0.01	0.39	1.31	1.15	1.17	0.82
China (including Hong Kong and Macao)	1.39	3.25	7.35	14.70	4.72	3.88	11.26	7.94
India	0.14	0.11	0.17	0.82	0.09	0.09	0.30	0.43
Other countries	8.87	13.10	10.64	26.57	20.81	17.87	17.48	18.66
Areas	Outflows				Outward stock
	1980	1990	2000	2004	1980	1990	2000	2004
'Old' EU 15 and Norway	44.86	55.38	66.17	38.10	37.33	45.70	50.17	53.88
'New' EU 10, Bulgaria and Romania	0.04	0.03	0.08	0.46	0.05	0.06	0.09	0.19
USA and Canada	43.41	15.17	15.12	37.90	41.95	28.87	25.27	24.54
Mexico	0.01	0.09	0.08	0.31	0.00	0.06	0.12	0.16
Japan	4.44	20.12	2.55	4.24	3.44	11.28	4.53	3.81
Korea, Malaysia. Singapore and Taiwan	0.68	3.54	1.52	3.38	2.99	2.42	2.79	2.52
Indonesia, Philippines and Thailand	0.02	0.07	0.00	0.12	0.03	0.04	0.17	0.05
China (including Hong Kong and Macao)	0.15	1.37	4.86	5.69	0.03	0.92	6.77	4.57
India	0.01	0.00	0.04	0.30	0.01	0.01	0.03	0.07
Other countries	6.39	4.24	9.58	9.53	14.16	10.66	10.05	10.22

NA = negative accumulation of flows, not available or not separately reported.

Source: own calculation based on UNCTAD data (http://stats.unctad.org/).

As can be seen from table 1 above, there are some indications that the internationalisation of the economy has been benefiting central and eastern European countries (CEECs), as well as China, in recent years, as their share of world total FDI inflows has increased notably. This can also be seen from their FDI inward stocks, which have grown significantly too. These countries' FDI inflow shares have increased especially in the period since 2000 when, after the economic changes of the previous decade, there have been further developments linked to EU enlargement for CEECs and integration into the World Trade Organisation (WTO) for China. FDI data also show a great growth in inflows to the 'other countries' category in 2004 (up to nearly 30% of the world total), which might be a further indicator of an increasingly internationalised economy. However, this could reflect just short-term trends, even more so since these movements have not consolidated yet into higher inward stocks, as has occurred for China and the CEECs. Slight increases can also be seen for Mexico and, though very minor so far, for India.

European Restructuring Monitor (ERM)

An important source of information on relocation processes in Europe is the European Restructuring Monitor (ERM) run by the European Monitoring Centre on Change (EMCC) at the European Foundation for the Improvement of Living and Working Conditions. This resource was established in 2003 but includes data on restructuring cases going back to 2002. The strength of this monitoring tool is that it collects data on specific cases of restructuring, including offshoring, and therefore it can potentially provide a clearer picture of the scope and extent of relocation of production. However, given the lack of official data on restructuring, the ERM relies on cases reported by national newspapers to compile its fact-sheets and statistics. Therefore, coverage is determined by the room and attention given by national newspapers to restructuring, which can vary depending on many factors (country, specific editorial priorities, topicality of restructuring over time etc), and probably gives greater attention to cases that affect large companies or involve many workers at once. Cases that involve SMEs are likely to be under-represented in the ERM database. Acknowledging this difficulty, the ERM has restricted its coverage to European restructuring cases (ie those that affect at least one European country) that:

• entail an announced or actual workforce reduction of at least 100 jobs; or
• involve sites employing more than 250 people and affect at least 10% of the workforce; or
• have an employment effect of creating at least 100 jobs.

Despite these limitations and potential bias, ERM probably represents the most comprehensive source on restructuring in Europe in terms of country coverage (since May 2005 it includes all 25 EU Member States plus Bulgaria and Romania) and information provided, as it includes data on the company (location, sector and size) and on the restructuring process (type of restructuring, number of workers involved, number of redundancies, job creation etc). An important piece of information that can be derived from an analysis of ERM data is the relative importance of relocation compared with other types of restructuring. Assuming that ERM's limitations and possible under-reporting effects affect all types of restructuring in the same way, the share of offshoring out of the total cases should be relatively reliable.

Table 2. Cases of restructuring reported by ERM, by type, 2002-5

Type of restructuring	Redundancies (no.)	%	Cases (no.)	%
Internal restructuring	1,191,215	74.95%	1,665	46.25%
Bankruptcy/closure	215,203	13.54%	659	18.31%
Offshoring/delocalisation*	72,635	4.57%	208	5.78%
Merger/acquisition	58,833	3.70%	125	3.47%
Relocation*	22,052	1.39%	71	1.97%
Outsourcing	19,890	1.25%	22	0.61%
Other	8,577	0.54%	17	0.47%
Business expansion	950	0.06%	833	23.14%
Total	1,589,355	100%	3,600	100%

* According to ERM definitions, 'relocation' refers to transfers within national boundaries, while 'offshoring' covers transfers abroad.

Source: ERM (31 December 2005).

From the data shown in table 2 above, it appears that relocation of production abroad is the third most common type of restructuring. However, it is far less important than internal restructuring, which does not include transfer of production to foreign countries, and significantly less important than bankruptcy or closure. It represents, in fact, a minor share of all restructuring processes reported by ERM and amounts to only around 5% of both cases and redundancies, while almost half of all cases and three-quarters of all redundancies are due to internal restructuring. Furthermore, the relative importance of restructuring types does not seem to have varied significantly since the start of ERM's monitoring activity. After 2002, the first year for which data were collected, when only 442 restructuring cases were reported by ERM and offshoring represented less than 1% of the total redundancies involved, the share of total reported job losses due to 'delocalisation' has seemingly stabilised at around 5%, whereas the total number of reported cases of restructuring has increased steadily to more than 1,600 in 2005.

In all, from 2002 up until 31 December 2005, more than 200 cases of offshoring were announced by firms and reported by the ERM, involving almost 73,000 redundancies. Most of these relocations took place in manufacturing, with three sectors (electrical, metal and motor) accounting for more than 40% (89 cases) of the total, whereas they represented 26% of all restructuring cases. As for services, 20% of relocations referred to post and telecommunications (24 cases) and financial services (17 cases), compared with 16% of all cases in the ERM database. As mentioned, these data should only be considered at most as indicative of the relative importance of relocations in different sectors of activity, and especially in comparison with other kinds of restructuring. Data on the geographical distribution of relocation cases should be regarded even more cautiously, since the rate of reporting may be significantly influenced by the specific features of national media systems and their sensitivity to restructuring and relocation in particular. With these words of warning, it may be interesting to mention that one-fifth of all relocation cases were reported from the UK (while 15% of all ERM cases were filed from the UK), 14% from France (12% of all restructuring reports) and 13% from Germany (11% of total ERM cases). Finland, Denmark and Sweden account together for 20% of all relocations, while they were affected by 11% of the reorganisation processes included in the ERM database. As might be expected, delocalisation mainly affects EU 15 countries, which represent 95% of all relocation cases and connected redundancies. In total, only 11 out of the 200-plus cases were reported from the new Member States - Slovenia (4), Poland (3), Hungary (2), Slovakia (1) and the Czech Republic (1).

Surveys

A further source of indications on relocation processes are the surveys of employers that are regularly carried out in many European countries. The results of such surveys may be quite important in assessing the phenomenon of relocation of production, since they usually combine questions on behaviour (actual relocation) with others that elicit subjective evaluations (intended relocation) and can therefore cast light on the opinions that are present in the business community. As such, they may indicate the degree of employers’ interest in relocation and point to possible developments (though it must be emphasised that interest and attention do not always turn into actual behaviour and there may be a risk of overestimating future trends).

Data drawn from this kind of survey are reported from a number of countries. For instance, in Italy, the Institute for Studies and Economic Analysis (Istituto di Studi e Analisi Economica, Isae) conducted a survey in May 2005 of a sample of 4,100 firms with at least 10 employees, examining the propensity of businesses to relocate at least some of their production activities. The results depict a phenomenon already of considerable proportions and which, at least according to the interviewees’ reported intentions, is due to increase rapidly. As regards the destination of relocation, the survey found that: firms in North Italy tend to move production mainly to the countries of eastern Europe; firms in central Italy mainly relocate to China; while those in the South and Islands prefer EU Member States. Among employers that intended to relocate in the next 12 months, China was the destination country most frequently cited: 61.5% of entrepreneurs interviewed in the North-West expressed this preference; 48.9% of those in the North-East; 10.8% of those in the Centre; and 52.2% of those in the South and Islands. Examination of the figures on sectors of economic activity shows that in textiles, clothing and leather goods, the majority of the entrepreneurs interviewed said that they intended to move production to China and India: 90.2% of textiles entrepreneurs intended to relocate to China and 6% to India; while 47.5% of manufacturers of leather goods foresaw relocating at least part of their production to China over the next 12 months, and 24.5% to India.

In Germany, a survey carried out by the German Association of Chambers of Industry and Commerce (Deutscher Industrie- und Handelskammertag, DIHK) in 2003 found that 24% of the companies in the manufacturing sector intended to relocate production facilities, recording a 3 percentage-point increase on 1999. Comparable figures were reported by a similar survey conducted by the Frauenhofer Institute (Frauenhofer ISI) in autumn 2003, which found a increase of 6 percentage points in the propensity to relocate over the period 2001-3. In Sweden, a recent report by the Confederation of Swedish Enterprise (Svenskt Näringsliv), which was based on interviews with members in 2004, found that about 120,000 jobs were lost due to relocation in the previous five years and estimates that over the 2005-10 period the number of redundancies connected to relocation will amount to 500,000, including the effect on domestic suppliers. In the UK, according to a report released in December 2004 by the EEF manufacturing employers’ organisation (Where now for manufacturing?) and based on a survey of 494 member companies, 42% of companies had outsourced manufacture of parts and components abroad and a further 20% were planning to do so. Half of the firms which had outsourced abroad declared that they did so to replace capacity in the UK, while the other half had expanded their production capacity. In May 2005, a study on the location strategies of private sector firms carried out for the Confederation of British Industry (CBI) found that 19% were considering relocating business units to a foreign location.

In general, it can be said that survey findings on both actual and envisaged relocations are rather high and certainly above the levels suggested by the relative importance of offshoring cases in the ERM database. It is interesting to note that many of the surveys were carried out by employers’ associations, indicating their high interest in the issue of delocalisation.

Conclusions

By way of concluding this section, it is possible to put forward three tentative considerations, on the grounds of the available and often partial evidence that has been analysed:

• FDI data seem to indicate that economic actors are increasingly interested in establishing control over foreign firms located in developing, formerly peripheral, economies. This relates especially to locations in CEECs and China. Such investment flows are very likely to include transfers of production capacity to these areas;
• ERM data suggest that cases of relocation still form a relatively small proportion of all restructuring cases; and
• survey results show a high interest in, and attention to, relocation of production among the business community. Relocation is mentioned as a concrete option, either realised or envisaged in the near future, by a significant and seemingly increasing number of firms.

This latter point is a crucial element in explaining the importance that relocation has recently acquired in national debates, to which we now turn.

The importance of relocation in national debates

The sensitivity and topicality of relocation of production is essentially linked to outward transfers, due to their direct impact on employment, their connection with concerns about the competitiveness of firms and their common association with the challenges of a globalised economy. As a consequence, it is not surprising that the debate on relocation is more developed in countries where the fears of losing competitive advantages to emerging and low-cost economies are high - see table 3 below. Conversely, the issue of delocalisation is marginal in countries where inward relocation prevails, though the picture is changing to some extent in a number of these countries, as new trends are emerging. In general, the EIRO national reports confirm that outward relocations characterise EU 15 countries, while inward transfers affect to a greater degree CEECs. CEECs also benefit from relocations from non-European countries, especially by US-, Japan- and Korea-based multinationals, which set up in, or move to, these countries their production facilities designed to serve the European market. Accordingly, the issue of relocation is more relevant for governments, social partners and the public at large in western Europe than in the CEECs. Finally, in Baltic countries, where the impact of either inward or outward relocation has been particularly limited, the importance of delocalisation in the national debate and for the social partners is especially low (see table 3).

However, some specific features should be pointed out. Ireland has long been, and still is, a preferred destination for FDI and relocations, especially in the information and communications technology (ICT) sector and in services. Ireland thus appears as an intermediate case, where the two-fold nature of relocation is clearly evident and the challenge - faced by all European countries - of combining policies to attract foreign investment, especially in high value-added activities, and to avoid relocations of low-skilled and labour-intensive productions, is maybe more evident. In central Europe, the case of Slovenia is to some extent atypical for an area where inward relocations seem to prevail, since outward transfers of production to neighbouring countries and sometimes China are reportedly predominant, mainly in labour-intensive, low value-added sectors. Also among new EU 10 countries, the same can be said of Malta, where relocations to eastern Europe or northern Africa are threatened and implemented to an increasing degree, and Cyprus, where the delocalisation of most of the textiles and garment industry to eastern Europe and the Middle East has been accomplished in the latest decade. Finally, in central Europe the position of some of the countries that were among the main destinations of delocalisation in the 1990s, such as Hungary and the Czech Republic, is changing, as they seem to be increasingly targeted for the location of higher-quality and higher value-added activities, including in the service sector, while cases of outward relocation of lower value-added production are emerging, for instance in the textiles and metalworking sectors. Here, again, it may be possible to speak of 'intermediate' positions, as in Ireland, where policy-makers and the social partners are confronted with new challenges.

The prevalent direction of relocations from EU 15 countries to CEECs or Asia, especially China, as reported from many countries, suggests that firms are apparently searching for locations that allow lower production costs, including labour costs, and provide easier access to expanding markets in lower-income economies. The products affected are prevalently those characterised by mature markets, where the competitive edge of costs and prices is often decisive. The main sectors where this is reported are car manufacturing and automotive components, textiles and clothing, shoes, metalworking, and electric appliances and components - see table 3 below. These are important traditional mass-production sectors, which often require relatively simple technologies and a low-skilled labour force. As a consequence, the impact on employment levels in the countries from which the production is being relocated can be substantial and the need for retraining and reskilling can be great. This is an increasing source of concern in the European countries where outward relocations prevail.

Table 3. Importance in public debate and main features of relocation of production

Country	Importance	Notes	Prevalent direction	Main sectors involved
Austria	Medium-low	Extensive media coverage of some major relocations, but not many cases due to the limited presence of large multinational companies. Survey data indicate that 8.4% of medium-sized firms plan to relocate their production or part of it to eastern Europe.	Outward: CEECs, or Asia, such as China and India.	Especially labour-intensive production, but there is no clear pattern.
Belgium	High	Relocations are apparently increasing, but have had a limited impact on employment so far. Public authorities have given special attention to relocation and there has been monitoring activity since 1994.	Outward: mainly to neighbouring countries and other EU 15 locations; CEECs account for 10% of total and Asia for 6%.	Labour-intensive sectors, such as textiles, metalworking, but services are also increasingly involved.
Bulgaria	Low-medium	Inward relocations especially draw attention from trade unions, as they are concerned with working conditions and compliance with labour regulations in these establishments (BG0404204F). The number of relocations has increased in recent years.	Inward: especially from neighbouring countries, such as Greece and Turkey, and to some extent from Italy.	Mostly light industry, such as knitwear, garments and shoes.
Cyprus	Low	Relocation of production essentially refers to outward transfers linked to downsizing or closures. In the early 1990s, the number of relocations increased dramatically and this was seen as a 'generalised phenomenon'	Outward: in the clothing sector, relocation started in the late 1980s and is now almost complete - the bulk of production is now relocated to Romania, Bulgaria, Syria, Jordan and Egypt.	Almost exclusively in the clothing industry, with individual cases in the food and carpentry products sectors.
Czech Republic	High	Foreign investment is very important for the economy: foreign-owned firms account for some 50% of total returns from industrial activities and 70% of returns from exports.	Inward: mostly from EU countries, but also Japan. Outward: some instances of transfers to Asia, triggering a debate over the 'risk' and 'volatility' of foreign investment.	Mainly metalworking, electrical and chemicals sectors. High-technology sectors are increasingly present in inward relocations.
Denmark	High	Has become topical over the last three-four years, with an increase in cases.	Outward: CEECs, especially Poland and the Baltic countries, and Asia, especially China; a significant share of relocations also goes to EU 15 countries, notably Germany.	Manufacturing (eg in food processing).
Estonia	Low	Relocation is of limited significance for the domestic economy and in public debate.	Inward and outward: small number of cases of both. Inward relocation is mainly from EU and especially from Scandinavia; outward relocation involves mainly neighbouring countries (Latvia and Russia), China and Turkey.	Food, textiles, leather, wood - basically labour-intensive sectors.
Finland	High	Relocations are increasing, but still limited (FI0412202F).	Outward: CEECs and China, but also to EU 15 countries.	Labour-intensive sectors, such as metalworking and electronics.
France	High	Relocation is a topical issue in the public debate and is increasingly a source of concern (FR0507106F). The number of cases is growing, but still limited. Some 13,500 jobs were relocated over 1995-2001 - around 6,500 were moved to low-wage countries, but 7,000 went to advanced economies.	Outward: among low-wage countries, China is the main destination, well ahead of CEECs, North Africa, South America and other Asian countries; among advanced economies, jobs are shifted essentially to EU15 and the USA.	Low-pay sectors involved in relocation are textiles and clothing, electronics and household appliances. Relocations to advanced economies usually concern industries such as automotive, aeronautics, pharmaceutical and electronics.
Germany	High	The issue of relocations is attracting increasing attention since they are usually expected to entail job losses in Germany. Their impact on domestic employment is, however, ambiguous. The share of firms intending to relocate production facilities has increased since the late 1990s.	Outward: CEECs and Asia, but also western Europe, depending on the sectors - labour-intensive production to CEECs and Asia, R&D to western Europe.	Automotive, chemicals and metalworking.
Greece	High-medium	Relocations of activities of Greek companies has been particularly significant and growing in northern Greece (Macedonia and Thrace) towards CEECs.	Outward: according to unsystematic evidence, most relocations involve manufacturing activities, which are transferred to the Balkans (Bulgaria, Albania, Romania etc).	Mainly in the textiles, clothing, footwear and leather sectors.
Hungary	Medium-high	In recent years, interesting features of relocation are the extension of its scope to non-manufacturing activities (logistics, administration, R&D), as well as an increase in outward relocations in clothing, shoes and metalworking/engineering such as electrical equipment.	Inward: from EU 15 and Asia, especially Japan. Outward: lower-wage neighbouring countries, such as Slovakia, Romania and Ukraine.	Inward: manufacturing and services. Outward: clothing, shoes and metalworking.
Ireland	High	A shake-out is apparently taking place in traditional labour-intensive manufacturing, such as textiles, while the government and development agencies are trying to attract high-technology activities.	Outward: to low-cost CEECs and East Asia. Inward: from US, UK and other EU 15.	ICT, textiles and clothing, chemicals, transport and communications.
Italy	High	Relocation is an important issue in national debate (IT0501206F). There are increasing initiatives on the part of public authorities and social partners both to limit the negative consequences of delocalisation and to support firms’ international development strategies.	Outward: CEECs and Asia, especially China.	Metalworking, textiles and clothing, footwear and leather.
Latvia	Low	There are no significant cases of outward relocation and only some cases of inward relocation.	Inward: from EU and especially Scandinavia.	IT services.
Lithuania	Low	Limited number of cases.	Inward: from EU.	One case reported - in textiles.
Malta	High	Relocation of production is a sensitive issue as the few manufacturing firms present on the islands are mostly foreign-owned businesses that decided to invest in Malta because of its low labour costs and strategic position between EU and Africa. Should comparative advantage shift, they would probably easily transfer production elsewhere.	Inward: in the past from various countries. Outward: in recent years, especially to Tunisia and China.	Manufacturing.
Netherlands	High	Has always been significant, but now its importance is increasing (NL0503102F). Relocations involved 5% of all firms in 1995 and 10% in 2005.	Outward: mainly to CEECs; investment is significant in the USA, stable in Asia, and increasing in China.	Textiles, metalworking, chemicals, ICT and furniture. In general, relocation involves labour-intensive activities.
Norway	High	A recent study by the Confederation of Norwegian Business and industry (Næringslivets Hovedorganisasjon, NHO) found that an increasing number of companies are considering relocating production abroad.	Outward: mainly to eastern Europe and Asia.	Oil and manufacturing.
Poland	High	Inward relocations are a crucial element in the growth and strengthening of the domestic economy.	Inward: from EU 15 and USA.	Automotive, chemicals, metalworking, furniture and food products.
Romania	Low-medium	Relocation cases on the rise in recent years. However, the issue is not prominent in public debate - the general issue of FDI is much more important. So far, the extent of inward relocation has fallen short of expectations.	Inward: mainly from the EU 15 (especially the Netherlands, France and Germany).	Telecoms, services and trade.
Slovakia	High	Inward relocations are particularly important for the economy, as a driver of change and employment growth and for the creation of connections with domestic firms. Inward relocations have increased notably in the most recent years.	Inward: from EU 15, USA and South Korea.	Automotive, services, banking and ICT.
Slovenia	High	Outward relocation of production is an increasingly significant phenomenon. It is an important topic in public debate, not only with regard to employment and problems faced by the workers involved, but also because of its importance as a strategy to secure firms’ position in the international market.	Outward: to former Yugoslavia, China, Bulgaria, Romania, Turkey, Macedonia, Poland and Russia.	The majority of relocating companies operate in labour-intensive industries such as textile and clothes, shoes and food.
Spain	High	There is a certain increase in the number of relocations (ES0411101F and ES0402205F), but arguably an exaggerated picture of the current situation is given by the media, which point to future projections.	Outward: to low-cost countries in North Africa, Asia, Latin America and CEECs.	Automotive to Eastern Europe; textiles to North Africa and to a lesser extent Asia and Latin America.
Sweden	Medium-High	Relocation processes in the private sector have been a significant phenomenon since the 1960s.	Outward: at present, mainly to China and CEECs.	Engineering and chemicals.
UK	High	Relocation is a significant and growing phenomenon, especially in services.	Outward: Asia, especially China and India, and to a lesser extent CEECs.	Labour- intensive sectors and increasingly services, such as call centres and data processing.

Source: EIRO.

Social partners' positions

An important contribution to the public debate on relocation of production in European countries is being made by the social partners. Both trade unions and employers’ associations express great concern about the phenomenon, though they do it from different points of views and often emphasise distinct aspects. In a nutshell, it could be said that while employers are mainly worried about the viability of domestic economic activities and the competitiveness of national firms, unions underline the need to cushion the effects of relocations and possibly avoid them, by way of alternative competitive strategies that do not focus on the reduction of production costs and should be designed and discussed jointly by unions and company management. Moreover, the unions criticise what they sometimes consider an opportunistic use of relocation threats by firms, which the unions believe may be intended to put downward pressure on workers’ demands during collective bargaining. Another critical issue that is highlighted by unions is the emerging tendency to consider relocation even when a firm’s economic and financial performance is good, in order to increase profit margins. According to trade unions, this shows an excessive attention to what is often called 'shareholder value', to the detriment of the interests of other 'stakeholders' and notably those of workers.

Despite these significant differences, the distance between the positions of employers and unions is in a way limited by the fact that they both recognise that relocation represents an element of the recent economic transformations usually referred to as globalisation and that it is necessary to address the underlying issues effectively and to avoid, by and large, protective measures, though these might sometimes seem to accommodate the wishes of both parties. In fact, protectionism is considered impracticable, not only in view of the existing rules on international trade, but also because it would provide at most a weak short-term solution and would not respond to the challenges of international competition and business development.

In seeking to specify more clearly the position of the social partners, it is possible to identify some core elements that commonly appear to be present in their discourses on relocation of production and connected issues - though of course this produces only a set of abstract models of the social partners' actual positions, which are clearly far more complex and diversified than the models, and depend on the different countries and vary between interest organisations. As a first step, we can list the main arguments that employers and unions use to define the challenges of relocation, its most critical aspects and the possible strategies (ie their own individual actions) and policies (ie public measures or measures based on dialogue and concertation) than can help face the challenges and solve the problems. Second, and more tentatively, it is possible to group such arguments in order to identify various 'typical' attitudes on relocation. As noted, the actual attitudes expressed by the social partners vary depending on the country and the sector and are connected to some extent with the main features of national industrial relations traditions and systems (and whether these are more 'antagonistic' or 'cooperative'), as well as with the relative importance of relocation, both threatened and implemented. The outline of employers' and unions' views given below - and summarised in table 4 - is essentially based on the EIRO national reports from the countries where outward relocation prevails.

Employers

The position of employers' organisations can be said to be characterised by two main propositions: 1) relocation of production is a fully legitimate and sometimes inevitable option for businesses in order to pursue competitiveness and growth; and 2) the benefits of offshoring accrue both to the relocating firms (and their employees) and to their domestic economy, through the positive effects of a strengthened ability to compete on global markets and cope with foreign competition. Relocation is therefore an opportunity for firms and should not be restrained, but left to autonomous determination by company management.

Of course, employers are also aware of the social impacts of relocation and often regard it as an option that it would be better to avoid, if possible, both because it indicates problems with the domestic business environment and on account of its complexity and the uncertainty of its outcomes. Therefore, according to employers, it is crucial that the competitiveness and attractiveness of domestic economies are promoted by specific interventions, the effects of which would include avoiding or reducing the need for relocations. The measures supported by employers to achieve these objectives include:

• those that are typical of a 'neo-liberal' approach, such as labour market deregulation, tax reduction, reduced social contributions and welfare state reforms;
• those prompting supportive industrial and innovation policies; and
• those that demand a specific role for industrial relations, with a view to ensuring wage moderation and supporting firms' competitiveness and work flexibility.

It is the different emphasis placed on these three elements that mostly differentiates the position of individual employers’ organisations. The focus of the employers’ concerns is therefore on the reasons behind offshoring, which remains unquestioned as a company strategy, and on the ways to address them, with a view to reducing the necessity to relocate production.

Trade unions

The attention of trade unions, on the other hand, is more focused on the tools available to manage relocation at company level. While they recognise offshoring as a feature of the new economic environment, they at the same time demand full consideration of the social consequences of such relocation. Their basic proposition is that, since cost competition with emerging economies is not viable, consultation procedures and collective bargaining should help identify alternative solutions to relocation or, if the parties agree that the latter is unavoidable, should contribute to defining a set of measures to cushion the negative impacts on workers.

According to the unions, the institutional environment should be conducive to their involvement in offshoring decisions at company level and should constrain indirectly or directly the possibility to delocalise production. Trade unions mostly consider relocation as a threat, both for workers and the domestic economy as a whole. Examining the various measures that unions support in order to cope with the challenges of delocalisation, three different approaches may be identified, as follows.

• The first approach can be defined as 'traditional', as it demands the promotion of the role of industrial relations at firm level, for instance through a requirement for early information disclosure and consultation procedures, with a view to reaching an agreement on alternative solutions or on the implementation of offshoring and handling its impacts. This position includes support for initiatives to promote the cross-border harmonisation of employment conditions, through the enforcement of International Labour Organisation (ILO) standards, the establishment of Europe-wide agreements on basic employment conditions and labour protection, or the definition of common tax policies, in order to avoid social dumping and reduce the incentives for 'regime shopping' based on labour protection differentials. This approach also demands a strengthening of the role of European Works Councils (EWCs) and, as a trade union strategy, the development of cross-border cooperation.
• The second approach can be labelled 'interventionist' or 'restrictive', since it aims to reduce the direct benefits or even the possibility of relocation. Trade unions propose to achieve this result through, for instance: rules requiring a commitment to maintain production at a certain location for a minimum number of years when a multinational company decides to set up a new plant; or an obligation to return public subsidies if production is transferred abroad before a certain period has elapsed. Moreover, unions support the introduction of rules that demand a substantial contribution by relocating firms to covering the social costs of offshoring, maybe through the mandatory provision of retraining or outplacement services, and limit the possibility of relying on public welfare services without any obligations or expenses on the part of the firm. According to unions, these measures would contribute to adding a 'social dimension' to relocation decisions and reduce the negative repercussions borne by local communities. Trade unions suggests that these rules could be particularly strict when relocation concerns profitable activities.
• The third approach could be described as 'proactive', as it is not explicitly directed to regulating relocation of production, but rather to balancing the negative impact of offshoring by fostering the development of activities and employment creation in high-skilled sectors, where European economies can count on substantial and possibly enduring comparative advantages. This approach, therefore, focuses mainly on the contribution of the social partners to defining training and innovation policies and relies on cooperation at company level to manage relocation processes in a way that reduces its negative social consequences.

As with employers, it should be emphasised that elements of all these three approaches are present in the positions of individual trade union organisations throughout Europe. They are not mutually exclusive. Rather, they are usually part of a comprehensive package of demands, with particular unions emphasising one element more than the others. Moreover, it should be added that, while the first two approaches can be implemented irrespective of the features of a national industrial relations system, the third seems to presuppose a participatory framework, with developed social dialogue at both national and decentralised levels.

While it is impossible to categorise any given country as embodying one of the approaches outlined above, as intra-country variation in union positions is usually as wide as cross-border differences, a distinctive attitude is expressed by several unions in Nordic countries. This position regards relocation as less problematic for trade union strategies than unions themselves usually think. Basically, this position maintains that unions should not try to avoid relocations by concession bargaining, especially on wages, since the international division of labour is actually 'benefiting the wage earners', as Hans Jensen, the president of the Danish Confederation of Trade Unions (Landsorganisationen i Danmark, LO), put it in an interview in December 2004. Danish unions, in fact, besides supporting a number of measures that clearly belong to the 'traditional' and 'restrictive' approaches, argue that the challenges of relocation are creating new jobs (DK0506102F), increasing educational levels and placing more emphasis on innovation (DK0502102N). Similarly, the Swedish Metalworkers' Union (Metall) has recently expressed its opposition to measures that make relocation more difficult or expensive. According to Metall, only the development of a competitive environment can support the growth of the Swedish economy, thereby providing new job opportunities to counterbalance those that are transferred abroad.

This position suggests that, although relocation needs to be governed by industrial relations and must not be left unchecked, it should not be opposed as such, since it can place some form of 'virtuous constraints' on the development of national economies. A less radical version of this attitude can be found in Germany, where the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB) maintains that relocation should not make the unions change their wage policy, as German firms continue to demonstrate their competitiveness through good export performance. This is another way of arguing that concession bargaining is not a proper answer and that there are other means to address the issues raised by globalisation and relocation processes.

In the spectrum of trade union positions, these are a number that seem to downplay the threat of relocation to some extent. However, it should be noted that all of these cases are found in countries where, on one side, the industrial relations system provides substantial support to trade union action and, on the other, the welfare system contributes significantly to reducing the negative effects of relocation on the workers involved.

Table 4. The social partners’ positions on relocation of production

.	Main viewpoints	Main proposed measures
Employers	Relocation of production is a fully legitimate and sometimes inevitable option for firms to pursue competitiveness and growth. The benefits of offshoring accrue both to the relocating firms (and their employees) and to their domestic economy. The social impacts of relocation must be duly taken into account. Relocation processes indicate problems with the domestic business environment in terms of competitiveness and attractiveness for business activity. Relocation is both a complex and uncertain process. The competitiveness of domestic economies is crucial and should be promoted by specific measures.	Market-oriented: labour market deregulation, tax reduction, reduced social contributions and welfare state reforms. State intervention: supportive industrial and innovation policies to guide industrial restructuring. Industrial relations: wage moderation, work and organisational flexibility, pacts for employment and competitiveness.
Trade unions	Cost competition with emerging economies is not viable. Consultation procedures and collective bargaining should help identify alternative solutions to relocation. If the parties agree that offshoring is unavoidable, a set of measures to cushion the negative impacts on workers should be jointly defined. The institutional environment should support the involvement of trade unions in relocation decisions at company level and should constrain indirectly or directly the possibility of delocalising production.	Traditional: promotion of the role of industrial relations at firm level (eg early information disclosure rights, or consultation procedures aimed at reaching an agreement on alternative solutions), the harmonisation of cross-country working conditions (eg enforcement of ILO standards, Europe-wide agreements on basic employment conditions and labour protections), a strengthened role for EWCs and cross-border union cooperation. Restrictive: rules on a minimum stay when a multinational decides to set up a new plant, an obligation to return public subsidies if production is transferred abroad, and a substantial contribution by relocating firms to cover the social costs of offshoring (eg mandatory provision of retraining and outplacement services, or participation in public welfare expenses). Unions suggests that these rules could be particularly strict when relocation concerns profitable activities. Proactive: polices aimed at balancing the negative impact of offshoring by fostering the development of activities and employment creation in high-skilled sectors, for instance through investment in education and innovation research.

Source: EIRO.

The role of public authorities

Governments are certainly among the main actors in the debate over relocation of production, not least because of their key position in the definition of economic policies. Of particular relevance here are cases where the public authorities have been acting together with the social partners to analyse the issues of the globalisation and internationalisation of the economy. These initiatives can be important, since they may contribute to building a common understanding of the problems connected with relocation and might lead to the definition of concrete measures.

One example of this kind of activity can be found in Belgium, where the Federal Planning Bureau (Bureau Fédéral du Plan/Federaal Planbureau, BFP/FPB) has carried out a series of studies on relocation of production since 1994. The latest update report was published in autumn 2005 and was presented to the social partners on the bipartite Central Economic Council (Conseil Central de l’Économie/Centrale raad voor het bedrijfsleven, CCE/CRB). In Denmark, in spring 2005, the government set up a 'globalisation council', made up of representatives of the government, the national bank, large companies and trade unions and employers’ organisations, to study the position of Denmark in the global economy. On the basis of early debates in the council, the government issued a discussion paper (Danmark og globaliseringen) in summer 2005, which focused on the role of labour market flexibility and education (DK0410106F) in supporting adaptability and economic growth. The document was well received by both the LO trade union confederation and the Confederation of Danish Employers (Dansk Arbejdsgiverforening, DA). In the UK, concerns over the emergence of offshoring in services (UK0405103F) prompted the government to launch a consultation exercise in autumn 2003, when the Department of Trade and Industry (DTI) published a position paper on Services and offshoring: the impact of increasing international competition in services. However, so far, no specific measures have been introduced as a result of the consultation process.

The management of relocation processes

Turning to the management of relocation processes, it should be underlined that such cases fall under the general rules that apply to restructuring and collective redundancies (TN0107201S). Therefore, they cannot be regarded as a completely separate phenomenon, since it should be expected that the role of industrial relations in (outward) relocation will have the same features as in restructuring in general. Again, of course, this applies to outward relocation, while for inward transfers a different analysis is required.

Outward relocation

Although the cases of relocation reported by the EIRO centres are by no means a representative sample, it is interesting to note that the reason for the relocation is, in the vast majority of cases, the reduction of production costs, often specifically of labour costs. In a small number of cases, other reasons are mentioned, such as proximity to expanding markets, a need to streamline production and cut excess capacity, and a search for higher profit margins. The destinations of relocation from the countries examined here are above all CEECs and China.

As in all cases of restructuring, the outward relocation exercises reported involve a series of steps, and typically it is possible to identify three stages:

• the firm announces its intention to relocate production abroad;
• an information and consultation process starts, which in many countries includes negotiations proper; and
• after the completion of the consultation process and, where relevant, of negotiations, the company implements its final decision.

The whole process involves different degrees of conflict and the final outcomes are to varying degrees influenced by consultations or collective bargaining. The process implies a substantially reactive or passive role for industrial relations and especially for trade unions, which intervene in the decision-making process at a late stage, when it seems difficult to reverse the firm's plan to relocate. Of particular interest are: cases where the companies changed their minds and did not proceed to relocation; the contents of any agreements reached; and any cases where there was no role of industrial relations whatsoever.

Starting with situations where industrial relations processes have played little or no part in relocation, an example is the Cypriot clothing industry. Despite the substantial impact of relocation of production in the apparel sector over recent decades, which eventually led to the virtual termination of all domestic manufacturing activities, there was a low involvement of industrial relations and decisions were taken almost invariably unilaterally. The transfers reportedly did not meet with significant mobilisation or action on the part of trade unions. In general, it is possible to say that, where trade unions have little or no presence at plant level, the relocation decisions by the company management often remain undisputed and may be constrained essentially only by legal requirements for information disclosure, consultation and negotiation with employee representatives, and possibly by pressures exerted by political authorities.

Norway represents a very particular case, since restructuring processes are covered by the participatory procedures defined by the country's established system of cooperation at company level (NO0309102T) and are excluded from collective bargaining. The cooperation system is reported usually to be effective in influencing aspects of the final company decision - these generally include measures to ease the social effects of relocation, such as redundancy compensation, outplacement services or redeployment in other domestic company locations. This clear inclusion of relocation decisions in management prerogatives and their consequential exclusion from collective bargaining also applies, in principle, in other Nordic countries, such as Denmark and Sweden. However, the issues raised during information and consultation are often addressed by collective agreements.

In the majority of reported cases, the announced relocations were eventually implemented, though specific measures were often introduced to diminish the social impact of delocalisation and cut the number of planned job losses. 'Social plans' typically comprise: financial incentives and compensation for redundant workers; interventions to improve their employability (training and job search support), often in cooperation with public employment services; and commitments to avoid compulsory redundancies and rely on voluntary departures instead. A reduction in the number of planned redundancies is generally achieved through specific agreements aimed at increasing productivity through changes in working time duration and organisation, improved work flexibility and lower labour costs. The deals reached sometimes include wage restraint: for instance, in order to prevent recent relocations of production from Malta to foreign locations causing job losses in Malta, the renewal of the company agreement at Bortex, a clothing firm, has been postponed over 2003-5 to ensure a form of 'wage freeze' and thus avoid burdening the company with extra production costs.

At the end of 2003, the management of the Siemens software plant at Herentals in Belgium announced, following a reduction of some 600 jobs in previous years, that a further 130 jobs would be cut in 2004, due to the relocation of part of the site's production to southern and eastern Europe. Consultation and negotiations between trade unions and management produced an agreement that saved 44 jobs through an increase in weekly working hours from 37 to 38, without additional pay. In order to provide an incentive for workers to accept the working time increase, a later accord introduced a pay rise of 1% per year. The deal on working time has a two-year duration and can be extended periodically after a joint review.

In certain cases, however, trade unions have refused to grant concessions to avoid relocation-linked redundancies. For instance, Danish Crown announced at the end of 2004 that it would close its Tulip meat factory in Ringsted in Denmark and relocate production to Germany, if a new local collective agreement failed to introduce a cost reduction equivalent to a wage cut of 15% (DK0501102F). Such an agreement was accepted by the majority of the plant's workers, but was rejected by the Danish Food and Allied Workers' Union (Nærings- og Nydelsesforbundet, NNF), which argued that it was not in line with the relevant sectoral agreement. Trade union representatives were then involved in a second round of negotiations and a new agreement was reached, which envisaged a 14% reduction in wages and defined a different distribution of wage cuts among the various groups of employees. The agreement was meant to be part of a special pilot scheme allowing substantial deviations at decentralised level from the conditions set by the sectoral agreement. This time it was the employees who rejected the deal in a ballot. The result appeared to be influenced to some extent by pressure exerted by the workers at other meat plants, who went on strike to oppose the deal on wage reduction. Shortly after, the Ringsted plant was closed and production relocated to Germany.

In early 2004, the Italian-owned Seves group announced the closure of its Sediver glass factory in France, which employed around 300 workers producing electric insulators, and the relocation of its production to China. However, following opposition by employees and the intervention of the Minister for the Economy and Finances, in summer 2004 management suggested a compromise whereby half the jobs would be saved in exchange for a pay cut, an increase in working time, and an exemption allowing the firm to introduce early retirement at 54. The management also asked for a EUR 6 million subsidy under an 'anti-relocation' grant scheme set out in the 2005 French state budget. However, the unions refused what they regarded as a 'double blackmail' of the employees and the state. After that, talks and conflict continued and the firm eventually offered to maintain production at the French location, but only of low value-added glass blocks, while confirming the relocation to China of the core production of electric insulators. In summer 2005, employees blocked attempts to extinguish the kiln, which would have made the resumption of production impossible, and kept the kiln working order to retain operating capacity for any potential buyer. However, the police intervened and the factory was closed. In August 2005, protests continued with former Sediver employees blocking the lorries that were supposed to take away the stock of electric insulators still present on the company premises.

Finally, a number of cases are reported where a planned relocation was subsequently cancelled. A well-known example occurred at Siemens in Germany in summer 2004 (DE0407106F). The company had announced the relocation to a Hungarian plant of the work of 2,000 employees at two German mobile phone plants. The reason cited was that German labour costs were, according to management, 30% higher than in Hungary, due to higher wages and shorter working hours. However, offshoring was eventually prevented by a deal that introduced a number of measures, including an increase in weekly working hours from 35 to 40 with no compensation and the substitution of some existing bonuses with performance-related pay. At the same time, the agreement granted job protection for two years and envisaged an additional investment of EUR 30 million in the two plants.

A similar deal was reached at DaimlerChrysler's Mercedes car division, whose management in summer 2004 stated that part of the production of its Sindelfingen plant in Baden-Württemberg would be relocated to other sites in Germany and to South Africa if workers’ representatives did not agreed to cost savings of at least EUR 500 million per year, in order to offset a number of advantageous terms and conditions, notably extra working time breaks and bonuses, that applied at Sindelfingen but not other plants (DE0407106F). An agreement signed on 23 July 2004 introduced a comprehensive package of measures that affected the whole group (DE0408102N) and included the cancellation of a 2.79% wage increase scheduled for 2006 for around 160,000 staff at the German Mercedes division's car plants and working time flexibility measures to reduce overtime costs for 20,000 employees in all of DaimlerChrysler’s German development and planning departments. A supplementary accord was then signed for service and support employees, who will have their weekly working time progressively increased from 35 hours to 39 without compensation, while new recruits will receive lower wages close to those paid in the service sector. As for the employees of the Baden-Württemberg Mercedes plants, breaks will be reduced and partly devoted to training, while bonuses will remain for existing workers but will not apply to new employees. At the same time, the deal introduced restrictions on the use of temporary work, but increased work flexibility for younger workers, new recruits and fixed-term contract employees, who may be redeployed within the company during a period of three years, depending on the needs of the various sites. Through the agreement, DaimlerChrysler committed itself to guaranteeing jobs and earnings in Germany at least until the end of 2011. The agreements at both Siemens and Mercedes were possible due to the existence of specific 'opening clauses' in the collective agreement for German metalworking, allowing company-level deviations from the sectoral agreement's provisions.

Inward relocation

With regard to inward relocations, the greatest concern for trade unions is developing union activity in the new plants. Inward transfers are invariably welcomed, as they bring jobs and contribute to the economic growth of the destination areas/countries. However, the development of industrial relations structures and processes at these locations is not guaranteed, as firms relocating abroad to places where industrial relations actors are weak often tend to rely on unilateral action more than they do in their domestic plants. A lack of any trade union representation at the sites to which production is being shifted is reported in a number of cases of inward relocations to CEECs, though there are also examples of companies trying to export some elements of their traditional domestic industrial relations models to foreign sites - eg this applies to some relocations by German firms to central Europe.

While cross-border trade union cooperation is advocated in the debates on how to confront the challenges of globalisation and relocation, it is quite rare in practice in actual cases of delocalisation. This might be connected with a lack of proper trade union counterparts in the destination countries of relocation, as there may be no unions to cooperate with in the plants to which production is being transferred. Moreover, at the time of relocation the interests of the workers at the plants involved may diverge substantially and collaboration can prove particularly difficult.

However, actual cooperation with trade unions in the foreign countries concerned is not always necessary for unions in outward-relocation countries to take into consideration working conditions at the destination locations. For instance, in a 2003 dispute at British Telecom over the offshoring of some call-centre activity to India, the Connect trade union (which organises professional and managerial staff) reached an agreement with management that included (alongside a commitment to avoiding compulsory redundancies in the UK) a commitment by the company to ensuring good treatment of workers in offshored operations. Worldwide 'codes of conduct', 'global agreements' or 'international framework agreements' signed in multinational companies can have similar effects. In recent years, increasing numbers of multinationals have signed such accords, which commit the company - and sometimes its suppliers and business partners - to observing certain standards and principles in its operations worldwide. These standards and principle refer to various aspects of workers’ rights, employment and other areas related to corporate social responsibility. Such agreements are usually signed by international trade union organisations, and sometimes EWCs (see, for example, EU0509205F, EU0509201N, EU0507205F and EU0410203N), or less frequently only by national unions. A recent example of the latter approach is provided by the Italian components multinational, Bitron, where a company agreement, signed in February 2004 by management and the three main Italian metalworking unions, introduced a code of conduct to be adopted in all the group’s plants around the world. The code concerns the enforcement of standard labour rules and rights, as well as equal opportunities, health and safety regulations, respect of trade union freedoms and independence, observance of ILO Conventions on child labour, and compliance with European environmental and safety regulations as regards the use of dangerous substances (IT0505102N).

Genuine cross-border union cooperation can more easily develop after relocation has taken place or within a multinational, as shown, for instance, by the case of trade union and works council representatives at Siemens in Germany, Austria, the Czech Republic and Slovakia, who met in July 2005 to consult about the company situation in general and in each country, at the invitation of the Czech Metalworkers' Federation KOVO (Odborový svaz KOVO, OS KOVO). In many cases, trade unions in the parent company provide support to workers’ representatives in the foreign subsidiary, as reported for the Hungarian operations of Audi, the German based auto group. This kind of cooperation is part of the standard practices of many European trade unions. In Denmark, for instance, this is an element of unions' strategy to prevent 'social dumping', as they favour the transfer of the national tradition of cooperation and participation to foreign subsidiaries and support the action of unions abroad, at both plant and sectoral levels. The potential for cooperation between unions in a multinational's different national operations can be multiplied when formal structures are in place, such as EWCs. This is probably why many unions have stressed the prospective crucial role of EWCs in coping with relocation processes.

Commentary

Relocation of production is one of the key issues that governments and social partners have to face in today's more internationalised and integrated world. It is probably one of the most tangible aspects of globalisation, which calls into question the effectiveness of national institutional frameworks. The social partners are clearly aware of the importance of firms’ location strategies. The great number of initiatives aimed at investigating the internationalisation of domestic firms carried out by both employers’ associations and unions, and the services that many employers’ associations set up to assist their member to design and implement delocalisation processes, clearly demonstrate the attention paid by the social partners to this issue. Indeed, the partners are contributing actively to the debate on the impacts of globalisation and relocation of production, together with national governments and local authorities.

The main difference between the positions of the social partners is that employers increasingly see relocation as an opportunity, while trade unions usually regard it as a fundamental threat. Employers seem to be particularly concerned with the reasons for relocation (ie the weaknesses of the domestic economic environment), while unions are especially worried about its results (ie the impacts on employment and the domestic economic system, as well as the potential erosion of existing protection levels). This distinction might just be a reflection of their different positions in the decision-making process on relocation: while employers govern the process until the decision is taken, the unions usually get involved at a very late stage and often can only try to cope with its consequences. Therefore, firms may be more interested in the conditions that might push them to relocate and unions may focus their attention mainly on the potential negative effects of relocation on the interests they represent.

It does not seem to be by chance, then, that the unions are more open to accepting the challenges of relocation where the industrial relations tradition and the presence of specific participation rights allow a certain involvement in the decision-making process, as in the Nordic countries. In these cases, the parties often also cooperate effectively at national level: in Denmark, for instance, the central organisations in industry held bipartite talks on the effects of globalisation and produced joint proposals that were presented to the government-initiated 'globalisation council' in 2005. Such initiatives contribute to defining a common framework to analyse relocation and may constitute the basis on which specific measures can be designed and implemented.

Closing the gap between the positions of employers and unions may be considered useful for a number of reasons: above all, because it could help to limit relocation processes that merely aim to reduce labour costs, and could foster more innovative, proactive development strategies. This is also an objective that seems to fit well with current EU strategies in both the economic and social domains. If this goal is regarded as desirable, then the fundamental challenge that connects relocation strategies and industrial relations is probably how to bridge the gap between the social partners’ positions. A tentative answer might include measures to reduce the social impacts of relocations and to strengthen the rules and structures allowing for early information and consultation. In other words, cooperation is much easier if the social partners can jointly control both the reasons for and the outcomes of relocation. Otherwise, each side will probably continue to concentrate on what is closer to its core interests. (Roberto Pedersini, Fondazione Regionale Pietro Seveso)

• ID: TN0511101S
• Author: Roberto Pedersini
• Country: EU Countries
• Language: EN
• Publication date: 06-02-2006