- Observatory: EMCC
- Published on: 02 March 2008
Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.
This report explores the employment impact of globalisation and reviews the attitudes and responses of national governments and the European social partners to this phenomenon in Luxemburg.
Luxembourg is a small open economy based primarily on the attraction of international investment. There is no longer so to speak any national private company. In addition, the economic fabric is to a great extent dominated by generally export-oriented SMEs.Observers note that Luxembourg has long benefited from the inward relocation of other companies. Today, Luxembourg is impacted by a global movement that is making production lines (of homogeneous products) leave for Eastern European and Asian countries: 2006 furthermore experienced a few company closures that made people think. And although the various players have not adopted any official standpoint, the question of Luxembourg’s competitiveness in the context of the structural changes brought about by globalisation is widely discussed. The government, for its part, takes the view that this globalisation movement is still in Luxembourg’s favour and that there are more companies that are settling in Luxembourg than there are that are leaving the territory. The approach of the various players today is not to prevent these movements but to ensure that their impact in terms of employment is compensated by investment in other activities. Over the years, the two sides of industry have therefore moved from a defensive to a proactive approach.Faced with the threat of relocation, the trade unions however state that there is not a lot that they can do about it. Whilst, implicitly, this threat influences negotiation towards moderation, they do not as a result intend to yield to “blackmail” as, in terms of pay costs in particular, Luxembourg compares unfavourably with low-income countries. Also, they emphasise the need for developing poles of competence that offer staff job security, not in their companies but in their sectors.
Institutional responses to globalisation
Government action to prevent or reduce the extent of off shoring/relocation
Are there any recent examples in your country (i.e. over the past 3-4 years) of the government intervening to prevent particular activities from being relocated abroad or to reduce the scale of this?
If so, please give summary details and indicate the activities concerned
In Luxembourg, there is no formalised governmental policy seeking to prevent corporate relocation. The government’s initiatives in the event of a desire to relocate are more oriented towards subsidising research and development activities, possibly enabling or, as the case may be, maintaining production or part of the production in situ.
It should be noted that Luxembourg until recently has been relatively spared by the phenomenon of corporate relocation to other countries. Luxembourg benefits from a certain attractiveness because of its central position and its advantageous tax system encouraging the maintenance of administrative and financial structures despite certain relocations.
At the time of its statement on the economic, social and financial state of the country, the government declared before the House of Commons: “The phenomenon of relocation towards Luxembourg shows that we are the winners of globalisation within the European economic area. The number of foreign companies that are established in Luxembourg is higher than the number of Luxembourg companies leaving the country in order to set up shop abroad”.
Source: Statement of the Luxembourg Prime Minister to the House of Commons, 02 May 2006
Social partner attitudes towards off-shoring/relocation
Have there been cases over the past 3-4 years where the possibility – or threat – of relocation of production has featured as a factor in collective bargaining?
If so, please indicate the cases concerned, how the possibility has been used and whether its use has become a more frequent occurrence.
According to the LCGB, in a sense, there is always implicit pressure during the negotiation of collective agreements. The threat of possible relocation can then lead to a certain moderation, especially with regard to pay claims. Generally, trade unions stick to the mandate laid down by the members. The trade union do not for as much declare itself ready for every concession because the situation in Luxembourg compares poorly with countries with extremely low labour costs. The LCGB furthermore cannot point to a single case where pay cuts or longer hours for the same pay had been conceded, for example. The unions’ concern is the risk of blackmail during pay negotiations that could present a company with the possibility of going abroad.
Generally, the unions believe that a company cannot be kept in Luxembourg. Most of the decisions furthermore are not taken by the company’s local management but by head offices located elsewhere.
In another sense, the threat of relocation can stem from agreements aiming at safeguarding employment. This kind of agreement is mainly negotiated in the industrial sector, especially in declining sectors. This was the case in the tyre-manufacturing sector (Textilcord, former Uniroyal production site taken over by an Austrian group) where a collective agreement in force until 30 June 2007 contains a guarantee of employment clause throughout the period of the agreement.
The impact of the threat of relocation on collective bargaining will inevitably depend on the strength of the unions at the company level.
Are there any cases over the past 3-4 years where trade unions have successfully resisted plans to relocate production abroad or have managed to reduce the extent of this?
The LCGB indicates that in the best-case scenario the negotiations tend to convince the company not to relocate its production as a whole but to propose a closure by stages.
The union says that it is difficult to act in the face of a company’s desire to relocate. It rather tries to release means aiming at the reclassification and retraining of the threatened personnel. More generally, the union is in favour of a preventive maintenance mechanism in terms of staff employment. Luxembourg indeed has just passed a law on maintenance in employment that institutes an information system at Economic Situation Committee of companies in difficulty (the Economic Situation Committee is a tripartite monitoring and advisory committee in the field of the economy). The trade unions asked for this system, the objective being to anticipate possible reorganisations or closures and to suggest to the company the installation of an arsenal intended for the reconversion of possibly threatened staff (via training, the loan of labour, and so on).
If so, please indicate the cases concerned and outline their main features. Are there any cases where trade unions have accepted the need for the relocation of production – or part of it – abroad as a means of maintaining or improving the viability of companies and so of preserving some jobs and even ultimately expanding them?
If so, please briefly describe the cases concerned
The LCGB indicates that it has never been convinced of the absolute need for any particular relocation. The OGBL cites the example of TDK which ceased producing DVDs in Luxembourg because the activity was no longer profitable at the scale of the market covered by that production site but which could have continued with a new product such as the HD-DVD, by generating sufficient added value. The union does not exclude the possibility of management error.
Government policy on foreign-owned firms controlling significant sections of the economy
Does the Government in your country have an explicit policy on restricting the acquisition of domestic companies in certain sectors by foreign-owned firms?
If so, please give summary details and indicate which sectors this applies to as well as whether any distinction is made between companies according to their nationality (e.g. whether non-European companies are treated differently from European ones).
No, and furthermore, apart from SMEs and the craft industry, there is no longer any large private sector company whose capital comes entirely from Luxembourg.
In 2006, Luxembourg transposed the directive on public acquisition offers into national law, a textual transposition of the directive that was criticised by the Chamber of Commerce and the Trade Council. Both trade associations reproached the legislative enactment for failing to deal with the economic aspects. The proposals of both trade associations particularly criticised the protection of Luxembourg company shareholders against frivolous bids or those not easily appreciable in terms of financial and economic opportunity.
Are there any restrictions on foreign-owned companies setting up branches or subsidiaries in your country either generally or in specific sectors?
Please indicate the sectors concerned and the stated reasons for the restrictions. Please also indicate whether the restriction apply to companies from other parts of the EU as well as from outside
No, on the contrary, the Luxembourg government positions the national territory as an ideal site for the installation of foreign companies by relying on various instruments such as the corporate reception facilities - incubating economic activities areas for innovative start-ups, financial support measures and economic prospection activities.
The Ministry of the Economy and Foreign Trade was thus able to support, in 2006, 27 investment projects and 23 Research & Development projects.
One should point out that the new installations testify to the tertiarisation of the Luxembourg economic fabric (the majority of the new investments relate to the electronic trade, the Information and Communication Technologies). Only two of the companies installed in Luxembourg in 2006 are involved in a traditional manufacturing activity.
Are there any sectors of the economy in which the acquisition of a domestic company has not been allowed over the past 3-4 years?
If so, please indicate the sectors concerned and the nationality of the foreign companies involved as well as the reasons given for the decision.
No, see answer above.
Social partner responses to the take-over of domestic firms by foreign-owned ones
Have there been any recent cases (i.e. over the past 3-4 years) where trade unions have resisted foreign acquisition of domestic companies explicitly because of the nationality of the company concerned?
If so, please give summary details, indicating whether there is any evidence of different attitudes being shown towards European firms as opposed to companies from outside Europe
At the time of the merger between Arcelor and Mittal, the trade unions declared that in addition to their fears relating to employment, they were mindful to safeguard the Luxembourg social dialogue model.
Furthermore, as mentioned above, the Luxembourg economic fabric primarily consists of foreign companies. Moreover, the trade unions believe that acquisitions or take-overs are sometimes beneficial for the company’s situation. Also they proceed with an evaluation of what would be the best solution for the company in informal tripartite discussions with a view to evaluating the quality of the taker-over.
Have there been any recent cases (i.e. over the past 3-4 years) where domestic companies have resisted acquisition by a foreign-owned firm on the grounds of its nationality?
If so, please give summary details, indicating the nationality of the company concerned and whether there is any evidence of European and non-European companies being regarded differently in this regard.
No, except for some SMEs, there are no more entirely Luxembourg companies. The case of acquisition by foreign company takers-over whose capital is completely held by the state has never arisen.
Attitudes to globalisation
Have employers’ associations in your country adopted a stated position as regards the main aspects of globalisation – i.e. outsourcing or the relocation of production abroad and the acquisition of domestic companies by foreign-owned ones?
If so, please give summary details, indicating whether or not the position varies across sectors of the economy
No, there has been no official position taken concerning the globalisation phenomenon. However, in 2005 the employers' organisations were alarmed at the slackening of the Luxembourg economy’s competitiveness indicators. A competitiveness assessment was undertaken in which the question of globalisation and the challenges of relocation were tackled and upon which both sides of industry abundantly commented.
Thus the UEL emphasised not only the need for promoting the competitiveness of the national economy and for improving the country’s attractiveness for foreign investors, but also the concern of ensuring diversification of the economy, which should not overly rely on the financial sector alone. The UEL recalls in addition that the flexible pay scale that envisages the automatic adaptation of pay to the cost of living index penalises companies in terms of competitiveness in the presence of an increasingly competitive environment. (Competitiveness of the Luxembourg Economy: Analysis and Proposals, UEL 2007)
Have trade unions in your country adopted a stated position as regards the main aspects of globalisation – i.e. outsourcing or the relocation of production abroad and the acquisition of domestic companies by foreign-owned ones?
If so, please give summary details, indicating whether or not the position varies across sectors of the economy.
No. But Luxembourg has exceptionally experienced some company closures or reorganisations in 2006 (TDK, Villeroy & Boch, Technicolor…) which marked people’s minds and were widely discussed. Thus, the President of the principal Luxembourg trade union – (OGBL) – stated in connection with the question of globalisation that all of industry cannot be kept in the North. Certain relocations correspond to real comparative advantages such as the climate or the presence of raw materials. But social and tax dumping would be the reason for the majority of activity redeployments. In Luxembourg, the case of the transport companies is an example. They are attracted by the level of taxes in the Grand Duchy, but are likely to depart again just as quickly as they arrived. “One cannot continue in this tax dumping spiral”, the President of the trade union believes (Relocations: Confronting the World, in Voxx, 14/04/2006)
*A Eurobarometer survey on globalisation was carried out in 2003 in the EU-15 Member States. This might serve as a useful point of reference for the countries concerned, to see, for example, whether or not national attitudes expressed in the survey are in line with similar surveys which have been conducted nationally. The survey findings are available at:
Have there been any surveys of public opinion in your country over the past 3-4 years on attitudes towards globalisation or on the various dimensions of this (as listed above)?
No survey has been organised by a national institution or organisation
|Have you, personally ever heard of globalisation?||61%||39%||77%||23%|
|Luxembourg||Too open||Too closed||Suited to the development of the global economy||Do not Know or No Answer||EU 15|
|Too open||Too closed||Suited to the development of the global economy||Do not Know or No Answer|
|Do you consider that our country’s economy is too open, too closed or is suited to development of the world-wide economy?||16%||18%||60%||6%||41%||31%||20%||8%|
|Luxembourg||Good opportunity||Threat||Do not Know or No Answer||EU 15|
|Good opportunity||Threat||Do not Know or No Answer|
|Does globalisation represent a good opportunity for Luxembourgian companies or represent a threat to employment and companies?||53%||43%||5%||56%||39%||5%|
If so, please summarise the main findings of these. Please give a breakdown, where possible, in terms of the characteristics of respondents (e.g. by sex, age, socio-economic group, education level, occupation, sector of employment or region).
Have these surveys made a distinction between the different dimensions of globalisation (as listed above) or have separate surveys been carried out on these dimensions?
No national survey has been carried out up to now.
If so, please summarise the main findings of these as regards:
off-shoring(or the relocation of production abroad;
the take-over of domestic companies by foreign-owned ones and/or the growing extent of control by foreign companies of parts of the domestic economy
the establishment of new plants and offices by foreign-owned companies
Where possible, please give a breakdown in each case in terms of the characteristics of respondents (e.g. by sex, age, socio-economic group, education level, occupation, sector of employment or region)
Have these surveys made an explicit distinction between globalisation and the process of European integration, by, for example, distinguishing between relocation of production to other EU Member States and relocation to countries outside the EU or between the take-over of domestic companies by EU-owned firms and take-over by non-EU companies?
See answer here above
If so, please give summary details of the differences in response to EU integration as opposed to globalisation.
Odette Wlodarski, Prevent