Relocation under debate

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During the second half of 2004, there has been a number of relocations of companies' operations from Spain to other countries, as part of a wider wave of company restructuring. This article examines the main cases, the reasons and the industrial relations aspects.

There has been considerable corporate restructuring activity in Spain in the second half of 2004, with substantial employment effects. According to the European Foundation for the Improvement of Living and Working Conditions' European Restructuring Monitor database, 6,564 jobs were lost in the six months to early November 2004. Catalonia has been the region most affected by these restructuring measures in terms of both the number of cases and the number of jobs affected, followed by Asturias, Valencia and Castilla La Mancha. Catalonia represents 30.2% of the job losses over the period, Asturias 24.2%, Valencia 8.5% and Castilla La Mancha 7.4%. Lower down the scale, Aragon represents 6.2%, the Basque Country 6.1%, Madrid 3.8%, the Balearic Islands 2.6% and the province of Córdoba 1.5%.

The recent restructuring and job losses have had various causes. For example, there have been: cases of workforce reductions aimed at increasing the productivity of companies such as Arcelor (steel), Babcock Borsig (engineering), Caballito (chemicals), DuPont (chemicals) and Nissan (cars)(ES0406207F); cases of bankruptcy and closure, particularly in the textiles sector, as at Ignacio Carner, Martínez Valero and Bonser Española; and cases of relocation of production abroad, as at Levi Strauss (clothing), Sáez Merino (textiles) (ES0410101N) and Panasonic (electronics) (ES0406101N).

Focusing on the cases of relocation, this is a process that has intensified in recent years (ES0402205F). According to commentators, many of the foreign-based companies involved decided to set up businesses in Spain due to tax benefits, available land, subsidies and cheap labour. They stayed in Spain while they continued to enjoy the benefits they had obtained, it is argued, but now both profit-making companies such as Levi Strauss, Panasonic and Moulinex (domestic appliances) and loss-making companies such as Sáez Merino are closing their plants in Spain and often relocating their businesses to countries with cheaper labour.

Context of relocation

There are a wide variety of reasons for relocation of operations to other countries, according to observers, including to: increase productivity; obtain tax benefits; achieve a more favourable currency exchange rate; find cheaper labour; obtain greater subsidies; or be closer to the target market. Each case is specific, but it is clear that the world economy has changed during recent years, with the increasing incorporation of countries such as China and new possibilities of production in countries with far lower unit labour costs and less developed labour market regulation than those of Europe. Another problem that European Union economies have had to face in the past few years has been the strength of the euro, which has weakened exports of European products. All of this is accompanied by a process of globalisation in which customs barriers are being reduced and often removed.

Current situation in Spain

Companies are adopting different approaches to their investments in Spain. Although the Martínez Valero textiles company did not have problems selling its products, it decided to stop production and close its plant because the development of the euro-dollar exchange rate did not favour its exports to the USA, which represented around 30% of its turnover. Other reasons that the company put forward for its closure included that the demand for its production is highly seasonal and that the company could not deal with this with high fixed costs. DuPont simply decided to change its production activity, whereas Talgo (transport and storage) was unable to meet its international commitments and decided to make a workforce reduction after falling profits in recent years. Sáez Merino states that it is subcontracting production in North Africa due to a predicted unfavourable development of the market in 2005 caused by the liberalisation of the textile sector and the entrance into European markets of countries like China, with high customs duties. Nissan Ibérica, however, is planning to increase Spanish production to 125,000 units in three shifts, introducing a 'dual wage scale' (whereby new workers receive less pay than those workers already employed in the same category). Thus, not all companies are deciding to relocate, particularly in cases in which the manufacture of their products requires specialised workers or facilities with capital goods that are capable of producing with high added value.

Though Spain has high production costs in comparison with Asian and African countries, it also has skilled labour and certain sectors have made large investments in capital goods that make relocating less attractive, according to commentators. Despite this, Spanish industry suffers from a lack of specialisation, placing it in the same category as some countries that can produce the same at far lower costs, and there is a risk of relocation in the next few years if Spain fails to react appropriately, it is argued. The public authorities have responded late to the increase in relocation and reacted to events rather than anticipating them, critics allege. However, the problem is now on the agenda and in some cases relocation has been avoided in exchange for cuts in aspects of employment conditions at Spanish operations. Examples of this are Talgo, Caballito and Nissan. When regional governments have authorised the corresponding redundancy procedures initiated by such companies, the trade unions have done no more than make a token response, some observers argue.

Commentary

The first step to be taken in order to deal with relocation is to create an awareness that one of the disadvantages of globalisation is the intensification of the circumstances of change in which companies gain or lose competitiveness. It must also be realised that Spanish industry should be fundamentally based on the strategy of continual improvement rather than low costs, which increase the instability of the labour market, marginalising women and younger workers and eroding the achievements of the welfare state. Therefore, the strategies devised and put into practice by the public authorities must serve as a reference for the structuring of an industrial fabric geared towards producing products of high added value. Measures of support for research and development are to be praised, but it must not be forgotten that the these measures must be sustainable, and that Europe is not the only place in which this strategy is being applied.

The fact that the risk of relocation is present in the whole European Union requires a joint approach. There is a need for the development of a common industrial policy capable of coordinating a specialisation of European industry through common fiscal measures and a selection of the strategic European sectors. (Diego Fernández-Palomero Morales, CIREM Foundation)

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