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The Complexities of Relocation and the Diversity of Union Responses:

Efficiency-oriented FDI in central Europe

G Meardi, P Marginson, M Fichter, M Frybes, M Stanojevi, A Tth

1. Introduction

Drawing on research findings from a study of the operations of German- and US-owned

multinational companies in the automotive components sector in three central European

countries, the paper has two main aims. The first is to examine the widely invoked, but

loosely defined, claim that much foreign direct investment into central Europe in themanufacturing sector involves relocation from western Europe, and thereby to refine the

conceptualisation of relocation. It is argued that in a sector where investment flows are

primarily determined by efficiency considerations, the EUs eastern enlargement has

prompted the international reconfiguration of production, entailing complex multi-directional shifts in production across borders. Despite an apparent structural shift of

manufacturing from the old to the new member states (Pilat et al. 2006) and some mediaalarm (e.g. All roads in Europe are pointing East for carmakers, Financial Times,

15/6/2006), relocation is a contingent, not a pre-determined, outcome. The second is to

present and account for the range of responses from trade unions, in central Europe butalso in the west, to this international reconfiguration of production. Appropriate trade

union strategies, it is argued, can be focused at the local as well as at cross-national level,

according to circumstances.

The paper is organised as follows. A first section will outline the different forms ofcontingency that affect the nature of relocations and, subsequently, trade union responses.

The following ones will examine these factors in detail through sector-level informationon the automotive parts sub-sector and through company case studies: three sections willdiscuss, respectively, sub-sector-level, company-and plant-level, and actor-level

contingencies. The conclusion will consider implications for the Europeanisation of

industrial relations in multinational companies.

2. The contingency of relocations

a) The complexity of relocation decisions

Despite widespread fears of, and attention to, the potential employment consequences ofrelocation amongst the EU-15 the available evidence suggests that relocation in its

strictest sense, when productive activity is directly transferred eastwards from a location

in the old member states to one in the new, is relatively rare. Of the job losses arisingfrom company restructurings across Europe documented by the European Monitoring

Centre on Change, around 5 per cent are attributed to relocation over the period from

2003 up until the end of 2005. These involved over 70,000 redundancies in some 200companies (Pedersini, 2005). Even if the EMCC, given its methodology based on press

reports, probably greatly underestimates the volume of restructuring cases, the proportion

of relocations is unlikely to be overestimated, as these are exactly the cases that attract


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most media interest. An assessment prepared by the European Commission (2006: 65)

cites findings on the employment effects of relocation from selected studies relating to

Germany, Austria and the Netherlands. Estimates of job loss between 1990 and 2001directly attributable to relocation in these countries varied between 0.3 and 2% of total

job losses.

In addition to direct relocation, there is also scope for indirect relocation. This iswhere investment projects which might previously have been located in the EU-15 are

instead located in one of the new member states. Because of the dynamic nature of

investment decisions, and where to locate them, it is frequently less than clear cutwhether an indirect relocation has indeed taken place; hence there are no reliable

estimates of their possible magnitude. A further effect on employment comes from the

threat of relocation, which frequently has the effect of inducing cost-reducing and/or

efficiency-enhancing changes in existing operations in the EU-15 which themselves haveemployment consequences. Examples include the high profile cases of Siemens in

Germany and Bosch in France, over the summer of 2004 (Pedersini, 2005). Again there

are no reliable estimates of the scale of such threat effects available.

In order to understand both why actual relocations appear to be less widespread thanfeared, but also to uncover the circumstances under which relocations direct and

indirect and the threat to relocate are more (or less) likely to be occur, it is productive toadopt a contingent approach. The approach is based around a number of distinctions,

each of which has bearing on the scope for relocation, actual and threatened. The focus is

relocation of activities across borders within multinational companies, and not withinternational outsourcing of production to independent suppliers in other countries (for

elaboration of this distinction see Galgczi et al, 2005).

A first distinction is between market- and efficiency-oriented motivations for foreign

direct investment (FDI), in which the potential for relocation largely arises under thesecond. An important part of inward investment into the new member states is market

seeking in nature, motivated by the opportunity of opening up new markets for products

and services (European Commission, 2006: 64). Such investment by its nature is marketexpanding, and the largest share involves service activities which by their nature need to

be produced close to the point of consumption. Scope for relocation is minimal and jobs

may actually be created for some functions in western sites. In contrast, efficiency-oriented FDI is motivated by considerations of comparative labour costs and/or labour

quality and/or labour productivity, in which companies are looking to take advantage of

superior unit labour cost conditions in the new member states as compared to those

prevailing in the EU-15. Given significant differences in labour costs, the presence ofworkforces with established skills and qualifications, and improving labour productivity

amongst the new member states (Marginson and Meardi, 2006), the resulting scope for

relocation is potentially extensive.Second, a crucial distinction has been drawn between a first wave of efficiency seeking

FDI into the new member states, which involved outward processing activity based

almost exclusively on the search for cheap labour, and a second wave, in which theemphasis is on labour quality, flexibility and productivity as well as costs (Fichter, 2003;

Radosevic et al., 2003; Rojec and Stanojevi, 2001). This structural shift in the nature of

efficiency-oriented inward investment into central eastern Europe, which has been

underpinned by declining unit labour costs as productivity has risen faster than wages,

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has been widely documented (e.g Graziani, 2002; Lad, 2001; Tholen and Hemmer,

2005). The Czech Republic and Hungary in particular have increasingly specialised in

medium-high technology manufacturing: the share of high and medium-high technologyin total gross value added in these countries rose from 6% in 1994 to 10% in 2002,

against an unchanged average of 8% in the EU (Pilat et al. 2006). Whereas the first wave

essentially involved the transfer of labour-intensive, low skilled operations, the secondwave of efficiency seeking investment involves the reconfiguration of production

networks in Europe. This results in a more complex reorganisation of activities across

different locations than the direct relocations associated with the first wave of efficiency-oriented FDI. As both Galgczi et al (2005) and Pedersini (2005) recognise, it becomes

more difficult to assess the employment impact, either overall or at specific locations.

Moreover, given the role of human capital in second-wave activities, employer

commitment to the workforce (including job security and scope for social dialogue andcompromise) tends to be stronger.

Third, the nature of these international production networks and the role of new and

acquired sites in the new member states within the network is likely to have a bearing on

the scope for relocation. Considering the nature of these networks, three possibilities canbe identifed. The first two flow from the possibilities that the twin processes of market

integration and enlargement open up for multinational producers to simultaneouslysegment and coordinate their operations on a pan-European scale. As a result numbers of

MNCs are radically adjusting their value chains, in which different activities are

segmented across borders, depending on skills and cost considerations (Kaplinsky, 2001).Such segmentation can vary in the extent, if any, of the vertical integration of sites within

the international production network that it involves. This can range, first, from instances

where sites solely supply other sites that are final assemblers of products (which we call

segmentation) to, second, those where each site is itself the source of distinct products forthe market, and sites compete for product mandates from the multinational parent (which

is best defined as segregation.) Edwards and Zhang (2006) draw attention to an

alternative logic for organising international production networks.This third possibilityinvolves standardisation of production at a series of different locations that are

comparable to each other. This is ofclear relevance in the service sectors where FDI is

motivated by market access. But they show that it is also relevant in those parts ofmanufacturing under two conditions. The first is where products might be perishable

and/or transportation costs high and/or major customers require just-in-time delivery or

after-sales service, conditions which are consistent with a market access logic for FDI.

The second is potentially relevant to efficiency-oriented FDI, and arises where productionis technologically difficult to separate across borders. An example is large machinery

manufacturing, where segmentation is not pursued. Relocation could occur if unit labour

cost considerations prompted the establishment of a parallel operation in the new memberstates to source part of the enlarged European market. In other words, the similarity of

sites across borders can lead to direct competition, relocation, and possibly vertical

restructuring if a segregation strategy is followed; to coexistence, but under conditions ofongoing review of product mandates, if a segregation strategy is preferred; and to the

establishment of new capacity, with potential future relocation consequences, is a

strategy of standardisation is pursued.

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A fourth consideration is the extent to which location decisions of companies are

autonomous, or are driven by those of major customers. In some sectors, such as

automotive components, the location decisions of powerful customers who demand just-in-time delivery effectively require suppliers to follow them to new locations (UNICE,

2005). In other sectors, companies have greater discretion over the choice of which

locations to supply their customers from.Fifth, the potential for relocation is far from being bounded by the enlarged borders of the

EU; relocation has a global as well as intra-European dimension in which some

production activities (not all low skilled) are moving to Asia, North Africa or extra-EUEuropean countries. The extent to which there is scope for extra-EU relocation would

seem likely to vary between and within sectors, according to factors such as technology,

skill requirements and the need for proximity to major customers.

b) Implications for union responses

Potential union responses to relocation have been distinguished, in an actor-centred way,

by Erne (2004) along the twin axes of democratic/technocratic and European/national. In

drawing on this framework an analytical as against normative approach to actorsstrategies must, as urged by Ramsay (1997), be sensitive to the contingencies affecting

both axes, such as product market, role of labour costs and vertical integration.On the European-national axis, the nature of the product market (including the incidence

of labour and transport costs, and the degree of production standardisation, segmentation

or segregation) may make European answers appropriate whenever the product marketmore or less coincides with the European space. By contrast, where Asian competition is

stringent and relocation beyond Europe a distinct possibility, union interest in European-

level action will be undermined. Alternatively when local production systems have a

degree of autonomy, the strategies of local competitive solidarity (Streeck 2000) couldbe most appealing.

On the democratic/technocratic axis, contrary to Golden (1997) the choice to mobilise

against job losses does not necessarily follow from a shortage of information, amisunderstanding of the situation, or specific political conditions. In multinationals,

information on inter-site comparison may be available (e.g. through the EWC), and there

is potential for union cross-border information and therefore informed democraticstrategies (events at Renault and GM Europe contain elements of this). The range of

available options depends on the seriousness of competitive pressures on labour costs

stemming from coercive employer comparisons if they are weak, local development

strategies may be preferred to European solutions, while if they are extreme, there areunlikely to be any market-viable solutions, and therefore political intervention remains

the only safety net. Only in mid-way situations of serious but not extreme threats, and

when the product market is European, will European answers be appropriate and viable.In such situations there is potential for EWC intervention, starting from information-

sharing in order to assess the real nature of the threats.

In addition, integrated production is more conducive of union strategic action; so too is adegree of similarity of business activities across sites in different countries (Marginson et

al, 2004). An important implication is that, as argued by Huzzard et al., 2004, the

technocratic and democratic approaches can be combined, at both the local and the

European level.

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Table 1 shows the effects of each contingency on union responses to relocations. The five

contingent factors are not mutually independent, though. The first, in particular, affects

the second, third and fourth. The second in turn affects the third and fifth. However, allshould be considered in a multi-level analysis (sector, sub-sector, company). Higher level

constraints limit the choices available at lower level, but do not obliterate them, as the

variety detected in section 4 will illustrate.

3. The automotive component sector in the enlarged EU

Through a comparison of the motor, apparel, and maritime industries, Anner et al (2006)highlight how union answers to international competition are sector-dependent. Here we

add the importance of sub-sector and geographic contingencies: the specific product and

labour-market contingencies on the one side, and the regional dimension on the other. In

this regard, the automotive component sector in the new EU member states differs fromboth the motor industry as a whole, and from the global and the former EU15markets.

As a whole, the automotive sector is considered as among the winners of globalisation,

due to its high fixed- and human-capital intensity. Its process of internationalisation has

allowed a specific form of trade union cross-border co-operation, focusing on firm-levelEuropean (and in some cases global) works councils, which have coexisted with the

maintenance of national union strategies in each country in the form of pacts foremployment and competitiveness (Zagelmeyer 2000). Fixed capital means that labour-

cost driven relocation are not that a viable short-term option, and high human capital

involves space for employee voice and participation, as well as the possibility ofdefending high wages through high quality and productivity. As an effect, national-level

compromises have remained distinct in spite of converging global pressures (Katz and

Darbishire 2000.)

The opening of global markets and the increase of foreign direct investment in this sectorhas reduced neither employment nor relative wages in the triad of core producers (Japan,

USA and Western Europe) between the late 1970s and the late 1990s (Spatz and

Nunnenkamp 2004.) In 2003, the opinion-making German magazine der Spiegelcouldstill title Autoindustrie: die Job-Maschine (Spiegel, no 37, 8/9/2003), referring to the

major planned investments of Daimler, BMW, Porsche and Volkswagen within

Germany. Such a rosy picture, however, hides important sub-sector and regionaldifferences. Notably, the parts and components sub-sector (whose importance is

increasing due to the parallel process of outsourcing and value chain fragmentation)

reacts differently to globalisation than vehicle production. The degree of labour intensity

differs: in Germany, the ratio of workers to sale is 2.5 higher in the production ofautoparts than in that of automobiles and engines (Spatz and Nunnenkamp 2004.) Weight

and therefore the transportability of the product also differ: because they are more easily

transported, parts are more exposed to foreign competition.The implication for trade unions in traditional car-making countries is that in the

component sub-sector it is more difficult to keep both high wages and employment.

Liberal-market economies such as the USA have witnessed an increase in intra-industrywage differentials, while a country with centralised sector-level wage bargaining such as

Germany has avoided this but could not prevent a decline in employment in the

components sub-sector (ibidem).

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This divergent intra-industry process must be seen in the context of internationalisation.

While in 1978/79 the German automotive industry imported only 6% of its inputs from

low-income countries, by 1997/98 the figure was 30%, and increasing (ibidem). Themain origin of these parts (over a half of electrical parts, and a rapidly increasing share of

engines) is Central Europe. Internationalisation of automotive production chains does not

involve far countries (such as the Asian ones, where foreign direct investment in thissector is market-seeking) but proximate, lower unit-labour cost countries within the

context of regionalisation: NAFTA and the enlarged EU.

In the new EU member states, the automotive sector is the most important industrialsector for inward FDI, second only to financial services (which is mostly market-

seeking.) Within this sector however there has been a clear transition at the end of the

1990s, with the progress of EU integration, at the same time as a second wave of

investment replaced labour-intensive activities with more human-capital intensive ones(Rhys 2004). In the 1990s, investment was mostly in car assembly using imported parts,

for market-access reasons (most Central European countries still had tariffs on car

imports.) In the 2000s, car parts and components rapidly gained importance and

overcame car assembly. This is particularly visible in Poland as well as in the CzechRepublic, where the government agency CzechInvest claims that nearly every car

produced in Europe contains Czech-made components (as quoted in Sperling 2004:190). EU access, by eliminating the last non-tariff trade barriers, has made cross-border

production reorganisation extremely easy, and 90% of components as against 60% of

finished cars produced in the region are re-exported.Regional integration involving areas with much lower labour costs changes the

employment effects of internationalisation. While classic theories of trade assume mutual

advantages through specialisation, this holds true only between similarly advanced

countries. When countries differ strongly in their factor (labour and capital) endowments,the adjustment pressure can be much greater. The analysis by Spatz and Nunnenkamp

(2004) finds that the negative correlation between share of imports in production and the

relative wage of low-skilled workers in Germany is stronger for automotive parts andcomponents than for automobile assembly. Not all automotive workers are among the

winners of globalisation, then. After EU enlargement, and only a year after its above-

mentioned confident analysis, the same German magazine had to headline Bye-byemade in Germany (Der Spiegelno 44, 25/10/2004.)

Yet the view still frequently met among western experts and employee representatives

of Central Europe as late industrialising (or even less developed) countries (and

therefore comparable to Mexico within NAFTA) is misplaced. Post-communist countrieswere heavily industrialised and still have a large pool of skilled workers, even if technical

education has become less popular after 1989. Indeed, former Czechoslovakia, Hungary

and Slovenia are, in terms of employment, more industrialised than Germany, and theirmarket share in total OECD manufacturing market has doubled in 1995-2003 (Pilat et al.

2006). Even if in communist-times industry was lagging technologically, the shortage

economy paradoxically required, to compensate for the frequent lack of appropriate toolsor components, particularly flexible skills on the part of employees. This has been

quickly discovered by foreign investors. Volkswagen, which originally expected the

newly-acquired Skoda to be a low-segment platform, found that Czech employees were

even better qualified than its German ones and that Czech-made cars quickly

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cannibalised its more upmarket western brands (Sperling 2004), while Fiat upgraded its

Polish factories to models of innovation for the Italian ones (Meardi and Tth 2006.)

Spatz and Nunnenkamp (2004) expectation that readjustment would concentrate highhuman capital production in the West applies only to some niches. The low productivity

levels in aggregate of the new EU member states economies are due to the enduring

technological and infrastructure gap, and to the enduring weight of agriculture in somecountries, rather than to human capital. In the internationalised sub-sectors where

investment in technology has taken place, productivity has reached western levels very

quickly, leading to widening gaps in unit labour costs (Dyker 2004). Given thecompetitiveness of human capital in CE, relocations are potentially more attractive in

human capital intensive productions than in other because the impact of labour costs is

higher. The Czech Republic has quickly become the fourth most attractive country in the

world for R&D projects in the automotive sectors (Czechinvest 2005), but Slovenia andHungary follow close behind, with large companies such as Audi and General Electric as

frontrunners. It is likely that extra-EU owned companies (especially American) are more

prone to concentrate R&D in the new EU member states than west European ones, but in

the medium-long term it remains that competition affects all employee groups in thesector.

Such competition manifests itself in forms that evoke the image of social dumping.Large investors take their location decisions after tenders remaining beauty tests giving

the impression that labour costs and employer-friendly labour regulations are crucial.

Local foreign investment agencies treat labour considerations as an important asset inopen competition with the neighbours: the Slovaks stress low overall labour costs, and

that the World Bank has awarded them the title of most flexible labour market in Europe

(www.sario.sk); the Czechs highlight the low indirect labour costs, that there is no

history of large-scale strikes, and that union membership has fallen from 2,292,000 to610,000 (11% membership) between 1995 and 2005 (www.czechinvest.com); the Poles

are proud of having the longest working hours in Europe (www.paiz.gov.pl); the

Hungarians argue that they have the lowest earnings for highest productivity in theCentral and Eastern European region (www.itdh.hu).1

The implications for European trade unions are twofold. First, given the lower impact of

fixed and of transport costs, relocations are likely to be a greater threat for componentfactories than for assembly ones. Second, cross-border restructuring could be expected to

lead to concentration of human-capital intensive production in western Europe, and of

lower skilled production in the cheaper new EU member states. Keeping in mind Anner

et al (2006)s observation that in the automotive sector cross-border union co-operationtakes place at firm level, these implications would expose employee representatives to a

particular difficult situation . Not only would international competition be stronger, but

those auto-component workers working in smaller firms (excluding mega-supplierssuch as Delphi) would lack the stronger firm-level representation channels (e.g. EWCs)

of large car makers. Moreover, the geographic divide could overlap with professional

divides making cross-border understanding more difficult. Fichter et al (2004), whilestudying German FDI in Hungary, had already noticed how international restructuring in

some cases changed the nature of the German sites works councils: from blue-collar to

white-collar dominated, leading to a changed union ethos and diminished mobilisation

1 All websites accessed on 24th July 2006.

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http://www.sario.sk/http://www.czechinvest.com/http://www.paiz.gov.pl/http://www.itdh.hu/http://www.sario.sk/http://www.czechinvest.com/http://www.paiz.gov.pl/http://www.itdh.hu/


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capacity. In manufacturing, it has not always been easy for trade unions to combine the

representation of production workers, specialists, and white-collar employees. Indeed, in

some countries these categories are organised in different trade unions, and there havebeen historical cases of direct opposition between the two (e.g. the Fiat strike in Italy in

1980 and the counter-mobilisation of clerical workers.) In an extreme scenario, western

EWC white-collar reps would sit alongside eastern blue-collar counterparts: they wouldbecome less directly competitors, but also less able to understand each other on working

conditions and employment prospects. The evidence from Central Europe to date as the

next section will show in detail mitigates such a radical scenario, but does not provide arosier one: competition is widespread even if not in just one direction or on one

dimension.

To summarise, the automotive component sector is particularly interesting for

considering relocations for a number of reasons: it is regionalised rather than globalised(90% of production sold in the EU is produced in the EU); both labour skills and labour

costs are important (lower capital intensity than car assembly), and human resources in

the new EU member states are comparable to the western European, while much cheaper;

foreign investment in this sector is purely efficiency-seeking (90% of production inCentral Europe is re-exported), more so than final car assembly. This makes this sub-

sector different from others, where investment is market-seeking (e.g. food, services) oronly labour costs matter (e.g. apparel), and the enlarged Europe different from other

regional blocs such as NAFTA, where human resources are less similar. It is a valuable

test bed for the possibilities of negotiating and regulating international employeecompetition.

4. Case studies from the new frontiers of European autocomponent production

As discussed in the previous sections, sector-level contingencies are integrated bycompany-level ones, relating to both product- and labour markets. This can be shown

through the findings of research conducted from 2003 to 2005, involving a total of 12

plant case studies in the automotive component sector, four each in Hungary, Poland andSlovenia. In each country, the research design contemplated two German- and two US-

owned cases, but in Slovenia (where the number of investors is not large) two cases are

actually hybrid, with a history of different investors from different regions. Interviewswere conducted with management representatives (plant directors, production and human

resource managers), employee representatives (either trade union or works council), trade

union officials, local actors and, where possible, management representatives at the

European headquarters and employee representatives on the European Works Councils.Of the five contingencies mentioned in section 2, the first (efficiency v market-

orientation) is constant within the sector, and therefore is excluded from the analysis. The

other four factors, together with the effects on relocation threats and industrial relationsresponses, all appear to be relevant, as summarised in Table 1. Plants are indicated by an

acronym indicating home and host country (A: American, G: German, M: mixed,

followed by H: Hungary, P: Poland, S: Slovenia.)Overall, across the case studies the examples of direct cost-driven relocations are rare:

three among twelve companies, and of these one was from Poland to western Europe, for

broader efficiency reasons than just labour costs. However, relocations as a threat and

coercive comparisons are a daily reality in most plants. In the most integrated companies,

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it is usual for production teams to have open displays with their weekly production and

quality results compared to those of the other company plants.2 International competition

is a direct experience for most employees, and not just an issue for the strategic level.The intensity of inter-site competition affects employees differently, though, depending

on the role of labour costs in investment motivation. In none of the case studies labour

costs are the only motivation: both employee representatives and, especially, managersstress the importance of skills, supply network reliability, public incentives and tradition

(especially in the cases of brownfield investment). However, labour costs have played a

primary role in three cases, and an important one besides others in another seven. Inthe former, relocation are an explicit issue in two cases (GH2 and, if on a minority of the

production lines, AP2) and an indirect issue in the third (AS), where inter-site

competition occurs in the form of contest for attracting future investment projects. This

form appears to be overall more frequent, and although less urgently critical, it remains aconstant consideration in industrial relations.

Competition for the new investment exists also in the seven companies where labour

costs are important, but beside other considerations such as quality and flexibility, while

actual incidents of relocations are rare (and in one case, AP1, from the East to the West).At AH1 threats have materialised, first for blue collar workers and then also for white

collar ones (finance, accounting, logistics and customer service.) In the other three casesrelocations have occurred in the past (GH1, AH2) or are still currently threatened (GS).

In the other two (AH2 and MS2) relocation threats are rather remote or very indirect.

Finally, there are two cases (GP1 and MS1) where labour costs were a secondaryconsideration in comparison to quality, development and flexibility. As expected, here

relocations are only remotely threatening.

The second important issue is location autonomy. Most of the case studies come from

rather autonomous producers of easily transportable components, and they have sufficientmarket power to have an own location strategy. Only for two of them location choice

followed client choices (AP2 and GH2). As expected, relocations in these cases are

decoupled from employment relations considerations: in one case they are not an issue,and in the other they are only within regional boundaries, in competition with

neighbouring countries but not with western Europe. In both, however, later upgrading

has increased the site autonomy. The situation can be obviously very different in the largenumber of smaller, often second- or third- tier suppliers, which are not covered by our

research.

The third important company-level contingency relates to the degree of vertical

integration and standardisation. The process of outsourcing and fragmentation in theautomotive industry has been particularly fast since the mid-1990s, and combined with

the parallel process of internationalisation, causing strains on sector-level arrangements

and allowing diversification of employment policies for different segments of the valuechain, often located in different countries (Faust, Voskamp and Wittke 2004.)

In case of vertical integration, there can be organisational integration or deep

segmentation. This variable affects not only (in various way) relocation threats, but aboveall the industrial relations implications. Vertically and organisationally integrated or

2 CE employees also frequently show their pride for their high position in such tables: for instance in Ger1

the Polish employees stressed how they outperformed their German colleagues on Ordnung und

Sauberheit (order and cleanness.)

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standardised companies relying on continuous transfer of semi-products, technology and

information between different sites, indirectly encourage stricter standardisation of work

organisation and a degree of industrial relations harmonisation. The continuous flow ofinformation and contacts, and the requirement for highly standardised production imply

that employment practices cannot be divergent. Research on the eastward extension of

the EWC (Meardi 2004, Vo 2006) has shown that these are the cases where avoiding bigcultural or employment conditions gaps between sites is in the employer interest, for the

sake of joint projects and common understanding of productive issues. More generally,

multinationals recent concern with business techniques such as program management,benchmarking, performance measurement may lead to more general mutual learning

between stakeholders, and encourage global strategies of local players (Kristensen and

Zeitlin 2005). The situation is different in plants working on specific products or semi-

products, often allocated to them on the basis of cost considerations, with littleintegration with other sites. Here, cross-border dialogue has less space to develop.

The company with the strongest operational integration, GP1, is also the one with the

strongest employee-side network of co-operation and information sharing. The

establishment in the Polish location of industrial relations more similar to the Germanthan to the Polish model is a welcome outcome for the corporation. Just as the company

actively promotes the use of the German language, cross-border contacts between workscouncils and trade unions are seen as a tool to avoid conflicts and distortions of corporate

projects. A broader socialisation process, including corporate culture, takes place, and

even the EWC is instrumental in this goal. To a lesser extent this has occurred also inGH1 and interestingly, only after the Hungarian subsidiary had been substantially

upgraded. By contrast, plants such as GP2, AP1 and GS are entirely responsible for

specific products, and while they are in competition with some other sites, cross-border

co-operation is occasional, and mutual knowledge limited to little more than anecdotes,stereotypes. Although GP2 is covered by a long-established EWC, the 500-employee

Polish plant in 2004 was still not represented in it, and the German works councillors did

not see their integration as a relevant issue.A final factor affecting both the extent of relocation threats and the forms of employee

responses is competition with extra-EU sites and more indirectly competing

companies. Direct competition with China subsidiaries is most compelling in AH1, whileGP2, GH2, AS feel the pressure from cheaper Eastern European locations: Romania,

Ukraine, Croatia. The emergence of this problem is relatively new and combined with the

already mentioned process of transition from first to second-wave FDI at the end of

the 1990s. At GH2, for instance, relocation of part of the production to Romania in 2003came as a shock and changed plant-level industrial relations that had been previously

improving. In these cases, EU-level institutions such as the EWCs become largely

redundant, because they do not correspond to the geography of the product market. Whilein the case of Romania, and to a lesser extent other European countries such as Turkey

and Ukraine, an extension of the EWC is realistic, when competition is with Asia the

difference between Europeanisation and globalisation of industrial relations (Mller,Platzer and Rb 2004) becomes apparent, and Hungarian employee representatives at

AH1 feel very distant from their western European counterparts.

To conclude, the four company-level factors examined all exert some effects on the

problem of relocations, determining both the nature of the threat to employees and for

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the last two contingencies, i.e. vertical integration and extra-EU competition the space

for employee responses. The latter will be examined in the next section, to assess if

further, actor-level factors need to be considered.

5. Trade union responses

While in aggregate terms the significance of relocation threats is more limited than inpopular representations, in those situations where the threat - with its often dramatic

social implications is real the answers by trade unions are important for both the

understanding of local outcomes and the possible further developments of unionstrategies as strategic actors.

Removing from the analysis the three case studies where the relocation threat is currently

only remote (AP1, AH2, MS), we are left with nine cases where the capacity for cross-

border employee reactions and arrangements varies sharply. Four different scenarios areparticularly clear.

One extreme, if isolated, case, which may be labelled as pro-active strategy, is detected

in GP1: here there has been an early union engagement in internationalising company-

level industrial relations, through the European Works Council, a global works council,and a number of other international projects which translate into daily contacts through

specific international teams on both works council and management sides. An importantlimitation of such strategy is that it does not cover the Chinese operations but these are

mostly market-seeking and therefore not in competition with European sites.

Management, as already mentioned, has supported such efforts. The main strategy is anattempt at exporting the German model rather than defending it at home, and to enforce a

spirit of fair competition between sites. Through early consultation and information

sharing, important investment in the NMS has not involved job cuts in the German sites

although these have come later under strong competitive pressure. According to theGerman works council, investment in the East has, through market expansion,

createdthousands of new jobs for the German plants, although the net, direct employment

effect is impossible to determine precisely. All investment decisions abroad haveobtained preliminary approval from the German works council and have been discussed

in the European Works Council. Such international procedures explicitly exclude,

however, the discussion or negotiation of wages.Union engagement also took place in the case of the similar plant GH1, although in this

case it was slower, and it was initially resisted by management. Company-specific factors

that allowed consensual expansion of western solutions were missing, and therefore some

preliminary organising effort (as against a social partnership approach) was required.Also, in this case a net negative employment effect for groups of German employees

could not be avoided, and location decisions had not been subject to consultation. GH2

resembles this second scenario of co-operation through organising, even though in a moredifficult market situation.

An opposite, more defensive strategy from German unions is detected in GP2, another

large German company, andprovides a third scenario. The Gesamtsbetriebsrat chairdefends German arrangements rather than proposing their extension eastwards, arguing

that fifty years of union experience cannot be acquired in ten years (our interview.) A

similar argument is used about production, to defend German employment: in terms of

productivity you cant compare people who have 200 years of industrial experience with

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people who have nearly no industrial experience (ibidem). The German union has had

some success through local strategies: it has negotiated restructuring in several German

sites and obtained (through a mix of resistance, mobilisation, expertise and politicalexchange involving local authorities) some social guarantees, but could not avoid

continuous cost competition from Central Europe and cuts of hundreds of jobs directly

due to relocations eastwards. The European Works Council is active but in a ratherreactive way, with no negotiation role. In 2004, it already covered some operations in

central Europe (those more vertically integrated with the German ones), but not the

Polish plant, of 500 employees, on the grounds that it was not in direct competition withGerman sites (although it is with Spanish, Italian, French and especially Turkish sister

factories.) In spite of business similarities with the two previous case studies, the

different degree of vertical integration and of geographic competition has meant that EU-

level cross-border employee co-operation has had much less space to develop. Thecompany, in spite of its business being definitely global, has an adaptive approach in

industrial relations, which in turn promotes local union strategies rather than co-

ordination. The German views mentioned above are reflected by similar and equally

misinformed - views among Polish staff about their German counterparts. Defensiveviews in this case lead to a scenario of weak or missing cross-border links. AP2, a non-

unionised factory where Polish workers deem trade unions to be western luxuries, canalso be associated with this scenario.

A fourth scenario is that of competition and diffidence. One of the case studies (AH1)

includes experiences of tensions between western and eastern employee representatives,which were catalysed by the apparently technical issue of how to share seats in the

enlarged EWC. Here, inter-site competition operates not only on employment and

relocations, but also through coercive comparisons on employment conditions, with for

instance management trying to introduce Polish practices in an Italian plant againstlocal union resistance. Diffidence among western trade unions towards their eastern

counterparts is even more apparent than at GP2, with questions raised as to whether they

are really unions. Europeanisation through the EWC had worked well within westernEurope, but is struggling to cope with the new geography of production, including the

company decision to relocate their European headquarters from Spain to Hungary and the

increasing direct competition from Chinese subsidiaries.We finally have to add the rather specific situation of the Slovenian plants (AS, GS and

MS2), which does not fit with any of the above-mentioned scenarios. Here, trade unions

are relatively strong, organisation is quite internationally integrated, but company-level

cross-border links are still rather weak. The reason may be similar to the one that hasdiscouraged Scandinavian unions from Europeanisation for some time (Andersen, 2005).

Labour strength in Slovenia is rooted in the national industry and in national-level

arrangements. Unlike in the other central European new EU member states, union densityand influence is weaker in multinational companies than in domestic ones. The path

towards Europeanisation may be then perceived as a risky undermining and departure

from the traditional and safer national arrangements. The actor-level contingency whichoperates here is linked to national socio-political conditions.

The findings are relevant for discussions on the Europeanisation of labour and of

industrial relations. Our findings show how sector and company contingencies affect

actors strategies on both axes suggested by Erne (2006): democratic/technocratic and

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European/national. Such contingencies explain the variety of union reactions even within

the same trade union in the same country (e.g. IG Metall), in spite of the apparently

common institutional and ideological background (see GP1 and GP2). Unions invertically integrated companies with product markets closely overlapping with EU

boundaries will embrace Europeanisation as an appropriate response more readily than

others. Also, direct inter-site cost competition and location autonomy will lend itself to anorganising approach (labelled as democratic in Ernes framework.) Other, more

autonomous and development-oriented sites may tend to strategies of local competitive

solidarity, including risks of concession bargaining. A problem with these situations isthat such strategies tend to be self-enforcingly path-dependent and keep being followed

even when their efficacy is declining, preventing the development of more courageous

but initially risky lines, as seen in GP2.

As to union strategies, the findings suggest that often much can still be done to increasecross-border information, and so far only integrated production networks have been

conducive of union strategic action (e.g. GP1). Also, as argued by some recent

comparative studies (Huzzard et al. 2004), technocratic and democratic approaches

appear to be compatible, at both the local and the European level. Steps in this directionare detected at GH1, GH2 and AH2, where period of organising and of social

partnership have alternated and have both been instrumental for union development(Meardi 2006).

6. Conclusion

Instances of relocation are infrequent, even in a sector marked by considerable flows of

efficiency seeking FDI into the EUs new central European member states. Cases of

indirect relocation (involving decisions on where to locate new investment projects)are

more common. The threat of relocation is, however, a widespread phenomenon. A majorreason accounting for the gap between threats and actual instances of relocation is that

the threat to relocate has real effects, resulting in concessions at established sites which

themselves diminish the potential benefits of an actual relocation for multinationalproducers.

The nature of the threat and occurence of relocation emerges as a contingent one. The

five contingencies examined proved influential: investment motivation (mostly sector-level), labour costs influence (sub-sector and company levels), location autonomy

(company level), vertical integration (company level) and extra-EU competition (sub-

sector and company levels.) In particular, the latter two affect the potential for cross-

border union responses. As relocation threats are contingent and actual instances aremostly indirect, time is available during which unions can elaborate responses. The

implication of our analysis is that there is no one best response, but rather a need for

evaluating each situation. In particular, a European response should not be seen asnecessarily the best: depending on the circumstances it may be unviable, suboptimal or

even inappropriate. The paper has illustrated the different situations through case study

examples. Being plant-level studies from a non-representative sample in one sub-sector,they should be treated as indicators of a minimum degree of variation, rather than an

exhaustive representation.

The findings demonstrate that the scope for local actors ideologies and strategies is not

obliterated, but must be located in the contingent constraints they face in order to avoid

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misplaced prescriptions. Notably, actors ideology (and history) still plays a role in

explaining the higher propensity for technocratic answers in the East than in the West:

trade unionists in the new EU member states are generally better educated than theirwestern counterparts, and much less prone to call a strike. Also, union strategy is

detectable in some offensive (as against reactive) use of the EWC (GP1), as well as in

local strategies of upgrading (AH1). The importance of indirect competition has not ledto open, structural competition between eastern and western sites, but to a more variable

geography of situations where the competing sides may be shifting. Cross-border

information sharing on the union side is still not common, but in those companies whereit takes place, there are margins for negotiated competition (Kdtler and Sperling 2002).

East-west union co-operation within multinationals is still at a very early stage of

development and faces serious structural constrains. Even in famous cases of cross-

border mobilisation such as Renault (1997) and General Motors (2005, 2006) theparticipation of sites from Central Europe was limited by regulations (no right to

solidarity strikes), implicit competition (the eastern sites were objectively benefiting, at

least in the short term, from restructuring in the west), and insufficient interests (the

Polish union leaders at Opel acknowledged that they would never win a strike ballot insolidarity with German colleagues.) However, open conflicts have been avoided, and

mutual understanding and support have been growing. In the cases of competition,EWCs most common strategy has been that of avoiding forcing the situation through

majority voting, in the hope that time will narrow the distance between the different sides

(Carley and Hall 2006). In the meanwhile, the scenarios popular in the media of a radicalnew international division of labour within Europe or of wild competition and social

dumping are hardly borne out by the papers findings. The evidence is, so far, extremely

varied, and at least in sectors where fixed costs are important a number of both local and

international strategies are available to harmonise the pace of economic restructuringwith that of social acceptance.

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Table 1

Contingent factor Level Implications for union

responses to relocations

FDI motivation (efficiency v

market)

Sector Seriousness of threat

Human resourcesconsideration (skills v cost

priority)

Sector, sub-sector Potential for socialcompromise, dialogue

International configuration of

production (standardisation v

segmentation/segregation)

Sub-sector, company Degree of competition and

of international

integration/socialization

Location decision

(autonomous v dictated by

customers)

Sub-sector Level of response

(company or

sector/political)

Extension of product market

(EU v global)

Sector, sub-sector Suitability of European

response


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Table 2 Case study summary: company contingencies and EWC effects


19/20

Plant

Primarycomp

etitiveadvantage

Locationautonomy

Inte

gration

Exposuretoextra-EU

competition

Relocatio

n

incidents

Relocationthreats

Cross-border

unionresponses

GP1

Poland

German-owned

Quality Yes Very strong(standardisation)

No Indirect Very strongEWC + information

networksExpansion of home-

country compromisesFair competition and

negotiated globalisationScenario:pro-active

GP2Poland

German-owned

CostQuality

Yes Weak (segregation)

Yes:Turkey,

EasternEurope

West-to-East

Direct &indirect

NonePlant excluded from EWC

Defensive competitivestrategies in western sites

Scenario: national defence

AP1

PolandUS-owned

Cost

QualityFlexibility

Yes Weak

(segregation)

Yes East-to-

West

Remote

indirect

None

Scenario: indifference

AP2

Poland

US-owned

Cost Partial Medium(standardisation)

Yes LimitedWest-to-

East(on few

lines)

Indirect None, no unionScenario: national defence

GH1HungaryGerman-owned

CostQualityR&DFlexibility

Yes Very strong(standardisation)

No Strongdirect &indirect

StrongLocal organisingScenario:Euro-localorganising

GH2

Hungary

German-owned

Cost Partial Medium(standardisation)

Yes:Eastern

Europe

Direct MediumScenario:Euro-local

organising

AH1

Hungary

US-owned

CostQuality

Flexibility

Yes Very weak (segregation)

Yes:China

West-to-East

Direct &indirect

MediumSome conflicts, diffidence

within the EWCRelations with US unionScenario: competition

AH2

HungaryUS-owned

Cost

Quality

Yes Very weak

(segregation)

No West-to-

East (oneincident)

Remote None


GS

SloveniaGerman-

owned

Cost

QualityFlexibility

Yes Weak

(standardisation)

Yes Direct Weak

Scenario:Euro-scepticism

AS

SloveniaUS-owned

Cost Yes Medium(standardisation)

Yes:EasternEurope

Indirect Weak Symbolic EWCScenario:Euro-scepticism

MS1

Slovenia

Domestic(formerly

German)

Quality Yes Medium(standardisation)

No Remote WeakLocal strategies



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MS2

SloveniaUK-owned

(formerlyAustrian)

Cost

QualityR&D

Flexibility

Yes Medium

(segmentation)

Yes Indirect None

Scenario:Euro-scepticism

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