Company relocations cause concern
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Early 2004 has seen the announcement by several multinationals, such as Samsung and Philips Novalux, that they will move all or part of their production from Spain to other countries, in general ones with lower labour costs. Other companies are threatening such relocation if they do not obtain concessions from their Spanish workforces. This continues a trend which has been seen over the past few years and which is causing alarm among trade unions.
2004 began with the announcement of decisions by several multinational manufacturing firms to move all or part or of their production currently located in Spain to other countries. This is the continuation of a trend that has been observed over the last two years (ES0211202N). The Spanish automobile components sector - including companies such as Lear (ES0206201N), Valeo (ES0303202N) and Autotex- lost 20% of its workforce to central and eastern European countries in 2002 and 2003. In Catalonia alone, Spain's most industrial region and the one that has been most affected by relocations, 15 multinationals have implemented this strategy with the loss of 5,000 jobs. In the past, many companies moving operations abroad claimed that they were facing problems or losses, but in the cases that have occurred in 2004 all the companies concerned are showing a profit, and at most have pointed to possible losses in the future. The possibility of an escalation in the number of relocations is a cause for great concern among workers and trade unions, because Spain is in an intermediate position in the 'global division of labour', having neither very low pay nor very high innovation, and this may make it less attractive for industrial companies that seek one of these factors. However, relocations also reflect other current company strategies.
Recent cases
It has been announced in 2004 that the Korean-based consumer electronics multinational Samsung is closing its operations in Spain and relocating them to Slovakia (which will be its headquarters in Europe) and to China. The Dutch-based Philips is closing the operations of its Novalux subsidiary (electrical goods) in Spain and transferring the research and development (R&D) section to France and the rest to Poland. These relocations are thus not only towards countries with lower labour costs, but also towards technologically more advanced countries with higher labour costs.
Other companies are demanding a considerable increase in production with the same workforce by increasing working time, introducing greater flexibility or reducing wages, as alternatives to relocation and the dismissal of part of the workforce. An example of the first type is the Japanese-based Nissan (motor manufacturing), which wishes to raise its Spanish production from 100,000 units in 2003 to 150,000 in 2007 by increasing working hours rather than increasing the workforce. An example of the second type is Fisipe (textiles) which is planning to reduce pay by 20% and freeze it until 2006. The Japanese-owned Panasonic is proposing to manufacture a new vacuum cleaner in China rather than Spain, and SEAT, the Spanish subsidiary of Volkswagen, the German motor manufacturer, has transferred the production of part of a new model to Bratislava in Slovakia (ES0210204F). The textile design sector in Galicia lost 10,000 jobs in 2003 due to the transfer of part of its manufacturing to central and eastern European countries. Some Galician canning companies are setting up plants in Latin America.
Reasons and strategies
Spanish labour costs cannot compete with those of countries such as Poland and Slovakia, because average wage costs in the 10 new Member States joining the EU in 2004 were EUR 4.2 per hour in 2003, whereas in Spain they were EUR 14.4 per hour, according to a recent study by the Spanish Chambers of Commerce (Cámaras de Comercio de España). However, it should not be forgotten that wage costs represent no more than 10% of production costs in some of the companies which are relocating. Since all the companies that have announced relocation plans out of Spain in 2004 show a profit, their aim appears to be to increase this profit, according to commentators. Samsung argues that, although it has so far shown a profit in Spain, it could encounter problems in the near future and is therefore anticipating events. However, in 2003 the Spanish operation paid EUR 43.3 million in royalties to the parent company, whereas it only paid EUR 23.2 million in labour costs. It turns out that Slovakia (its new European headquarters) has far lower taxes on royalties than Spain.
According to commentators, in other cases, the companies appear to be seeking more permissive laws rather than lower wage costs. In some cases, it is claimed, a multinational stays for a given time in a country to take advantage of its market and official subsidies and then profits from the sale of land that it acquired at low prices when it set up operations.
However, it is not only a question of current costs and profits. The companies, analysts suggest, can use the threat of relocation in order to increase production in their Spanish operations without increasing labour costs by increasing working time or making it more flexible, or by increasing pay flexibility. As Nissan states, its aim in seeking increased working time is to increase productivity by 20%.
Position of the social partners and public authorities
The trade unions fear that the relocation process may soon affect 10% of the industrial fabric in Spain, and are in favour of demanding a 'social commitment' from multinationals through a radical application of the law that requires a crisis in a company in order to restructure the workforce. They are also asking government bodies to revise the conditions of the subsidies they provide to investors, and of the ownership of the land that the companies occupy. In the specific case of Catalonia, the unions are proposing a 'social agreement for employment and competitiveness'. However, unions are aware that in the long term more must be invested in R&D and in the training of human resources. Workers' committees and workers in many of the companies affected by the recent relocations have called strikes and demonstrations against the measures, though so far they have received little support.
Some employers' organisations in Catalonia have expressed their opposition to placing excessive requirements or controls on companies because this would keep them away, but they are in favour of discussions with the trade unions.
The new left-wing Catalan regional government is in favour of studying the conditions for the award of subsidies and is demanding that companies that wish to transfer production must redeploy their employees and respect the law, so far with little success. The regional government also agrees with many experts on the need to invest in R&D. Some experts also mention the problem of poor communications in some areas of Spain.
Finally, the central government, which initially limited itself to criticising the Catalan regional government ('one must not put pressure on the companies') is now talking of a plan of support to R&D in consumer electronics, though it has not given any financial details.
Situation of the affected workers
For the moment, not many workers have been directly affected by the latest wave of relocations by manufacturing multinationals, but their situation may be difficult due to their characteristics and their employment history. They are mostly middle-aged workers with relatively low qualifications and little seniority, and the proportion of women is high. Their severance pay will be low, though it seems that it will not be a serious problem for the companies to increase it. The possibility of retraining to obtain jobs under similar conditions will be limited. The companies in question often pay above-average wages and many of the workers who are made redundant will have to accept worse pay and temporary jobs. Another group who have not yet featured in the public debate are the workers of auxiliary companies and suppliers, some of which will be losing their main customer. The number of workers who will lose their jobs is thus far greater, and many of the auxiliary workers are in a worse position than those of the multinationals.
The case of Catalonia
Catalonia is the most industrialised region in Spain and houses some of the most competitive sectors, such as consumer electronics, with the presence of Sharp, Sony, Samsung, Tecnimagen, Pioneer and Sanyo. If companies start to relocate, there may be a 'domino effect'. Due to the short life of its products, this sector needs to be very competitive in R&D. The two current leading projects — the 'third generation' of mobile telephony and digital television — have not shown the expected success and this may be one of the reasons why the firms wish to reduce manufacturing costs.
Commentary
The threat of closure due to transfers and restructuring in Spain is very real, in particular in the industrial regions. However, it will not be a case of massive deindustrialisation or of a great number of relocations in a short period of time. It will be a long-term strategy, often used to obtain greater control over working time and working conditions and as a tool for increasing productivity.
In the short term it seems likely that the trade unions will attempt to defend the jobs at threat either by demanding a strict application of the law (in terms of periods and forms of restructuring, or company social plans) or by asking the companies to make social commitments. This will be done through traditional forms of action and perhaps through new forms of action by the general public, such as boycotting of products.
In the longer term one must consider the creation in 2004 of an EU of 25 countries, many of which now have the comparative advantages that Spain had 18 years ago - cheap labour, slack legislation and governments prepared to hand out subsidies to multinationals. In this new Europe, Spain will have to seek the path of specialisation in certain sectors with the backing of R&D and training of workers. Many resources applied in training in recent years have been 'palliative' in nature, but now a more anticipatory vision should be adopted.
However, the trade unions should seek at European level a new 'social regulation' based on rapidly harmonising the pay and social conditions of all workers in Europe. Only then would a technologically differentiated European market make social sense. (Fausto Míguelez, QUIT-UAB)