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The relocation of production to Eastern Europe, India and China increased further in 2004. Philips, DSM, Viasytems and Océ are but a few of the companies to have hived off jobs and locations over the last year to relaunch or expand operations elsewhere in a number of cases. In the wake of increasing globalisation, production in the Netherlands is either no longer competitive or it has become more attractive for companies to maintain production closer to the emerging markets. Relocation is becoming increasingly attractive due to cost differences and direct market access. A broad study shows that the scale of relocation and the impact this is having on the economy and on job opportunities must not be exaggerated. The Dutch economy operates at a low price, and the rate of unemployment at the bottom end of the wage system is not that high.
Business reorganisations and the relocation of production to Eastern Europe, India and China increased further in 2004 and the trend appears to be persisting in 2005. Philips, DSM, Viasytems, Cap Gemini, Océ, Gamma and bed producer Dico are but a few of the companies to make headlines in 2004-2005 because they announced plans to shut down establishments and axe hundreds of jobs in favour of opening up production facilities in Eastern Europe, India or China. Gamma’s jobs will be off to China and Eastern Europe, Dico will be closing down and relocating production to Eastern Europe and Viasytems will be shutting its establishment down, having definitively lost the competitive battle against China. DSM will be reorganising its penicillin division and intends to shut down two factories, while at the same time expanding production in Asia. Even Philips plans to hive off production of its PC monitors and has outsourced operations completely to the Taiwanese company Technology, in which Philips insisted on a taking out a stake of at least 30%. The job losses and associated rise in unemployment provide cause for concern. Others see this form of restructuring as an omen: the Dutch economy is beginning to lose ground internationally.
The scale of relocation
However, there is little discussion about the observation that because of internationalisation the flow of cross-border goods and services is rising faster than their production: the relocation of services (and goods) is also increasing in scale in the Netherlands. Relocation is an inextricable part of international specialisation and it is even considered reasonable for the Netherlands to benefit from the trend. The precise scale of relocation of production, especially in industry, from the Netherlands is far less clear, though. A study commissioned by the Dutch Federation of Small and Medium-Sized Enterprises (MKB Nederland) shows that 6% of the companies would consider relocating production capacity in the years ahead. Another study conducted in the region of Brabant and Limburg shows that a quarter of today’s jobs in industry are expected to be lost. Calculations for the ICT sector reveal that 16% of the companies have relocated production elsewhere in the world in recent years, and that a further 15% are considering relocating certain activities offshore. According to calculations made for the FME&CWM employers’ association, within five years around 20% of the metal and electronics industry will have relocated to Central and Eastern Europe. The findings of a broad study conducted by the Central Planning Bureau (Centraal Planbureau, CPB) point out that the influx of foreign companies into the Netherlands has never been offset against the trend towards relocation away from the Netherlands, while this would present a more balanced picture (Gorter, J., P. Tang, M. Toet, Relocation away from the Netherlands. Motives, consequences and policy (Verplaatsing vanuit Nederland. Motieven, gevolgen en beleid), The Hague/Heerlen: CPB, 2005).
At the opposite end of the scale to investments made by Dutch companies in other countries, companies in those countries have also made proportionate investments in the Netherlands. This figure is also not undisputed, since business from a parent company is not always categorised as a foreign investment. The United States accounts for a quarter of all direct foreign investments made by the Netherlands. American companies in turn are accountable for close to a quarter of the direct investments made in the Netherlands. What is clear is that the annual figure for outgoing investments exceeds the figure for incoming investments. In the Netherlands, more is saved than invested and the difference is invested abroad. Direct investments have increased explosively over the past 15 years, during which period investments made by Dutch companies tripled. More than half the investments made abroad go to other countries within the European Union and nearly 24% goes to the United States. The flow of investments to low-wage countries (in Asia and Africa) is limited and has remained stable; as an exception, China accounts for growth within this group.
Specialisation of the Dutch economy is mirrored in the differences between (foreign) investments made by and in the Netherlands. It is the non-industrial sectors such as banking and insurance, trade and other services that account for more than half the level of incoming and outgoing investments. Within this group, multinationals like ING, ABN AMRO and Fortis are expanding from their domestic market in the Netherlands to other countries through direct investment. Industrial sectors including mineral extraction, oil and chemicals are accountable for 19% of the outgoing direct investments and receive some 18% of the incoming investments. Shell, ExxonMobil and BP are in turn accountable for half these figures.
Consequences for jobs and policy
The study conducted by the CPB shows that the relocation of production or increasing opportunities for international specialisation contribute towards real earnings in the Netherlands. Because the Netherlands has continued to serve as a gateway or transit country (and has become specialised), buying in cheaply in Asia or Eastern Europe and selling off more expensively in Europe certainly offers advantages. It would appear an obvious disadvantage that relocating production would lead to unemployment, especially amongst semi and unskilled employees. This appears to be less serious than expected. The impact of far-reaching international specialisation, on which basis it could be expected that the position of such employees would be further weakened in the long term, is limited. This group of employees is not in competition with far lower income earners elsewhere; they are sooner at loggerheads with employees in developed countries earning comparable wages. Job losses as a result of relocating production are limited in comparison with the number of jobs that disappear and are created each year in the Dutch market. Job losses at the bottom end of the labour market are primarily a consequence of technological advancement.
The study concludes that government policy directed at binding companies to the Netherlands is ineffective and unnecessary because not all economic activities offer external advantages by definition. Only with respect to activities such as research and development is it possible to measure a favourable external effect on national productivity; relocation of such activities could damage the Dutch economy. But on balance, research and development does not appear to be leaving the Netherlands to date in 2005. The study does recommend policy focusing on improving structural characteristics of the Dutch economy. This relates to policy that supports adjustment of the sectoral structure of the Dutch economy in line with changes in the global market; that is, anticipatory policy facing far-reaching international specialisation (Gorter, J., P. Tang, M. Toet, Relocation away from the Netherlands. Motives, consequences and policy (Verplaatsing vanuit Nederland. Motieven, gevolgen en beleid), The Hague/Heerlen: CPB, 2005).
Commentary
The social partners can distil a clear message from this study into the consequences of globalisation for the Dutch labour market. The conclusion highlights the need for the Dutch workforce to be educated at a higher level. The Netherlands can attract new activities by offering an environment in which investments in such activities generate a good return. Based on the international division of labour, knowledge of new technologies and concepts, to name but a few elements, will be central to these new activities. From this perspective, establishing an efficient knowledge infrastructure would be a definite advantage. The social partners should therefore adopt a more offensive rather than defensive approach to further internationalisation and make strategic choices when it comes to education, retraining and educating the country’s employees. (Marianne Grünell, HIS)