Phenomenon of company relocation under the spotlight

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Company relocation is a major subject of public debate in France at present. This debate has been triggered by numerous studies based on quantitative assessments of industrial restructuring or investment abroad, as well as qualitative analyses that come under the general heading of company relocation.

Restructuring operations of multinationals, and an increase in the number of company relocations announced in recent months, have heightened public anxiety. According to a CSA-L'Expansion-France Inter poll, published in October 2004, 88% of French people believe that company relocations are a 'serious issue', and 35% fear that their 'own job, or a job held by someone close to them', may be relocated. A growing number of reports on the topic of company relocations have been published recently (FR0502106F).

Scale of company relocations

A report by Senator Grignon (2004) finds that of French investment operations recorded, about 10% could be classified as company relocation. Senator Grignon’s report is based on assessments carried out in 2002, by economic delegations from the Ministry of the Economy’s Office for Foreign Economic Relations (Direction des relations économiques extérieures du ministère de l’économie, DREE), in central and eastern Europe.

The Fontagné and Lorenzi report (2005) concludes that the developing world has had a limited effect on competition, which 'can be calculated at a maximum of 10% for the years 1970-2002. However, there has been an acceleration of this phenomenon since the late 1980s, heralding a more significant impact in the future'. The report refers to work carried out by the [European Monitoring Centre on Change](/search/node/emcc OR erm OR ?oldIndex), which surveys restructuring operations in Europe. The impact of company relocation and international sub-contracting can be calculated at about 7% of jobs lost between January 2002 and July 2004, with the remainder attributed to restructuring operations, mergers and acquisitions, and company closures.

This report stresses that company relocation cannot be explained by France’s lack of attractiveness as a location, and uses international investment as part of its argument. The United Nations Conference on Trade and Development (UNCTAD) World Investment Report shows that in 2003, France lay in third place in terms of foreign investment received (USD 47 billion), behind Luxembourg (USD 88 billion) and China (USD 54 billion), but ahead of the US (USD 30 billion). Foreign investment in France rose by a further 6.6% in 2004.

Another report from the National Tax Council (Conseil national des impôts) puts the argument about high tax levels into perspective, explaining 'that levels of taxation are not a decisive factor for the location of internationally mobile business activities and jobs, which are determined much more by geographical environmental factors, the quality of available infrastructure and labour costs'.

Factors behind company relocation

Recent press coverage of several report findings has fuelled the debate on company relocation, even though these reports have not been placed in the public domain. The first study was carried out by the Altedia consultancy for the Minister of Employment, Social Cohesion and Housing, Jean-Louis Borloo. Based on a survey of businesses that had relocated, this report emphasises the massive scale of the transfer of business activity to eastern Europe and to emerging economies. It shows that company relocation is driven by several factors, including:

• proximity of expanding markets;

• labour cost differential, which now greatly exceeds differences in productivity, particularly in developing countries like China, central and eastern Europe;

• cost and availability of raw materials;

• presence of an attractive local network of production facilities;

• a more subjective element related to the negative image of France.

A study commissioned by the Senate Finance Committee tries to predict the outcomes of current trends. It forecasts the relocation of 202,000 jobs between 2006 and 2010, i.e. 22% of the net amount of salaried job created. However, in 80% of cases, these jobs result from new activities located from the outset in other (mainly European) countries, rather than from company relocations in the strictest sense of the term, where existing activities are being transferred.

A third report, commissioned by the Ministry of Labour from the General Social Affairs Inspectorate (Inspection générale des affaires sociales, IGAS), explores the issue of 'on-the-spot relocation', where workers from countries with particularly low labour costs are brought to France, in order to replace the local workforce. The report identifies the fact that this method is already being used in the construction industry, as well as by France Télécom. It concludes that 'the basic issue is indeed the effectiveness of control and the higher risks of illegal work, social and fiscal dumping, and distortion of competition'.

INSEE report reveals limited scope of relocations

More recently, a study by the National Institute for Statistics and Economic Studies’ (Institut national des statistiques et des études économiques, INSEE) has deployed a precise methodology, to comprehensively assess the impact of company relocations. This method is based on the recording of staff reductions in France and of increases in the relocating group’s imports, which had previously been produced in France. The authors stipulate that the figures put forward are only estimates. However, the survey was carried out with such a degree of precision that the findings can be considered the most systematic evaluation available.

The major finding is the limited scope of the process: it is estimated that over the period 1995-2001, some 13,500 jobs in industry were relocated annually, i.e. 0.35% of industrial employment, or 12% of overall staff reductions. Low-wage economies make up only less than half of the destinations of company relocations: China being the most popular, way ahead of eastern Europe, North Africa (Morocco and Tunisia), South America (mainly Brazil) and other Asian countries. The other, slightly larger half of company relocations are destined for developed countries, especially France’s immediate neighbours and the US. Relocations to industrialised countries are part of a broader restructuring process underway among the large multinationals. Multinationals are more likely to set up local subsidiaries, while the companies relocating to low-cost countries usually do so through subcontracting.

Reactions from employers and trade unions

The Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) did not issue a response to the various reports. Instead, it highlighted the fact that it was 'very alarmed about the worsening of many factors essential to the economic development of France'. Stressing the importance of reform, its chairperson expressed concern that 'industrial relations in the spring might lead to an economic winter' (FR0502103N).

In the wake of the referendum on the European Constitution (FR0505103N), the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT) explored the implications of unemployment, company relocations and insecurity. It concluded that 'the domestic market must be combined with a strong social dimension, taking heed of the concerns of workers and unions'. In the context of company relocations, the General Confederation of Labour (Confédération générale du travail, CGT) made several recommendations, in particular, for 'the extension of information-sharing and consultation procedures involving workers’ representative bodies', as well as the 'paying back of state subsidies received by companies that relocate'. Moreover, the General Confederation of Labour - Workers Force (Confédération générale du travail - Force ouvrière, CGT-FO) has called on the government to respond by immediately committing the resources necessary for the implementation of a proactive state-led industrial policy.

Commentary

Although the studies available are informative, they do not assuage the concerns raised by the growing rate of company relocations. This phenomenon is accelerating and reaching new sectors, so merely concluding that its impact has been relatively marginal so far says little about its potential impact in the future. The discrepancy between these assessments and the popular perception of the process is all the greater as the EU component, particularly the Bolkestein directive on the service sector, has further intensified anxieties (FR0503105F). Lastly, none of the research provides an overview of globalisation, taking into account the impact of trade and investment patterns, between France and the rest of the world, on employment levels in France and in other countries. (Michel Husson, IRES)