2452_COVER_delocalisationBAT:2452_COVER_delocalisationBAT 12/18/06 11:45 AM Page 1

QE-X1-06-147-EN-C
Relocation –
Challenges and opportunities
2452_COVER_delocalisation – cyanmagentayellowblack – R

EN
European Economic and Social Committee
“Visits and Publications” Unit
For further information, please contact:
publications@eesc.europa.eu
Tel. (32-2) 546 96 04 • Fax (32-2) 546 97 64
EESC Special Reviews
Rue Belliard 99 • B -1040 Bruxelles
Internet : http://www.eesc.europa.eu
Catalogue No.: EESC-C-2006-14-EN
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INDEX Page

Foreword 5

The Consultative Commission on Industrial Change (CCMI): 7

The role of the EESC in promoting a structured dialogue on industrial change in the EU

Opinion of the EESC on "The scope and effects of company relocations" 11

Information Report of the CCMI on "A sectoral survey of relocation" 31

A sectoral survey of relocation: a factual background (External study) 43

Download: http://www.eesc.europa.eu/sections/ccmi/docs/index_en.asp

Programme and Conference report "Relocation – Challenges and opportunities" 73

Download: http://www.eesc.europa.eu/sections/ccmi/events/index_en.asp?id=1470001ccmien

* *
 -5-

Foreword

Company relocation is a highly charged, often emotive, issue. The subject of intense political debate
and considerable media focus, it ranks near the top among issues of greatest public concern. For all its
growing importance on the political and public stage however, the issue of relocation, or – broadly
speaking – the process of shifting economic activities to foreign sites, is frequently marked by
misunderstanding, disagreement and confusion. There is neither a single, commonly accepted
definition of the process nor a single, commonly accepted method of measuring its scale and impact.
Greater clarity is required, failing which there can be no sound starting point for policy-making.

There is one thing, at least, of which we can be certain: relocation does take place and is inextricably
interwoven with other manifestations of structural change. Indeed, it is next to impossible to separate
relocation – even in its "purest" form – from other economic developments on the European scene,
including resource re-allocation, rationalisation, business expansion and the natural rise and decline of
individual sectors as part of an ongoing market-based dynamic.

Equally undeniable is the necessity for the process of relocation, however complicated and interlaced
with other phenomena, to be monitored and managed in an economically competitive and socially
acceptable manner, while taking account of environmental and territorial aspects. The various
stakeholders involved all bear a responsibility for ensuring that relocation contributes to improving
competitiveness while preventing drastic social decline and loss of economic substance. The
opportunities presented by relocation, namely, the chance to reorganise and improve supply chains
and/or production/distribution processes or, quite simply, to ensure the very survival of a given
enterprise facing ever increasing levels of global competition, cannot be overemphasised.
 -6-

The European Economic and Social Committee (EESC), through its Consultative Commission on
Industrial Change (CCMI), has recently carried out several studies on the phenomenon of company
relocations. The most recent examples of this work have been brought together in this brochure.

Please find herein:

− a short introduction to the CCMI, its role and activities

− an opinion on the scope and effects of company relocations, rapporteur Mr Rodríguez García-Caro
− an information report, coordinated by Mr van Iersel, analysing the lack of reliable statistical sources
for measuring the scale of the phenomenon
− the conclusions, explanatory note on the methodology, and bibliography of the external study which
constituted one of the bases for this information report
− the report on a major conference on the subject, held at the EESC on 28 and 29 June 2006.

Josly Piette

CCMI President 2002-2006

 -7-

The Consultative Commission on Industrial Change (CCMI)

The role of the European Economic and Social Committee (EESC) in promoting a
structured dialogue on industrial change in the EU

The European Economic and Social Committee's Consultative Commission on Industrial Change
(CCMI) combines over 50 years of experience with consultative dialogue gained from the European
Coal and Steel Community's Consultative Committee with a wide-ranging composition and remit to
produce a body unique to the European institutions. It is a new kind of model for discussion/dialogue
of policy issues between different actors in the field of industrial change.

The CCMI looks at industrial change issues across a wide spectrum of sectors. As such, it offers
added value to the work of the EESC as a whole. It is of particular value to those new Member States
currently undergoing the process of industrial change and its new composition, created at the end of
2004, reflects this fact in the form of significant representation from these countries.

The CCMI is more than just a repository of lessons learnt in the past. In keeping with the subjects it
treats, the role of the CCMI is to look to the future. The emphasis is on anticipation, pre-emption and
analysis so as to ensure positive common approaches to the management of industrial change from an
economic, social, territorial and environmental point of view. The CCMI promotes coordination and
coherence of Community action in relation to the main industrial changes in the context of the
enlarged EU and ensures balance between the need for socially acceptable change and the retention of
a competitive edge for EU industry.

Background

In view of the expiry of the ECSC Treaty on 23 July 2002, the Industry Council of 18 May 2002
asked the European Commission to submit its ideas on the future of structured dialogue in the areas
covered by this Treaty.

In its Communication of 27 September 2000 (COM(2000) 588 final), drawn up in close consultation
with the EESC, the Commission proposed the creation of a specific structure within the Committee
that would not only permit the retention of valuable expertise built up during the ECSC years and the
continuation of structured dialogue in the areas of coal and steel, but would be expanded gradually,
ultimately to cover all issues relating to industrial change in an enlarged EU.

Creation

With regard to the content of this major extension of the EESC's consultative role, the Commission
stresses its "determination to examine the development of ECSC structured dialogue in a firmly
future-based perspective". The ECSC's unique "experience - notably in the fields of social consensus,
 -8-
industrial restructuring and research - will enhance the EESC's ability to play an active role in
modernising the European economy and making it more competitive"1.

The other European institutions supported these proposals and provided the EESC with the resources
needed to run this new body, which was set up on 24 October 2002 by the Committee's Plenary
Assembly.

Composition

The CCMI is made up of 45 EESC members and 45 external delegates, drawing on a wide range of
knowledge and experience gained in a variety of socio-occupational organisations in various sectors
affected by the modernisation of the economy. The Chairman of the CCMI is a member of the EESC
and the Co-Chairman is a delegate. The delegate body is divided into three categories (employers,
employees, various interests), similar to the structure of the three EESC groups. Following the
enlargement to 25 Member States and given the particularly appropriate nature of the CCMI’s
expertise to the new Member States, the new CCMI composition includes a high proportion of
members and delegates from these countries.

Mission

The creation of the CCMI opened up new avenues. The EESC is now able to draw up opinions as part
of a direct structured dialogue between its members and representatives of the sectors and interest
groups affected by industrial change. This permits the examination of problems in all their complexity
– from an economic and social angle, in relation to environmental protection or sustainable
development. They are dealt with as part of the normal EU decision-making process by means of
referrals from the institutions (possibly requests for exploratory opinions) or own-initiative opinions,
which the Committee believes are necessary to influence developments in the EU.

Remit and means of setting out its views

The CCMI's remit:

• continues to cover those areas of the coal and steel industries and their production and
consumption chains in which the Community is active;

• has been progressively extended to the handling of industrial change in other sectors of
activity and its repercussions on employment, social and structural policy measures, aid and
competition policy, research and technological development, environmental and sustainable
development policy, energy policy, trade policy;

1
COM(2000) 588 final
 -9-
• includes a particular emphasis on the challenges posed by industrial change in the new
Member States.

The CCMI can express its views through mandatory opinions under the terms of the Treaty, optional
and exploratory opinions at the request of the European Parliament, the Council and the Commission,
as well as own-initiative opinions, information reports and the holding of conferences and hearings.

It maintains a close working relationship with the other EU institutions and agencies and with
organisations across the whole range of issues linked to industrial change.

_____________
 - 11 -

CCMI/014
Company relocations
José Isaías
Jürgen Nusser
Rodríguez García-Caro
CCMI Delegate
EESC Member
Category 3 – DE
Group I – ES
Co-rapporteur
Rapporteur

Brussels, 14 July 2005

OPINION
of the
European Economic and Social Committee
on
The scope and effects of company relocations
(own-initiative opinion)
_____________
 - 13 -

On 29 January 2004 the European Economic and Social Committee, acting under Rule 29(2) of its
Rules of Procedure, decided to draw up an own-initiative opinion on

The scope and effects of company relocations.

The Consultative Commission on Industrial Change, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 13 June 2005. The rapporteur was
Mr Rodríguez García Caro and the co-rapporteur was Mr Nusser.

At its 419th plenary session of 13 and 14 July 2005 (meeting of 14 July), the European Economic and
Social Committee adopted the following opinion by 128 votes to 15, with six abstentions.

* *

1. Introduction

1.1 We live in a world of growing globalisation (a process accelerating the breakdown of

1
frontiers), internationalisation of trade and extremely rapid technological development . The
2
increase in institutional investment and trans-frontier cross-investment, the relocation of
tasks, rapid changes in ownership and greater use of information and communication
technologies mean that geographical identities are becoming blurred and competitiveness is
taking on a global dimension. Thus competitiveness is the overall objective of the economic
dimension which, in interaction with the social, environmental, political and institutional
dimensions, shapes the process of sustainable development.

1.2 The European Union today appears as a major nucleus of integration against a backdrop of
globalisation, with a single market, economic and monetary union and real progress in the
field of the common foreign and security policy and in the area of justice and home affairs.

1.3 A society needs to be competitive as a whole. Competitiveness should be understood as the

capacity of a society continually to anticipate, adapt to and influence its economic
3
environment . In its Communication of 11 December 2002, Industrial Policy in an Enlarged

1
The French magazine "Problèmes économiques" published a special issue in September 2004 (no. 2859) devoted entirely to the
issue of relocations. It includes an article that states that the term "globalisation" is an Anglicism used to evoke the phenomenon
known as “mondialisation” in French. It is described as the transition from an international economy, in which politically
autonomous nations organise their national economic space and maintain economic exchanges of higher or lower importance,
towards a global economy which goes beyond national regulations.
2
The term "institutional investment" refers to investments made by entities with a high volume of funds or reserves. For example,
this type of investment can be made by investment funds, banks, insurance companies or pension funds.
3
See EESC Opinion of 19.3.1997 on Employment, Competitiveness and Economic Globalisation (CESE 325/1997); rapporteur:
Ms Konitzer (Group II – Germany).
 - 14 -
4
Europe , the European Commission defines competitiveness as "the ability of the economy to
provide its population with high and rising standards of living and high rates of employment
on a sustainable basis". Moreover the importance of overall competitiveness is underlined by
the European competitiveness reports regularly published by the European Commission since
5
1994 .

1.4 For companies competitiveness means being able to meet customers' needs in a sustainable
way, more efficiently than its competitors, providing goods and services which are more
6
attractive in terms of price and other factors "Organisational competitiveness" can be defined
as the extent to which an organisation is capable of producing high-quality goods and services
7
which achieve success and acceptance on the world market . Organisations must comply with
the "three E's": efficiency, efficacy and effectiveness. Efficiency in the management of
resources, efficacy in achieving objectives and effectiveness in influencing the environment.

1.5 Human resources are fundamental to companies' ability to compete. In this respect, their
motivation, training and promotion opportunities, and contributions within a context of social
dialogue are important.

1.6 Today companies face a constantly changing environment. Increasingly open markets, highly
developed infrastructures and means of communication and transport, technologies and
technological applications undergoing constant innovation and ever intensifying competition
provide the framework within which companies have to develop their day-to-day activities.

1.7 In the specific case of the European Union, 1 May 2004 was a landmark in its history, with the
8
accession of ten new Member States. As stated in the Committee's Opinion on enlargement,
“[t]he enlarged single market will bring many economic advantages and will strengthen the
competitiveness of the EU in the global market, provided that the Union manages to exploit its
existing potential rather than allowing it to go unused.” However, it has to be borne in mind
that the economic structures of these countries have not yet reached the standards in the EU
9
15. According to the European competitiveness report 2003, the CEEC-10 have an advantage
in labour-, resource- and energy-intensive industries compared to the EU-15 whereas they
have comparative disadvantages, primarily in capital- and technology-intensive industries.
This pattern leads to competitive advantages of the CEEC-10 regarding (upstream) primary

4
COM(2002) 714 final. See EESC Opinion of 17.7.2003 on the subject (Mr Simpson, CESE 935/2003).

5
See, in particular, the seventh edition, published in 2003 (SEC(2003) 1299), and the eighth edition published in 2004.

6
See EESC Opinion cited in footnote on page 2.

7
John M. Ivancevich, Management: Quality and Competitiveness (1996).

8
See EESC Opinion of 12 December 2002 on Enlargement (CESE 1371/2002); rapporteur: Ms Belabed (Group II – Austria).

9
This abbreviation refers to the following Central and Eastern European Countries: Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Poland, Slovakia and Slovenia, plus Bulgaria and Romania.
 - 15 -
and (downstream) consumption goods whereas they have disadvantages regarding
intermediate and capital goods.

1.8 An internal market of almost 455 million people, where companies can operate within one
common framework, capable of ensuring stable macroeconomic conditions in an area of
peace, stability and security, is the main advantage of the enlargement that took place on
1 May 2004. Although, after enlargement, the population of the EU increased by 20% and
GDP by 5%, hourly labour costs and labour productivity on average become lower in the EU-
25 as a whole.

1.9 However, enlargement of the Union should not be seen as a threat, per se, for the "old"
Member States of the EU. Previous enlargements of the Union show how GDP and living
standards improve in countries joining the EU. An example of this is the increased GDPs in
10 11 12
Ireland , Spain and Portugal since their accession. Furthermore, it must not be overlooked
that since 1 May 2004, the future of the EU has become part and parcel of the future of its
25 Member States.

1.10 In addition, enlargement provides an opportunity for European business to benefit from the
advantages offered by new EU partners - not only in terms of cost or training, but also in terms
of a geographical proximity and cultural and linguistic similarity far greater than that offered
by other possible locations.

1.11 The phenomenon of relocation represents a dual challenge for European society: firstly,
relocation to other Member States, in search of better conditions; secondly, the relocation to
13 14
non-EU states, such as Southeast Asian countries or countries with emerging economies ,
particularly China. This second case is partly driven by favourable production conditions but
mainly by the chances offered by entering very large new markets with enormous growth
potentials.

1.12 The relocation phenomenon, apart from being the direct cause of job losses, could also bring
other, associated problems, such as an increase in social security costs for governments,
increased social exclusion, and less economic growth overall, partly as a result of a general

10
GDP increased from 63.3% of the EU-15 average in 1970 to 123.4% of the average in 2004. Source: Statistical Annex of the
European Economy – Spring 2005 (ECFIN/REP/50886/2005).
11
GDP increased from 71.9% of the EU-15 average in 1986 to 89.7% in 2004. Source: Statistical Annex of the European Economy
– Spring 2005 (ECFIN/REP/50886/2005).
12
GDP increased from 55.8% of the EU-15 average in 1986 to 67.4% in 2004. Source: Statistical Annex of the European Economy
– Spring 2005 (ECFIN/REP/50886/2005).
13
Brunei Darussalam, Burma/Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam, East
Timor (source: European Commission).
14
This term refers to any economy with low-to-middle per capita income and characteristically undergoing the transition from a
closed economy to a market economy, which involves the implementation of a series of structural, economic reforms, and
receiving a high volume of foreign investment [Antoine W. van Agtmael; World Bank, 1981]. Emerging economies include
China, India, Brazil and Mexico.
 - 16 -
demand shortfall. Moreover it should be mentioned that relocation of industrial production
can, at best, help to promote social rights in countries receiving investment and necessarily
involves the regular transfer of know-how; consequently relocation can make a considerable
contribution to levelling out the comparative advantages described in 1.7 above and to further
increasing the competitiveness of the relocated businesses.

1.13 Despite the effects mentioned above, the European Commission acknowledged, in its
15
Communication on Restructuring and Employment of 31 March 2005 , that restructuring
must not be synonymous with social decline and a loss of economic substance. Furthermore,
this Communication also states that restructuring operations are often essential to the survival
and development of enterprises, although it is necessary to accompany these changes in such a
way as to ensure that their effects on employment and working conditions are as short-lived
and limited as possible.

1.14 Today, investing in other countries is no longer an issue that affects large companies only:
SMEs, particularly those with high technological added value, are already setting up business
in other countries or outsourcing part of their business.

1.15 On the one hand, the creation of the most advanced technological processes in high-cost
countries is one of the factors limiting company relocations, generating new areas of activity
and adding to the skills and know-how of companies' workers. On the other hand, the
countries with emerging economies and Southeast Asian countries have markets with major
potential, where tax regimes and the energy prices offered are often more favourable than in
the EU; in addition, labour costs are much lower, in part due to lower development of social
rights, which are in some cases non-existent in comparison to the fundamental standards of the
International Labour Organisation (ILO), and a lower cost of living. This enables companies
located there to compete globally on the basis of lower costs. At the same time, these countries
favour foreign investment, sometimes with the help of economic free zones where labour laws
and social conditions are weaker than in other parts of the country, because they realise that it
will provide major income for their economies. For this reason, more and more companies are
coming to see the benefits of relocating the lower added-value part of their businesses to these
areas, usually creating poor quality, low-wage jobs in the process.

1.16 In the light of the economic takeoff of emerging economies and Southeast Asian countries, it
is revealing to note that foreign direct investment (FDI) is indeed increasing in these regions,
as are the EU's trade flows with them. Consequently, even though the figures show that
Europe has managed to maintain an important share of inward FDI, the global flow has been
reoriented and is increasingly directed towards Asia.

15
COM(2005) 120 final.
 - 17 -
1.17 Thus, recent data confirms the new course being taken by the European Union's external
trade, although the USA continues, by a wide margin, to be its main trading partner.
16
However, this country's importance is tending to diminish in favour of countries like China .

1.18 At this point it would be worthwhile to try and define the concepts of delocalisation and
deindustrialisation:

• Delocalisation occurs when a business activity is totally or partially ceased, to be reopened

abroad by means of direct investment. In the European Union we can distinguish between
two types of relocation:

a) internal: Total or partial transfer of business activity to another Member State;

b) external: Total or partial transfer of business activity to non-EU countries.

• Deindustrialisation: Within this concept a distinction should be made between:

a) absolute de-industralisation: This implies a decline in employment, production,

profitability and capital stock in industry, as well as a decline in exports of industrial
goods and the emergence of persistent trade deficits in this sector;

b) relative deindustrialisation: This is the decline in the share of industry in the

economy, reflecting a process of structural change in the relationship between the
17
industrial performance and the service sector.

In addition to internal and external relocations, it is also worth mentioning another

phenomenon which has been highlighted by recent events at some production sites: reverse
relocation. This occurs when an employer urges employees to accept a lower standard of
working conditions or face the risk of being relocated. This phenomenon is particularly
harmful as it can encourage competition between workers, and can have a snowball effect

16
With regard to the EU's external trade flows, data published by Eurostat on 22 February 2005 for January-November 2004 show
a clear increase in imports from China (21%), Russia, Turkey and South Korea (18% each), while the only decrease was seen in
imports from the USA (–1%). In the section on EU exports, the most significant increases were for exports to Turkey (30%),
Russia (22%), China (17%) and Taiwan (16%). During the period in question, EU-25 trade showed an increase in the trade
deficit with China, Russia and Norway, while there was an increase in the trade surplus with the USA, Switzerland and Turkey.
17
Cf. in this respect, the study "The Significance of Competitive Manufacturing Industries for the Development of the Service
Sector", Bremen, December 2003.

The key messages of this study are the following:

• a reduced share of the manufacturing in GDP does not equal reduced importance;
• the linkages between the manufacturing and the service sectors are increasing;
• dynamically growing, enterprise-related services depend particularly strongly on industry’s demand;
• industry is an important technology provider for product and process innovations in the service sector.
 - 18 -
2. Causes and implications

2.1 In order to tackle the negative effects of relocation, it is clear that economic and social
measures are required to promote the creation of wealth, well-being and employment. In this
context, particular attention should be paid to small and medium-sized enterprises, given the
importance of their contribution to employment in the EU, and to companies in the social
economy – small, medium-sized and large – owing to their continuing tendency to create
jobs, and jobs moreover that their statutes make, in principle, less easy to relocate. Therefore,
the Committee supports the European Commission’s proposal to establish a Competitiveness
18
and Innovation Framework Programme (CIP) , in which it proposes the creation of three
sub-programmes aimed at providing a common framework to boost productivity, innovation
capacity and sustainable growth. The first of these sub-programmes, entitled the
Entrepreneurship and Innovation Programme, is intended to support, improve, encourage and
promote, inter alia, access to finance for the start-up and growth of SMEs, and sector-specific
innovation, clusters and action in relation to entrepreneurship and the fostering of a
favourable environment for cooperation between SMEs. It is vital to the creation of regional
clusters that multinationals decide not to relocate and encourage the activity of SMEs in their
local area.

2.2 Furthermore, the indirect effects that the risk of relocation can have on salaries and working
conditions must be considered. The social partners, through collective bargaining and
optimised creation and use of European works councils wherever the law provides for them,
should minimise these risks and safeguard the future of the enterprise and working conditions
of a high standard.

2.3 Historically, the EU–15 has been characterised by regional disparities in levels of income,
employment and productivity, which reflect the differences in the level of indebtedness, in
the tax benefits and in the attitude towards innovation. After the enlargement of 1 May 2004
19
this regional diversity has increased considerably .

2.4 At regional level, the consequences of company relocation can be dramatic especially if the
region specialises in a particular sector of activity. This is why a massive relocation of
companies in a particular sector can have a strong impact in terms of falling employment
rates, a noticeable fall in demand, reduced economic growth and a major social exclusion

18
COM(2005) 121 final 6 April 2005: Proposal for a Decision of the European Parliament and of the Council establishing a
Competitiveness and Innovation Framework Programme (2007-2013).
19
According to Eurostat data of 7 April 2005, the per capita GDP of the European Union (EU-25) in 2002 was between the 32% of
the EU-25 average found in the region of Lubelskie, in Poland and the 315% in the Central London region in the United
Kingdom. Among the 37 regions with a per capita GDP greater than the European average of 125%, 7 were situated in the
United Kingdom and Italy, 6 in Germany, 4 in the Netherlands, 3 in Austria, 2 in Belgium and Finland and finally 1 in the Czech
Republic, Spain, France, Ireland, Sweden and Luxembourg. Among the new Member States, the only region to exceed 125% was
Prague in the Czech Republic (153%). Conversely, among the 64 regions with a per capita GDP lower than the Community
average of 75%, 16 were in Poland, 7 in the Czech Republic, 6 in both Hungary and Germany, 5 in Greece, 4 in France, Italy and
Portugal, 3 in Slovakia and Spain and finally 1 in Belgium, the United Kingdom, Estonia, Latvia, Lithuania and Malta.
 - 19 -
among others, with all the negative consequences that this implies. In order to avoid this, the
20
European Commission, in its Third Cohesion Report , highlights the importance of focusing
its efforts on cohesion to improve economic efficiency and the competitiveness of the
21
European economy, which implies mobilising all its resources and regions .

2.5 It is essential that efforts be made to retrain the workforce, boost investment in innovation
and research, and develop incentives to promote the entrepreneurial spirit in the European
Union.

2.6 According to data from the European Monitoring Centre on Change (Dublin), some sectors
22
will be affected more than others by relocation . A company's position on relocation also
depends on its degree of independence in terms of corporate and technological structure. The
weakest group will be branches of foreign-based multinationals and companies which do not
own the technology for their products or processes.

2.7 Europe’s insufficient output in terms of research and innovation is worrying since relocations
do not seem any longer to be restricted to labour-intensive sectors. Relocations are now
increasingly observable in intermediate sectors and even in certain high technology sectors
where there are tendencies to relocate activities such as research and services, China and
India being the biggest beneficiaries of these developments/transfers.

2.8 We also know that some companies are bringing production back home because the EU
offers a good climate for the production of advanced goods and services. Although relocation
of production to low-cost countries will continue, the focus should be on helping to maintain
or create a good climate for the production of advanced goods and services in order to attract
production with high value added.

2.9 The United States is the world's most powerful economy and the EU's main trading partner.
In the 1990s a number of changes took place in various countries, especially the United
States, which gave rise to the "new economy". The rapid development of information and
communication technologies (ICT) and their application in business led to an acceleration of
the rate of GDP growth and a sharp fall in unemployment. The effects of the
telecommunications revolution were thus felt throughout society and the economy.

2.10 Even though fostering research is extremely important in order to slow down the process of
relocation, which for some European regions is already a preoccupying issue, it is the

20
COM(2004) 107, 18.2.2004. See related EESC Opinion (ECO 129).

21
The Committee has issued an own-initiative Opinion on Industrial change and economic, social and territorial cohesion
(CESE 959/2004, 30.06.2004). rapporteur: Mr Leirião (Group III – Portugal), co-rapporteur: Mr Cué (CCMI Category 2 –
Belgium).
22
The European Monitoring Centre on Change (www.emcc.eurofound.eu.int) notes that the sectors most affected by relocations
since 2000 are the metal, telecommunications, motor, electrical, textile, food and chemical sectors.
 - 20 -
application of the results of research that is decisive. It is the implementation of the results of
scientific and technological research which produces real economic development and growth.
This means that the key factor is not the technology itself but the use made out of it, i.e. the
innovation.

2.11 However, it must be realised that innovation alone will not prevent the relocation of
traditional industrial activities which will be transferred elsewhere because they lack
competitiveness. But innovation will be a driving force for the replacement of relocated
activities with alternative products, processes and services in these areas.

2.12 An economy based on the integration of technological progress into the production processes
provides a wide range of new products and processes of high added value, both in production
and consumption. In this context, the countries that joined the EU on 1 May 2004 should be
considered as a source of opportunities since, with the help of an adequate industrial policy,
European companies will be able to design a new strategy on a continental scale, making the
most of the opportunities brought by enlargement.

2.13 Relocation means a company moving all or part of its activity from one place to another.
Companies, like people, leave their place of origin with one aim in mind: improvement. In
highly developed economic areas with partially saturated markets, the potential for growth of
the national economy within its own market gradually comes up against its natural limits.
Entire industrial sectors are therefore obliged to search for future opportunities in other
economic areas. Moreover, in the age of globalisation, companies face strong global
competition in both their home and export markets. In this context, the competitiveness of
companies depends not only on the quality of their products or services and those of their
suppliers, but also on their prices, exchange rate variations and the presence of open,
competitive global markets whose standards are observed by all.

2.14 The choice of location is a strategic issue for companies and consequently forces them to
consider numerous aspects of a very different nature. Companies take their decisions on the
basis of (among other things) high levels and the right kind of training, good public services,
moderate costs, political stability, institutions inspiring a minimum of confidence, the
proximity of new markets, the availability of productive resources and reasonable levels of
taxation. Moreover, a company's position on relocation also depends on infrastructure and
transaction costs. It also depends on its degree of independence as determined by its
corporate and technological structure and the efficiency of the public administration. Hence
labour costs are not the only factor in deciding for or against relocation and should be
weighed against productivity since the productivity/cost ratio is essential to competitiveness.

2.15 Relative business costs are largely determined by national or regional conditions. Countries
receiving company investment must provide minimum levels of infrastructure, education and
security. When contemplating taking on entrepreneurial risk, companies seek stability and
confidence (in that order) before investing. Events generating instability, or particularly
uncertainty about the future, undoubtedly influence investment decision-makers. Political
decision-makers have to be extremely aware of the importance of attracting investment
 - 21 -
which creates high-quality jobs, facilitates technological development and boosts economic
growth. Furthermore, when designing development aid, greater store should be set by
improving political, civil and social rights in recipient countries. Companies must help to
23
achieve this objective by applying the principles of social responsibility .

2.16 The social partners have a particular duty to create stable rules of engagement for the labour
market. Collective agreements, as part of an autonomous social dialogue, ensure a level
playing field for companies, a balance between the market and workers' rights that leads to
growth, security and development potential for employees and companies.

2.17 Further aspects also play a key role. On the one hand, the nature and scope of products and
services do, in many cases, require the goods to be produced and the services to be provided
in or at least near the target markets. On the other hand, there is often a need, particularly in
the case of supply industry enterprises, to follow their business customers to the locations
which the latter has chosen. Finally, in many cases, it is not possible to tap new markets
unless the enterprises concerned ensure that their goods and services include at least some
degree of locally-provided added value.

2.18 Finally, it should not be overlooked that, since consumers lend great importance to price and
consumer demand also influences supply, there is considerable pressure on retailers to lower
their prices. Large retailers, having decided to offer the consumer low prices, then put
pressure on suppliers to reduce their prices. In this situation, suppliers, especially the smallest
24
ones, do not usually have the economic resources to satisfy the large retailers’ demands .

2.19 Due to the disparity between the economies of the EU Member States, and between that of
the EU as a whole and those of Asian countries, there are certain factors that encourage
company relocations:

• cheaper supply;
• tax advantages;
• potential access to new markets;
• technology;
• lower labour costs.

2.20 Movement of companies, especially away from the EU, could give rise to some difficulties
such as:

(a) loss of competitiveness: companies remaining in the EU would be obliged to bear

higher costs than their competitors; this is likely to result in a loss of worldwide market

23
The EESC, in its Opinion on Corporate Social Responsibility (Green Paper) acknowledges that "[v]oluntary (...) action is one of
the fundamental principles of CSR" (CES 355/2002); rapporteur: Ms Hornung-Draus (Group I – Germany), co-rapporteurs:
Ms Engelen-Kefer (Group II – Germany) and Mr Hoffelt (Group III – Belgium).
24
See the EESC Opinion 381/2005 The Large retail sector – trends and impacts on farmers and consumers. Rapporteur: Mr Allen
(Group III – Ireland)
 - 22 -
share, with negative consequences for the achievement of the Lisbon Strategy objectives
(sustainable economic growth with more and better jobs and greater social cohesion, and
respect for the environment);

(a) less generation of know-how: European companies, forced to compete with

companies with lower costs, could possibly be obliged to invest less and less in research;
this would result in a loss of innovative capacity, which is essential for survival in today's
market;

(a) loss of jobs and deterioration of job opportunities for an ever growing number of
employees in the affected regions and sectors; this will result in increased social
exclusion and in states having to devote a greater part of their budgets to social spending;
the workers who suffer most will be those of branches of multinationals with their
headquarters in another country and those of companies which do not own the technology
for their products or processes;

(a) slower economic growth: caused in part by reduced internal demand, due to the
effect that pay cuts, job losses and fewer opportunities in the job market will have on the
population.

3. Conclusions

25
3.1 In response to the concerns expressed by the European Council , and aware of the anxieties
aroused by the danger of deindustrialisation and of the ways in which we can prepare
ourselves and face the structural transformation which is taking place in European industry,
on 20 April 2004 the European Commission adopted the Communication entitled Fostering
26
structural change: an industrial policy for an enlarged Europe , in which it sketches the
outlines of an industrial policy for an enlarged European Union. The Committee deals
27
specifically with this Communication in a separate Opinion, in which it welcomes the
Commission's initiative.

3.2 In this document the European Commission states that, although the majority of sectors are
increasing their production and although no general process of deindustrialisation is to be
observed, Europe is nonetheless undergoing a process of restructuring, involving the transfer
of resources and jobs to activities with a high knowledge content. In this context, the
Communication points out that in all the Member States the number of jobs in the industrial
sector fell during the period 1955-1998.

3.3 The Commission also points out that enlargement offers numerous opportunities for industry
and that, in some cases, it can help retain production in the EU which might otherwise have

25
At its meeting held in October 2003, under the Italian Presidency.

26
COM(2004) 274 final, 20.4.2004.

27
CES 1640/2004 ; rapporteur: Mr Van Iersel (Group I – Netherlands), co-rapporteur: Mr Legelius (CCMI Category 1 – Sweden).
 - 23 -
been transferred to Asia. The Commission calls for action to anticipate change and continue
the policies necessary to support this process, in the context of the new financial perspectives
for the period to 2013 and in three areas:

i) A regulatory framework favourable to industry at national and EU level, not

necessarily meaning fewer regulations, but rather clear regulations applied in a uniform
manner across the EU.

ii) Optimising synergy between different policies, to encourage competitiveness, with a

special focus on areas like research, training, competition rules and regional aid.

iii) Adopting measures in specific sectors to respond politically to specific needs, move up
the value chain and anticipate and flank structural change.

3.4 There is no doubt that industry is the engine of the economy, and that a healthy and dynamic
industry can give an impetus to the economy as a whole, whereas weak industrial
competitiveness and flagging industrial production can lead to general stagnation of
28
economic activity. Against this background, it is essential to pursue an industrial policy
which promotes the establishment and growth of firms in the Union which invest heavily in
innovation and development, rather than competing on costs. Only by exploiting the
advantages which Europe offers (such as high-quality information society infrastructure, a
high level of investment in research and new technologies and their exploitation in industry,
the promotion of continuing education and training for workers, social dialogue and all the
advantages of the single market) will it be possible to maintain and improve the
competitiveness of European industry. In this way it would be possible to promote economic
growth and progress towards full employment and sustainable development.

3.5 With a view to improving and preserving the competitiveness of businesses in the EU, the
Committee calls for improved protection for intellectual property rights and the enforcement
of those rights in third countries.

3.6 It is necessary to promote a production model which emphasises factors other than the price
of the products manufactured. It should be stressed that competitiveness is not based on costs
or tax incentives alone, but that people are a fundamental part of firms' competitive edge.
Research and the development of new technologies which make it possible to reduce
production costs and improve productive capacity are essential, but sight should not be lost of
the fact that the real value of these advances lies in their application. It is therefore a matter
of priority to have the necessary knowledge for the appropriate exploitation of these
processes, making it possible to exploit the considerable potential for improvement, as well
as to make companies aware of the risks and the need to search for new applications for
existing technologies, i.e. to promote an innovative attitude. In this entrepreneurs and
workers undoubtedly have a crucial role to play. Ultimately the aim is to encourage European
firms to base a large part of their added value and competitive advantage on human capital.

28
The need for an active industrial policy was acknowledged by the European Council at the Spring Summit 2005, held in Brussels
on 22 and 23 March 2005.
 - 24 -
That is why measures targeted at continuing training and boosting investment in research and
innovation are of decisive importance. Here too European social partners play an important
29
role, through their joint work programme .

3.7 However, some measures only apply to intra-EU relocation.

3.7.1 The enlargement of the EU and the consequent extension of the internal market rule out
placing any kind of restrictions on the relocation of companies from Western Europe to
Central and Eastern Europe. Consideration must be given to introducing EU funding criteria,
which ensure that only company set-ups which initiate a new business activity or line are
supported, and not those which simply transfer existing manufacture or services from
elsewhere within the EU. Efforts should thus be encouraged with a view to levelling out, as
soon as possible, the enormous discrepancy between eastern and western Europe as regards
production conditions in general and production costs in particular.

3.7.2 The most important conclusion is that there should be an ongoing process to improve
competitiveness in the EU. This process should run in harmony with the Lisbon Strategy and
be led by companies (development of better products, creation of innovative business
models, more efficient production processes, etc.) and facilitated by improved European and
national legislation.

3.7.3 It would therefore be advantageous to increase support for investment in human capital and
other types of infrastructure. The European Union needs a strong, innovative and
technologically advanced industrial base. To achieve this, a thorough understanding of the
current situation in both regional and national economic sectors is vital, so that the specific
advantages that exist locally can be put to best use.

3.7.3.1 In order to help to keep companies in their places of origin, regional incentives should be
increased as regards training; it would be worthwhile promoting other initiatives such as
exchanges with universities for research, and partnerships with local authorities for
30
developing regional "clusters" of support for businesses .

3.7.3.2 The Committee supports the Commission’s proposal to increase from 5 to 7 years the period
for which businesses receiving financial aid must maintain the investment for which this aid

29
See the Joint declaration on the mid-term review of the Lisbon strategy, presented at the Tripartite Social Summit held on
22 March 2005.
30
The Competitiveness and Innovation Framework Programme (COM(2005) 121 final, 6 April 2005), mentioned above (see
point 2.1), included such activities.
 - 25 -
31
was requested , thus encouraging them to lay down roots. Should these businesses not
comply, they will have to give back the financial aid received.

3.7.4 Given the relevance and interest of this issue, the Committee will follow the development of
32
relocation in Europe .

4. Recommendations

4.1 As the European Commission noted in its Communication on integrated guidelines for
33
growth and jobs (2005-2008) , firstly, the EU must seize the opportunities provided by the
opening up of rapidly growing markets, such as China and India, and, secondly, the EU has a
high potential for developing further its competitive advantages, and it is crucial that actions
are pursued with determination to exploit that potential.

4.2 The Committee believes that creating a knowledge society, based upon human capital,
education, research and innovation policies, is the key to boosting growth potential and being
in a position to face up to future challenges. Furthermore, the Committee believes that
sustainable growth also requires greater demographic dynamism, improved social integration
and fuller utilisation of the potential embodied by European youth as recognised by the
European Council of 22 and 23 March 2005 in adopting the European Youth Pact.

4.3 The Committee considers it necessary to achieve greater convergence and synergy between
the EU's different internal policies, actions and objectives. This not only requires firm
internal coordination in the Commission, but also in dialogue with the European Parliament
and the Council.

4.4 The Committee recommends that the Commission also pursue a sector-based in addition to a
horizontal approach in EU industrial policy, since the recommendations of the High-Level
Groups show that the pharmacy, textiles and clothing, ship-building and automobile sectors
34
all face specific problems that call for tailor-made solutions and specific measures . These
problems cannot be solved through a horizontal approach.

31
See the European Commission’s proposals for the Structural Funds.

32
In this context, the quantitive and qualititive analyses being carried out by the European Monitoring Centre on Change (Dublin)
should be taken into account.
33
COM(2005) 141 final, 12 April 2005.

34
The principal common objective of these four High Level Groups (HLGs) set up by the European Commission between 2001 and
2005 is to stimulate debate on initiatives that will facilitate the adjustment of the respective sectors to major challenges and
improve conditions for the competitiveness of related European industry. Of these HLGs, three have published their reports
(pharmaceuticals in May 2002; textiles and clothing in June 2004, although it has resumed its work at "sherpas" level to continue
the debate on unfinished issues and to monitor the situation of the sector in 2005; shipbuilding in October 2003). The CARS21
HLG final report is expected before the end of 2005.
 - 26 -
4.5 In order to prevent, as far as possible, the negative effects of company relocations in Europe,
the following aspects need to be given special attention:

4.5.1 Education, training and skills Human capital is very important for industrial
competitiveness and will probably become even more so (a clear example of this is the fact
that lack of skilled workers is the main constraint on the development of SMEs). In the
coming years it will become increasingly clear that the availability of skilled workers is a
critical factor in determining the long-term international competitiveness of European
industry. For that reason great importance will be attached to training and immigration in the
context of the legislation and common policy of the Union. European industrial policy must
put education, training and skills at the centre of its strategy, with special attention being paid
to the ongoing training of workers.

Human capital and know-how are competitive advantages

4.5.2 Research and innovation. These are key factors in the competitiveness of European industry.
Europe must work to achieve the objective of devoting 3% of its GDP to research and must
redouble its efforts to develop public and private-sector research. In this context, the
establishment of the European Research Area is of vital importance in providing the EU with
the necessary basis for scientific and technological progress.

At the same time, it is important that research be translated into industrial innovation and that
private investment be increased in those capital goods which actually bring about
technological change.

Scientific and technological innovation is an important differentiating factor

4.5.3 Competition policy. Although increasing, the interaction between industrial and competition
policy is still insufficient. It needs to be stepped up. The appropriate implementation of the
competition rules, interlinked with the objectives of industrial policy, will contribute
significantly to growth and employment in the long term.

Market monitoring must be stepped up, and new and amended directives must include
conditions ensuring that they are uniformly applied in all Member States.

It is necessary to link competition policy with industrial policy

 - 27 -

4.5.4 Awareness. Given the role of current price-driven consumer trends, it would be beneficial
to raise consumer awareness of the consequences of this behaviour. Companies can become
35
involved in this awareness campaign through labelling (social, quality, etc.). They could
also provide consumers with more accurate information on the origin of their products."

Consumers must be made more aware of the consequences of their behaviour

4.5.5 Key sectors. A more active sector-based industrial policy, which fosters public-private
cooperation, is needed. Therefore, the Committee considers that the quantitative and
qualitative analyses being carried out by the European Monitoring Centre on Change
(Dublin) should be taken into account, in order to have a more adequate basis for the public
debate on relocation.

Greater public-private cooperation in key sectors seems crucial to accelerate development

4.5.6 Responses to unforeseen events. What all sectors require, as stated in the Communication
36
from the Commission on restructuring and employment , is "reform of financial
instruments for better anticipation and management of restructuring" with suitably adjusted
budgets, in view of the social impact. Furthermore, public authorities should also intervene
in the event of "unforeseen events with a severe regional or sectoral impact". The EESC
therefore supports the creation of "contingency reserves" within the Structural Funds.

The EU needs flexible financial instruments that can cope with unforeseen events

4.5.7 Infrastructure. Transport, telecommunications and energy networks need to be improved

nationally, within the Community and with neighbouring countries. Infrastructure is a key
requirement for competitiveness and therefore must be made available to companies at a
competitive cost. Effective public services are a necessary requirement for the development
of enterprises, in particular SMEs, and also serve to stimulate this development.

Facilitating the work of companies through investment in infrastructure

is an incentive for them to stay in Europe

35
See EESC opinion on Information and measurement instruments for corporate social responsibility (CESE 692/2005; rapporteur:
Ms Pichenot) adopted on 8 June 2005.
36
COM(2005) 120 final.
 - 28 -

4.5.8 Promoting the entrepreneurial spirit and encouraging business activities. In order to
guarantee the future of European industry, it will be essential to establish a business climate
favourable to the establishment and development of entrepreneurial activity, paying
particular attention to small and medium-sized enterprises. It will be necessary to improve
access to financing in the early and intermediate stages of companies' development and, as
far as possible, to simplify the procedures for the establishment and management of
companies. It will also be necessary to promote a change of mentality, encouraging the
acceptance of risk inherent in business activity.

It is also important to consider the involvement of workers in achieving their firms'

objectives.

Promoting the establishment of companies in order to ensure growth is mandatory

4.5.9 Social policies. The best way of tackling the understandable concerns over the negative
consequences of company relocations is to develop and properly implement social policies
that promote a positive attitude to change, enable workers to adapt and upgrade their skills,
and encourage job creation.

It is necessary to develop and implement social policies that minimise the possible
negative consequences of company relocations

4.5.10 Social dialogue. European industrial policy needs to be defined in business, sectoral and
intervocational terms, and put into practice with input from the social partners, whose expert
knowledge, as the main stakeholders affected, will be vital. This requires that companies
make their intentions clear at an early enough stage to make appropriate action by the other
stakeholders feasible.

The European social partners should address this issue in the context of restructuring and the
new agenda for European social dialogue, including at sectoral level. Within the framework
of the social dialogue, collective agreements are a major factor for the creation of fair
conditions of competition for businesses.

Striking a constructive and creative balance between the interests of the

various stakeholders is a continuous task
 - 29 -

4.5.11 Competition and international rules. Although relocation represents a structural change, it
is not acceptable for changes to be motivated, albeit partially, by an EU policy that is too
flexible when it comes to negotiating and interpreting basic international regulations.
Account must be taken of the social dimension of globalisation and an appropriate EU policy
mix found to encourage cooperation between the WTO and the ILO. The EU must therefore
act within these international bodies to ensure that these rules are respected and if not, to
apply the existing mechanisms as effectively as possible.

There must be open, competitive global markets whose rules are obeyed by all

4.6 The aim should be to promote new investment in Europe, retain existing investment and
continue European investment abroad.

Brussels, 14 July 2005.

The President The Secretary-General

of the of the
European Economic and Social Committee European Economic and Social Committee

Anne-Marie Sigmund Patrick Venturini

_____________
 - 31 -

CCMI/030
"A sectoral survey of
relocation"
Joost van Iersel Enrique Calvet Chambon
EESC Member CCMI Delegate
Group I – NL Category 1 – ES
Rapporteur Co-rapporteur

Brussels, 6 September 2006

INFORMATION REPORT
of the Consultative Commission on Industrial Change
on
A sectoral survey of relocation

_____________

Rapporteur: Mr van Iersel

Co-rapporteur: Mr Calvet Chambon
_____________
 - 33 -
On 14 July 2005 the European Economic and Social Committee (EESC), acting under Rule 31 of its
Rules of Procedure, decided to ask the Consultative Commission on Industrial Change (CCMI) to
draw up an information report on

A sectoral survey of relocation.

The preparatory work was carried out by the following members and delegates:

President : Ms Fusco (Rule 62 Rossito) (III-IT)

Rapporteur : Mr van Iersel (I-NL)

Co-rapporteur: Mr Calvet Chambon (Cat. 1-ES)

Members Mr Fernández (Cat. 2-ES)

Mr Glorieux (Cat. 3-BE)
Mr Lasiauskas (Rule 62 Levaux) (I-LT)
Mr Nollet (II-BE)
Mr Hosman (Cat. 1-NL)
Mr Páleník (III-SK)
Mr Passley (Cat. 3-UK)
Mr Szerement (Cat. 2-PL)
Mr Zöhrer (II-AT)
 - 34 -
1. Introduction: CCMI and company relocations

1.1 This Information Report is a direct continuation of the CCMI Opinion on The scope and
1
effects of company relocation adopted by the Committee on 14 July 2005 .

1.2 According to the Opinion, company relocation, both from old to new Member States and
from the EU to other countries (especially in Asia), is an inevitable process, which the
enlarged EU has to manage and monitor.

1.3 The Opinion makes it clear that relocation can lead to job losses and associated effects such
as increased social security costs, greater social exclusion and lower economic growth in
regions witnessing the departure of companies.

1.4 The Opinion points out that, despite these effects, relocation is certainly not necessarily
synonymous with social and economic decline. Rather, it is very often essential to the
survival and development of enterprises. In addition, many businesses react creatively,
either by forming new clusters and enhancing the scale of activities, as is particularly the
case among SMEs, or by adjusting processing and design.

1.5 The document identifies business location as a strategic issue that has to take account of a
wide range of economic and industrial considerations. It concludes that certain key aspects
of industrial policy and thinking have to be reinforced if further indirect relocation is to be
prevented and proposes a series of measures to deal with this.

1.6 The Opinion sets out the main issues involved in relocation generally and draws a series of
conclusions. Nevertheless, as the Opinion points out, "some sectors will be affected more
than others by relocation" (point 2.6). At present, there is no clear picture of the situation
per sector.

2. Report on facts and figures

2.1 In addition to the abovementioned Opinion, the CCMI hereby presents a report on facts and
figures related to relocation. The CCMI draws a number of conclusions on the statistical
evidence, including the methodology employed and the availability of sources.

2.2 The report is designed to present, through the use of the most relevant indicators, a survey
of company relocation across a range of sectors. The latter, as will become clear from
section 3 of this document, were selected with several criteria and objectives in mind
including, notably, the presentation of as comprehensive a view as possible. The survey,
2
available on the CCMI website , therefore examines 19 selected sectors, providing a

1
The full text of the Opinion (CESE 851/2005; rapporteur: Mr Rodríguez García-Caro, Group I, Employers, Spain; co-rapporteur:
Mr Nusser, CCMI delegate, Germany) can be accessed at:

http://eescopinions.eesc.europa.eu/viewdoc.aspx?doc=\\esppub1\esp_public\ces\ccmi\ccmi014\en\ces851-2005_ac_en.doc.
2
http://eesc.europa.eu/sections/ccmi/docs/index_en.asp.
 - 35 -
synoptic analysis of existing statistical and other data in each area so as to draw an accurate
picture of the state of company relocations in each instance. This survey was carried out by
Reckon LLP, an external consultant operating under the close supervision and with the
guidance of a CCMI study group.

2.3 Therefore, the purpose of these few pages is to provide a short description of the approach
followed by the consultant, in close cooperation with the CCMI study group, and to
comment briefly on the main results contained in the survey, to set these in context and,
where appropriate, to make some suggestions.

3. Description of the approach

3.1 In the follow up to the EESC Opinion of 14 July 2005, the consultant was invited to collect,
cross-reference, systematise and interpret all available data on relocation. Although this
work has been carried out thoroughly, difficulties have arisen along the way.

3.2 It must be acknowledged that there is neither a universally accepted definition nor a single-
scale measurement for relocation. This has had consequences on the methodology
employed.

3
3.3 The study group agreed to use the Committee's definition as the point of departure for its
examination and as the reference according to which the indicators should be chosen and
interpreted. It subsequently decided to focus analysis mainly on external relocation ("total
or partial transfer of business activity to non-EU countries") to comply with the single
European market acquis as closely as possible, without completely excluding references to
significant instances of internal relocation (between Member States), where these are clearly
major and likely to have considerable repercussions.

3.4 Boundaries between relocation, deindustrialisation, offshoring, outsourcing, FDI flows and
structural change in general cannot be clearly defined. Consequently, there cannot be a
perfect system of measurement for a phenomenon that is neither univocal nor clear-cut. The
consultant has endeavoured to use a pertinent set of indicators that, in conjunction, offer as
accurate a picture as possible of the processes under consideration. The CCMI considers it
very appropriate that the survey contains a detailed introduction to each indicator used,
including its suitability as an indicator of relocation. To mention two examples, the
consultant deems the ERM (European Restructuring Monitor) and FDI (Foreign Direct
Investment) indicators particularly questionable. Indeed, such is the questionable nature of
these sources that, while figures from these datasets are reported in the survey, they are not
taken into consideration by the consultant when drawing conclusions.

3
Cf. CESE 851/2005. In point 1.18, the Opinion defines "delocalisation" – which, in the English version of the text, is used
interchangeably with the term "relocation"– as follows:

"Delocalisation occurs when a business activity is totally or partially ceased, to be reopened abroad by means of direct investment.
In the European Union we can distinguish between two types of relocation:

a) internal: Total or partial transfer of business activity to another Member State;

b) external: Total or partial transfer of business activity to non-EU countries."
 - 36 -
3.5 The only feasible way to make a viable analysis is to focus on sectors. The CCMI study
group has selected 19 sectors on the basis of the following criteria:

• importance of a given sector in terms of GDP at EU level;

• technological development and added-value;
• strategic relevance to the EU;
• employment figures;
• perceived exposure to relocation.

3.6 Nevertheless, the survey had to face up to considerable mismatches and overlaps,
sometimes contradictory, between the way sectors are routinely defined and the most
current statistical nomenclatures, the definition of which, in turn, occasionally differ.

3.7 Even when the definition of a sector appears sound and clear-cut, the statistical analysis
may on occasion produce seemingly arbitrary results. This is due, on the one hand, to the
overlapping nature of the interrelationships between industries and services in general and,
on the other, to the complexity of the vertical and horizontal supply chains.

3.8 The statistical sources do not cover the sectors in a uniform way. Certain sectors are not
well covered at all by the most relevant datasets. There are also substantial differences
between the available data per country. Time-spans also differ from sector to sector and
from country to country. Even in certain subsectors (for instance aluminium), the typical
problem of using value data instead of volume data can sow confusion or otherwise mislead.

It must be noted that the numerous trade associations consulted in the framework of the
survey were, in many cases, lacking data themselves (or were disinclined to share them).
Some associations, on the other hand, collaborated closely and proved to have a more
sound, accurate knowledge of their sector than that indicated by general statistical tools.

3.9 In spite of all these difficulties, the survey is well structured and has been conducted
according to a consistent methodology, defined by the consultant, that has itself made
possible a number of findings (commented upon in section 4). It should be noted, however,
that, notwithstanding the consistency of the approach employed, sufficient flexibility was
maintained to permit adaptability to the vagaries of specific sectors. In other words, the
same pattern was applied to all, but specific additional action was taken on a case-by-case
basis as required and where feasible.

3.10 The survey has the additional merit of completing the picture drawn from the statistical
evidence, not only through contact with respective trade associations (on both sides of the
employment coin), but also through a comprehensive review of available literature. This has
further illustrated different perceptions of the following aspects:

• definition of terms associated with relocation;

• measurements of relocation;
• factors influencing the decision to relocate;
 - 37 -
• forecasts of trends;
• effects of relocation.

4. Findings of the survey

4.1 As was highlighted in the previous section, the sectoral approach to relocation has proved the
only viable one in that it has permitted the compartmentalisation of the various issues at
stake. In this manner, difficulties in one sector – for instance of finding evidence – may be
restricted to that sector without the risk of their affecting issues in others.

4.2 As a consequence of the limitations mentioned in section 3, the overall picture of relocation
arising from the survey shows gaps and inconsistencies.

4.3 In some sectors little analysis was possible due to an insufficiency of relevant and
comparable data.

4.4 The two sectors pertaining to business-related services (knowledge-intensive business

services and financial services) present particular problems in this respect. At the time of
inclusion of these two sectors in the list of those to be examined, the CCMI study group
suspected that a dearth of information – surprising as this may seem – might exist in these
areas. Nevertheless, given the importance and significance of business services, they were
retained in order to confirm or deny this initial impression.

4.4.1 As a result of work undertaken, the CCMI can now confirm the lack of data on the incidence
of relocation in the financial services sector and, as a result, no viable assessment is possible
in this area.

4.4.2 The availability of reliable data in the knowledge-intensive business services sector (itself
extremely diverse) is only marginally better. What information there is would tend to suggest
4
that relocation has not been a major issue in this sector in general .

4.4.3 The CCMI welcomes the ongoing investigation undertaken by DG Enterprise and Industry of
the European Commission into the offshoring of R&D activities. The more the sectoral
perspective is strengthened in the afore-mentioned study, the greater will be its effectiveness
and impact.

4.5 An example of the complexity inherent in the extraction of firm conclusions purely from
5
commonly available statistical evidence is that of the electromechanical sector . In

4
The CCMI considers the ongoing work of its study group on "Services and European manufacturing industries: interactions and
impacts on employment, competitiveness and productivity" timely and well chosen (own-initiative Opinion CCMI/035
(rapporteur: Mr Calleja, Group I, Employers, Malta; co-rapporteur: Mr Rohde, CCMI delegate, Germany). Indeed, the
CCMI/035 Opinion examines the impact of business services (of which knowledge-intensive business services are a sub-group)
on employment, competitiveness and productivity in European manufacturing industries. Attention is given, inter alia, to the
impact of externalisation/outsourcing of business services.
 - 38 -
paragraph 32 of the consultant's survey, reference is made to a gradual fall in output and a
more significant drop in employment levels versus an overall improvement in Europe's trade
balance over the period 1999-2003. The consultant presents two divergent but equally
possible explanations for these patterns: i) improvements in labour productivity and export
performance / ii) a degree of relocation. According to more recent data gathered by Orgalime
6
since 2004 and presented during a hearing . output has increased whilst employment has
decreased slightly. Only as a result of this input from the relevant trade association, did it
become evident that the first of the consultant's hypotheses (i.e. improvements in labour
productivity) is correct.

4.6 As concerns the sectors in which a relatively robust analysis was possible – taking into
account the comments in section 3 on the difficulties encountered – the preliminary overall
conclusions would tend to indicate that, in some sectors, relocation, in its purest sense, is
indeed taking place: textiles on the one hand and leather, clothing and footwear on the other.
As the survey correctly points out, these two sectors are closely intertwined. Furthermore, it
should be noted that the statistics available to the consultant do not reflect the impact on
these sectors of the expiry of the Agreement on Textiles and Clothing (ATC) on 1 January
2005.

4.7 In the remaining sectors, it is hard to establish that relocation, again in its purest form, is
dissociable from other broader economic and social phenomena that could themselves be laid
at the feet of "structural change" as a more complex process in which globalisation,
rationalisation, productivity gains and modernisation are inextricably connected. In this
respect, several trends seem to be converging:

• constant or falling levels of employment;

• rise of new technologies with corresponding increase in requirement for more highly –often
extremely– skilled employees;
• increased productivity;
• trade surpluses on the whole, particularly vis-à-vis developing countries, which, in principle,
should benefit from relocation trends;
• increased pressure to achieve quick returns on investment.

4.8 Finally, and on a particular note, it is worth mentioning that some organisations at the May
hearing referred to the possibility, in some cases and in certain sectors where the need for
large production areas is obvious, of the main motive behind relocation being property
speculation.

5
See EESC own-initiative Opinion on "Industrial change in the mechanical engineering sector" (CESE 526/2005, adopted on
11 May 2005; rapporteur: Mr van Iersel, Group I, Employers, The Netherlands; co-rapporteur: Mr Castañeda, CCMI delegate,
Spain):

http://eescopinions.eesc.europa.eu/viewdoc.aspx?doc=\\esppub1\esp_public\ces\ccmi\ccmi020\en\ces526-2005_ac_en.doc.
6
As part of the work of the CCMI study group, a hearing involving representatives from seven trade associations/unions was held
on 4 May 2006 at the EESC headquarters.
 - 39 -
5. Conclusions drawn by the CCMI

5.1 Within the EESC, the drafting of this Information Report represents an innovative working
practice in that it couples the expertise and know-how of the CCMI Members and Delegates
to the findings of a survey produced by an external consultant, albeit working under the close
supervision of the relevant CCMI study group.

5.2 The resulting product is one of high added value, given that, as the literature review
contained in the external study reveals, to date there has been no attempt by public or private
institutions in Europe to undertake a comprehensive survey based on all readily available
evidence and dedicated exclusively to the issue of relocation from a sectoral point of view.

5.3 Informal contacts with the Commission show that EU Institutions encounter similar
difficulties. Contrary to what has been presented in other studies, the survey covers a large
range of indicators.

5.4 Nevertheless, the objective of capturing the scope of "relocation" on a sectoral basis in the
EU has only partly been achieved, for the reasons described in section 3, which provides
detailed information on the methodological difficulties encountered.

5.5 In certain cases, there seems to be significant difference between the evidence arising from
available statistics and the way relevant players perceive the dynamics in a given sector. This
7
was best exemplified during the hearing held by the CCMI study group on 4 May .

5.5.1 Only reliable data and statistics can contribute to bridging the gap between "statistical" and
‘perceived’ reality. What is more, in-depth interpretation of the available figures by experts
(specialised consultants, trade associations and others) is often needed, taking into
consideration the multidimensional complexity and dynamics of industrial processes and of
industrial change in general. On occasion, statistical errors are not confined to the
quantitative; they often completely change the concept and definition of the sector. This is
serious, since any hypothetical policy based on erroneous concepts can cause considerable
damage. It is certainly worthwhile carrying out more in-depth research into these particular
points.
5.6 Additional work remains to be carried out. The issue, on the one hand, of destination
countries and, on the other, of the minute examination of individual product ranges within
each sector, warrants further specific investigation.

5.7 It will be very hard, as suggested in point 4.7, to dissociate relocation in its purest form, from
other manifestations of structural change, as part of a more complex and dynamic process.
Dealing with relocation alone is too narrow. Indeed, this explains why it is practically
impossible to produce statistics on relocation exclusively.

7
See footnote 4.
 - 40 -
5.7.1 A prerequisite to any such production would have to be the agreement upon both a common
definition of terms and appropriate indicators, which itself seems nigh on unachievable. It
would also be necessary to establish the motivation behind any transfer of production, which
is obviously unrealistic.

8
5.8 At present, there is no sound starting point for public policy-making in this domain , despite
some progress such as the screening of 27 separate sectors of manufacturing and construction
9
industries ("European Industry: A Sectoral Overview") , which was annexed to the
Commission Communication "Implementing the Community Lisbon Programme: A Policy
Framework to Strengthen EU Manufacturing - towards a more integrated approach for
10
Industrial Policy" .

5.9 This is all the more remarkable given the highly charged political nature of this subject and
the corresponding media focus thereby engendered. Relocation ranks highly among issues of
11
greatest public concern , which is also explained by the fact that the negative effects of
relocation are often concentrated either territorially or by sector, thereby rendering difficult
any appreciation of the beneficial aspects that relocation offers.

5.10 A sound statistical methodology, particularly important at European level, is a basic

condition for adequate policies. This is far from just a technical issue. Statistics have to
embrace not only relocation stricto sensu (see point 5.7) but also other aspects of industrial
change, such as those mentioned in 3.3 and 4.7.

5.11 Globalisation creates a requirement for fundamental improvement of statistical evidence.

The EU badly needs objective, well-supported datasets. A sectoral approach is key in this
respect. It will also provide the best starting point for a definition of prospective policies to
deal with change. This would lend support to the new-style Industrial Policy.

5.12 It should be borne in mind, however, that a sector-specific approach in no way detracts from
the natural life cycles of industrial sectors. In other words, this approach must not be allowed
to interfere with the natural rise and decline of any one sector, as part of an ongoing market-
based dynamic.

5.13 The better the statistical evidence, the more it will be possible to develop appropriate,
anticipatory policies at regional, national and EU level.

8
e.g. see "EU competitiveness and industrial location" (BEPA(2005) 26 October), i.a. point 2.4.

9
SEC(2005) 1216 final of 5.10.2005.

10
COM(2005) 474 final of 5.10.2005.

11
See the Council of Europe Parliamentary Assembly's resolution on "Relocation of economic activities abroad and European
economic development" (7 December 2005), point 4.
 - 41 -
5.14 Anticipation of the evolution of sectors may in turn help to identify special requirements at
regional level. This is particularly desirable for regions dominated by one industrial sector
(mono-industrial regions).

5.15 An appropriate statistical approach, as close as possible to reality – which is currently not the
case – should also be helpful in putting relocation, a process that can tend to frighten people,
in the right perspective.

5.16 Improvements to the statistical evidence surrounding the issues at stake are needed in any
case. To this end, the CCMI recommends the establishment of a structure, the prime
objective of which would be to promote a coordinated response to all difficulties –
methodological and circumstantial – outlined above. The CCMI expresses its readiness to
contribute to this endeavour.

Brussels, 31 August 2006.

The President The Secretary-General

of the Consultative Commission of the
on Industrial Change European Economic and Social Committee

Josly Piette Patrick Venturini

_____________
 - 43 -

"A sectoral survey of relocation:

A factual background"

Final report

Reckon LLP
Regulation & Competition Economics

Complete report on line (EN) and Summary in FR/EN/DE/ES/IT/PL

http://eesc.europa.eu/sections/ccmi/docs/index_en.asp
 - 45-

TABLE OF CONTENTS

1. SUMMARY
Working definition of relocation
Our approach
Sectors covered in report
Findings on the existence of relevant data
Findings on relocation
Structure of the report

2. DESCRIPTION OF THE DATA AND INDICATORS

External trade statistics
OECD STAN database for industrial analysis
Structural Business Statistics (SBS)
Symmetric input-output tables
European Restructuring Monitor (ERM)
Foreign Direct Investment (FDI) and domestic fixed capital formation
European industry and trade associations

3. SECTOR ANALYSIS
The structure of the sector analyses
Aerospace manufacturing
Automotive industry
Cement
Chemicals
Electromechanical engineering
Financial services
Food and beverages
Glass industry
Iron and steel
Knowledge Intensive Business Services
Leather, clothing and footwear
Nonferrous metals
Paper and pulp
Pharmaceuticals
Plastics
Railway equipment
Shipbuilding
Textiles
Wood manufacturing
APPENDIX 1: LITERATURE REVIEW
APPENDIX 2: MAPPING OF SECTORS ACROSS DATASETS
 - 46-

1. SUMMARY

1.The European Economic and Social Committee (EESC) adopted an Opinion on 14 July 2005 on
1
“The scope and effects of company relocation”. The Opinion notes, in paragraph 2.6, that “some
sectors will be affected more than others by relocation”. The EESC Bureau, meeting on the 12 July
2005, authorised the Consultative Commission on Industrial Change (CCMI) to draft an Information
Report — to be entitled “A sectoral survey of relocation” — to explore this observation and to
provide an assessment of relocation by sector.

2. The purpose of this report is to support the drafting of that Information Report by reviewing the
empirical evidence on relocation across a set of 19 sectors in the European Union. The primary goals
of this study are to compile and report what published relevant data exist, and, where relevant data on
a given sector do exist, to provide a synoptic analysis of relocation. The analysis is to be cast at the
level of the European Union (EU) and at the level of individual Member States.

3. The terms of reference for this report, drawn by the CCMI, are clear in setting out what is beyond
scope. We are not to collect primary data; what is required is a review of existing and published data.
In addition, we are not to present suggestions on policy options.

Working definition of relocation

4. There is no unanimous view on what is meant by relocation. As much can be appreciated from a review of
the policy and academic papers and from discussion with stakeholders. We do not propose to revisit2, or to
contribute, to this debate as we have been asked to adopt the definition set out in the EESC’s Opinion of 14 July
2005. In paragraph 1.18, the Opinion defines delocalisation — which, in the English version of the text is used
interchangeably with the term “relocation” — as follows:

Delocalisation occurs when a business activity is totally or partially ceased, to be reopened abroad by
means of direct investment.

5. The Opinion proceeds to distinguish between internal and external relocation (delocalisation); the former
refers to instances where business is reopened in another Member State within the EU, and external where it is
reopened elsewhere.

6. This report focuses on external relocation. However, attention will be drawn where the data suggest
relocation from the old Member States, the EU-15, to the new Member States, the EU-10, or vice-versa.

1
European Economic and Social Committee (2005). "The scope and effects of company relocation", CCMI/014 – CESE
851/2005.
2
This said, Appendix 1 provides a brief review of competing definitions of relocation found in the literature.
 - 47-

Our approach

7.Data on the volume or value of activity that is ceased in a Member State to be reopened by means
of direct investment elsewhere are not consistently or comprehensively collected across sectors and
across the EU. There are no data, therefore, from which to draw a direct assessment of relocation as
defined above.

8. In the light of this, we have selected a set of indicators which, though imperfect measures of
relocation, do have an association with it. We have drawn upon a review of the literature to help us
define a set of relevant indicators. That set is listed in Table 1.1 overleaf.

9.Overarching that selection of indicators is the requirement that it be possible for them to be to
computed on the basis of published data that are consistent and sufficiently comprehensive.

10.There is no direct correspondence between any single indicator listed in Table 1.1 and relocation.
The extent to which productive activity has been transferred abroad cannot be inferred from
examining, for example, trends in domestic production. Whilst domestic production will be affected
by relocation, there are clearly many other factors, alien to firms’ decisions to relocate, that will also
impact on it. The same is true for trends in trade balances, in employment levels, trends in the
domestic production’s share of OECD consumption (reflecting the standing of the sector in the global
market) and, indeed, for all of the indicators considered.

11.Because the indicators selected are only imperfect measures of relocation, it is critical to triangulate
the different measures in order to draw an assessment of relocation that is robust.

12.The need to look across different indicators, and not to rely on any single one, is further
substantiated by the fact that the datasets from which the indicators are drawn are themselves not
perfect. Other than the methodological shortcomings that they might have, none of the datasets offer
a comprehensive coverage of all sectors, in all Member States, over a sufficiently long period of time.

13.Section 2 describes in detail the indicators considered and the datasets used to compute them.

Sectors covered in report

14.This report focuses on 19 sectors. These have been selected and defined by the CCMI Steering
Group:

a) Aerospace
b) Automotive
c) Cement
d) Chemicals
e) Electromechanical engineering
f) Financial services
 - 48-

g) Food and beverages

h) Glass
i) Iron and steel
j) Knowledge Intensive Business Services
k) Leather, clothing and footwear
l) Nonferrous metals
m)Paper and pulp
n) Pharmaceuticals
o) Plastics
p) Railway equipment
q) Shipbuilding
r) Textiles
s) Wood

15.Seventeen of the 19 sectors relate to manufacturing. In 2003, there were just under 25 million
people employed in these 17 sectors, accounting for 80 per cent of all manufacturing employment in
the EU-25.3 The two sectors falling outside manufacturing are financial services and Knowledge
Intensive Business Services.

16. Sectors vary in terms of how narrowly they are defined. The aerospace sector, for example, is
relatively narrow: it covers the manufacturing of aircraft and spacecraft as well as the maintenance
and repair of aircraft engines and the reconditioning of aircraft. Knowledge Intensive Business
Services, on the other hand, covers a broader array of activities, including activities relating to real
estate, to the renting of machinery and equipment without operator, to the renting of personal and
household goods, to computer and related activities, to legal, accounting, auditing, architectural and
engineering consultancy, advertising and industrial cleaning. The relevant subsections in section 3 set
out the activities covered by each of the sectors.

3
Based on our analysis of Structural Business Statistics, Eurostat.
 - 49-

Table 1.1: Selected indicators of relocation

Indicator Definition Source

Domestic Domestic production, in value terms and as a share of GDP SBS (Eurostat)
production
Employment Employment in absolute terms and as a share of total domestic SBS (Eurostat)
employment
Share of OECD Domestic production as a share of consumption across OECD SBS (Eurostat),
consumption countries STAN (OECD)
Import penetration Ratio of imports to domestic consumption SBS, COMEXT
(Eurostat)
Self-sufficiency Ratio of domestic production to domestic consumption SBS, COMEXT
ratio (Eurostat)
Narrow input- Ratio of imported intermediaries from foreign X sector to the value Eurostat
output measure added of the domestic X sector.
Wide input-output Ratio of imported intermediate by domestic X sector to the value Eurostat
measure added of the domestic X sector.
Balance of trade Balance of trade (net exports), distinguishing between 4 groups of COMEXT
partner countries: all countries, EU-15, EU-10 and developing (Eurostat)
countries
Foreign direct Foreign direct investment, distinguishing between intra- and extra- Economy and
investment EU-15, intra- and extra-EU-25 and FDI in EU-10. finance –
Balance of
payment domain
(Eurostat)
Investment in Investment in domestic fixed assets Annual national
domestic capital accounts
data category
(Eurostat)
ERM job loss Number of job losses due to relocation as reported in ERM database, European
distinguishing between areas of destination of relocation, to EU-10, Restructuring
to EU-15, to OECD and non EU and to developing countries. Monitor
(EMCC)

Note: SBS refers to Structural Business Statistics, STAN refers to Structural Analysis and COMEXT refers to Commerce Extérieur. For
further information, please see Section 2 of this report.

Findings on the existence of relevant data

17.The Structural Business Statistics (SBS) database, published by Eurostat, is the best available
source of data to construct measures of activity. The dataset provides data on the value of production
and employment levels for most sectors covered by this study. The SBS database covers all 25 EU
countries and covers the period 1995-2003.

18.The SBS does contain some significant gaps. For example, the coverage of some Member States,
notably Greece, Malta, Cyprus and Sweden is relatively incomplete for many sectors. Data for
Germany and some EU-10 countries are available only for the period 1999-2003. No data on the
financial services sector are available. The data on the shipbuilding sector are relatively sparse.
Notwithstanding these gaps, it is still our view that the SBS offers the best data in a consistent manner
 - 50-

across the EU and that it is to be preferred, on the grounds of better coverage, to Europroms, a
database also published by Eurostat, and also containing data on production.

19.The COMEXT database, published by Eurostat, provides data on external trade to and from
Member States. Data are available for the period 1995-2004 for the EU-15 countries and for the
period 1999-2004 for the EU- 10.

20.However, COMEXT does contain a few gaps. The database only covers trade in physical goods
and therefore does not cover the activities falling within the Knowledge Intensive Business Services
and within the financial services sector. Data on Slovakia and Poland are only reported for the year
2004.

21.Inspite of these difficulties, the COMEXT database is sufficiently complete to be of value to this
study.

22.The input-output tables, published by Eurostat provide a useful source of information to

characterise “offshore outsourcing”. The tables allow for the construction of measures that indicate
the penetration levels of imported intermediate goods in the domestic manufacturing process. Whilst
reporting the penetration of imported intermediaries in a given year provides some insight, it is
particularly interesting to observe how the penetration level varies over time. Unfortunately, these
tables are not frequently produced; most Member States prepare them only every five years. Where
that is the case, we have observations for two years, typically 1995 and 2000. Some Member States
have produced these tables for only one year within our period of observation. As a result, useful
information can be obtained from these tables for only ten Member States.

23.A further problem with the use of the input-output tables relates to the level of aggregation of the
product categories as, for some sectors, the categorisation of activities is at a more aggregated level
than the sectors being studied. For example, input-output tables are available for a set of activities
labelled as “other transport equipment”, which groups together railway equipment, aerospace and
shipbuilding.

24.The European Restructuring Monitor (ERM) database, published by the European Monitoring
Centre on Change (EMCC), provides information on restructuring activity in the European Union.
The database contains detailed information on the types of restructuring, including
offshoring/delocalisation, the sectors affected and the number of jobs lost or gained.

25.While it is a useful source of information, the ERM dataset suffers from considerable
methodological limitations arising from the way in which the data are collected. Data are collected by
reviewing selected daily newspapers across the EU and taking note of reports of job losses due to
restructuring. As a result, the database reports job losses even when these numbers are based purely
on preliminary statements of intent by company officials. In reality, the actual numbers of jobs lost
after relocation has occurred might be very different from initial projections. Such ex-post corrections
are not easily monitored and therefore not incorporated in the database. We report the relevant figures
from this dataset in the tables accompanying the discussion of each sector but do not rely on them for
the purpose of drawing a view on relocation.
 - 51-

26.Furthermore, as with input-output tables, the ERM categorisation of sectors in ERM does not
match easily with many of the sectors as defined in this study. For example, the ERM dataset reports
jobs losses for a category denoted as “metals”; this covers activities in the steel and iron sector and
activities in the sector of nonferrous metals. We resolved this problem by reclassifying the entries in
the ERM database in line with the sectors we are considering; we did this on the basis of the
additional, more detailed information reported alongside each entry.

27.FDI and domestic investment data are published by Eurostat. The data are broken down by activity
and destination region.

28.We believe the association between FDI data and relocation is particularly noisy. Any investment
by a domestic entity in a foreign firm acquiring a share greater than 10 per cent in the recipient firm is
defined as FDI and is captured by the data. Not all overseas investments are made for the purposes of
relocation and not all relocation is carried out by way of FDI. Further, the FDI data also captures the
flow of disinvestments made by a domestic entity in the relevant foreign sector.

29.Confidence in FDI information is further dented by the fact that there are a relatively large number
of gaps in the Eurostat data and that it is generally not possible to infer from the data the FDI flows
from entities in a given sector in a given Member State which are directed to a particular country of
interest (e.g. China, India or Brazil) or even to a more aggregated set of “developing countries”.
Instead, and to ensure few gaps, the countries of destination need to be aggregated to the “Extra EU-
25” level.

30.In addition, as with the input-output tables, the applicability of FDI data to study the sectors listed
earlier is also handicapped by the fact that the classification used by the FDI dataset is at a higher
level of aggregation than that the definition of the sectors in this study. The sector classification of
Eurostat’s FDI dataset can only be matched with four of the sectors of interest to us: food,
electromechanical engineering, Knowledge Intensive Business Services and financial services. For
these sectors we report in this study the relevant FDI data. For the reasons summarily set out above
we think there are considerable limitations in the usefulness of that data as indicators of relocation and
our discussions of relocation in these sectors do not draw on them. Appendix 1 considers in greater
detail the limits of the FDI data.

31.For some of the sectors, we have used data on activity levels that are published by the relevant
industry associations. In most cases, these data complement information extracted from the datasets
discussed so far. However, in the case of the shipbuilding sector, we have opted to use production
and employment data from the Community of European Shipyards Association (CESA) rather than
from the SBS database. We find that the activities under shipbuilding, as defined for the purposes of
this study, are more closely reflected by the CESA data than by the data reported in Eurostat’s SBS.
Furthermore, the CESA dataset has fewer gaps in coverage even though it only covers CESA member
countries and only 14 of the EU Member States are members of CESA.

Findings on relocation

32.The analysis of the evidence on relocation for each of the sectors is set out in Section 3. On the
basis of those analyses, we have set out a number of broad findings.
 - 52-

33.In all but two of the sectors studied, the data do not provide clear evidence of relocation at the EU
level as a whole. The two sectors for which the data do suggest relocation are textiles and the sector
defined as leather, clothing and footwear. These sectors are closely associated in that the output of the
textile industry is a significant input in the manufacture of clothing and apparel.

34.In the electromechanical engineering sector, the data provide mixed signals. European output in
this sector has been falling gradually and employment has decreased more substantially, and the
sector’s share of the economy has fallen between 1999 and 2003. Countering this trend, Europe’s
trade balance in this sector, particularly with developing countries, has improved. Taken together,
this evidence could be interpreted to suggest that European labour productivity has improved, leading
to falling employment, and that export performance has improved. Conversely, the evidence could
also be read as suggesting that some activities are being relocated from Europe to developing
countries but that this is obscured in the trade data because of increased exports to that same set of
countries.

35.The data do not uncover particular Member States from which economic activity has generally
relocated from. Nor do they identify Member States that have, in general, attracted activity relocated
from elsewhere.

36.Otherthan the finding of relocation in the textiles and in the leather, clothing and footwear sectors
in Europe in general, our analysis has identified only three other instances where the data provide
evidence of relocation. In the chemicals sector, data suggest that relocation may have occurred from
the UK and from Slovakia. In the railway equipment sector, the data suggest that there is relocation
from Germany. In the shipbuilding sector, the data suggest that relocation may have occurred from
Germany and Denmark.

37.The data do not suggest that there has been significant internal relocation towards the Member
States in the EU-10. In the two sectors where the data have identified widespread relocation, namely
Textiles and leather, clothing and footwear, the activity would appear to have been transferred to
developing countries. In fact, and on the basis of trade data alone, the trade balance between the
group of EU-10 Member States and the group of EU-15 Member States has tended to move in favour
of the EU-15.

38.We have found no grounds to associate the propensity of a sector to relocate with the relative
maturity of the sector.

Structure of the report

39.The rest of this draft final report is structured as follows:

(a) Section 2 describes the datasets used and sets out the definition of the indicators used;
(b) Section 3 contains the set of sector specific analyses;
(c) Appendix 1 reviews the relevant literature and includes a list of references; and
(d) Appendix 2 draws the correspondence between the sectors studied in the report and the
categorisation of data used by the datasets on which we have drawn.

40.An accompanying Excel file contains the data underlying the analysis set out in this report.
 - 53-

2. Description of the data and indicators

1. This section provides a detailed description of the sources of data used in the report along with a
description of the indicators used to characterise relocation. Much of the information on the databases
used is collected from the relevant metadata published by Eurostat.

External trade statistics

2. External trade data have been extracted from the COMEXT database published by Eurostat. The
subject of this database is the movement of goods across frontiers of EU Member States.

3. Extra-EU trade data are collected using the statistical copy of the customs declaration. Intra-EU
trade statistics are collected directly from trade operators. However, any entity registered for Value
Added Tax (VAT) in a Member State carrying out intra-EU trade and being above a certain threshold
is obliged to report the value of the trade to the national statistical authorities.

4. The main indicators published in this database are imports and exports, by value and volume,
organised by groups of reporting countries, partner countries and product groups. For the purposes of
this study, external trade by value (in Euro million) has been used.

5. The database covers external trade for each reporting country to and from non-EU countries and
other EU Member States.

6. Theproducts covered by this database include all movable and physical goods. This database does
not cover trade in services. The database covers more than 10,000 different products classified
according to the Combined Nomenclature (CN).

7. Thedatabase covers all 25 EU Member States. For EU-15 countries, the database covers the period
1995-2004. For the new Member States, EU-10, the database covers the period 1999-2004.

8. The trade balance indicator used in this study is derived from the imports and exports data from
COMEXT. The import and export data were aggregated to the level of product groups that most
closely matched the sectors defined for the purposes of the study. These data were further aggregated
according to groups of partner countries to obtain figures for extra-EU trade, intra-EU trade and trade
with developing countries. For the purposes of the study, developing countries were defined as
countries that are not members of the EU and that are not members of the Organization for Economic
Co-operation and Development (OECD). Trade balance (or net exports) is calculated as exports
minus imports. EU-level aggregates for extra-EU trade were calculated by summing the values of
extra-EU exports and imports for each Member State.

OECD STAN database for industrial analysis

9. The OECD Structural Analysis database (STAN) is published by OECD and includes data on
output, labour input and international trade for different activities.
 - 54-

10.The database covers all the OECD member countries and all years from 1995 to 2003. It presents
data compiled from the member countries’ national accounts.

11.The activities in the database are classified according to International Standard Industrial
Classification of all Economic Activities (ISIC) Rev. 3.
12.The STAN database is used to compute the OECD Consumption variable, calculated as the sum of
production and imports less exports in the OECD countries. We use this variable as a proxy for
global consumption.

Structural Business Statistics (SBS)

13.The Structural Business Statistics (SBS) dataset is published by Eurostat. The dataset provides
various indicators relating to the nature and levels of economic activity within the EU.

14.Thedatabase covers activity in all Member States. The database is compiled by Eurostat based on
information sent by the national statistics institutes of each Member State.

15.NSIs collect data through statistical surveys, administrative sources or from the business register.
The sampling unit for this exercise is an enterprise, which is defined by Council Regulation (EEC)
696/93 to be “the smallest combination of legal units that is an organisational unit producing goods or
services, which benefits from a certain degree of autonomy in decision-making, especially for the
allocation of its current resources.”4

16.The data are broken down at the product group level based on the NACE Rev.1 (Statistical
Classification of Economic Activities in the European Community) classification system.

17.The database was implemented in 1995 and the period between 1995 and 1998 was a transitional
phase. As a result, some of the data are incomplete for this period. However, the data are more
complete for the years 1999 to 2003. Data for 2004 were not available at the time of preparing this
report.

18.Production value measures the actual value of goods and services, in Euro, sold by the enterprise
during the reference year. This variable is used in this study as the measure of production.

19.Employment is defined as the number of employees; the number of persons who have a contract of
employment with the enterprise and who receive wages or salaries from them. This variable does not
include contract workers who are not directly employed by the enterprise.

20.Apparent consumption is calculated by adding up the production and the imports and subtracting
exports for each product group. The production value comes from the SBS database, while the
imports and exports data come from COMEXT.

4
Structural Business Statistics, Eurostat Metadata in SDDS format: Summary Methodology.
 - 55-

21.Outputas a share of GDP expressed as a percentage, is the ratio of total production of a sector to
the GDP of the Member State.

22.Output as a share of OECD consumption expressed as a percentage, is the ratio of production of a

sector to the aggregate apparent consumption of the products of that sector in all OECD countries.
This indicator is to be interpreted as a proxy for the share of output in relation to global production,
which is to say, as a proxy for the share of the global market.

23.Self-sufficiency
ratio is the ratio of production of a particular sector in a Member State to the
apparent consumption of the same sector in the same Member State.

24.Importpenetration ratio is the ratio of the imports in a sector to the apparent consumption of the
same sector for each Member State.

25.Share of total employment expressed as a percentage, is the ratio of the number of employees in the
sector to the total employment in all sectors in the Member State.

26.EU-level aggregates are computed for production, employment and apparent consumption by
summing the values for each Member State. The EU-level aggregate for output as a share of GDP is
calculated as a ratio of the aggregate EU production to the aggregate EU GDP. The EU level
aggregate for output as a share of OECD consumption is calculated as a ratio of aggregate EU
production and total OECD consumption.

27.In computing EU aggregates, where data on production or employment for a Member State are not
available for the year 2003, the corresponding value for the year 2002 is used instead. Where the data
are not available in an intermediate year between 1995 and 2003, linear interpolation was used to fill
the gap.

Symmetric input-output tables

28.The symmetric input-output tables are published by Eurostat after being collected from national
statistics institutes’ accounting departments. These symmetric input-output tables are constructed by
converting the supply and use tables, at constant prices. Of these tables, it is the symmetric input-
output tables for imports and the symmetric input-output table for domestic output which are of
interest to this study.

29.Symmetric input-output tables are not released annually, but at five-year intervals. Even then,
Eurostat does not provide these tables for many Member States. We have only used data from these
tables where they are available for at least two successive periods.

30.Symmetric input-output tables classify activities into 60 groups, based on the NACE Rev.1
classification system.

31.Importinput-output tables provide the total value of each imported intermediate good broken down
by the domestic activity that consumes that intermediate good. Domestic input-output tables provide
 - 56-

the aggregate value of all imported intermediate goods broken down by the domestic activity that
consumes that intermediate good. The tables also provide the value added by each domestic activity.

32.The narrow measure of offshore outsourcing is constructed as the ratio of the value of imported
intermediate goods belonging to a particular activity classification to the value added by the domestic
end-user enterprises belonging to the same activity classification.

33.The wide measure of offshore outsourcing for a particular activity classification is constructed as
the ratio of the value of all imported intermediate goods to the value added by the domestic end-user
enterprises within that activity classification.

34.As the activity classifications are occasionally at a higher level of aggregation than the sectors
being studied, the same data are used for some sectors that fall within that activity classification. For
example, input-output tables are available for the NACE division 26, which covers other non-metallic
mineral products including glass and cement. Therefore the same data are presented in the analysis
for both sectors. In some cases, this is not possible. For example, input-output tables are available for
the NACE division 24 which covers chemicals and pharmaceuticals. The trends in these two sectors
are sufficiently different to make the use of combined data difficult. This is an inherent weakness of
this dataset for the purposes of this study.

35.EU-level aggregates cannot be constructed for these measures as the imported intermediate goods
are not further broken down into intra-EU and extra-EU imports.

European Restructuring Monitor (ERM)

36.TheEuropean Restructuring Monitor (ERM) is published on an on-going basis by the Dublin-based

European Monitoring Centre on Change (EMCC).

37.The ERM records all industrial restructuring cases that:

a)affect at least one EU country;

b) involve an announced or actual reduction of at least 100 jobs; or
c)involve sites employing at least 250 people and affecting at least 10 per cent of the workforce; or
d) create at least 100 jobs.

38.The EMCC records this information by conducting a press review of selected daily newspapers in
all the 25 Member States.

39.The data are classified according to type of restructuring. There are eight types of restructuring in
the database, one of which is “offshoring/delocalisation”.

40.For each of the restructuring cases, the database provides the:

a) name of the company;

b) sector;
c) type of restructuring;
 - 57-

d) date of announcement;
e) number of jobs lost or created;
f) destination of relocation (if reported);
g) summary of the news item.

41.The compilation of cases begins from January 2002 and is updated on a continuous basis.

42.The jobs lost variable is compiled by adding up the jobs lost in each case corresponding to a
particular sector and member state.

43.Again, as is the case with the input-output tables, the sectors, as defined by the ERM, are frequently
at a higher level of aggregation than our study requires. In such cases, the relevant summaries are used
to reclassify the individual cases into our sectors.

Foreign Direct Investment (FDI) and Domestic fixed capital formation

44.FDIdata are published by Eurostat as part of their Economy and Finance – Balance of Payments
domain.

45.FDI is defined by Eurostat as “the category of international investment made by an entity resident
in one economy (direct investor) to acquire a lasting interest in an enterprise operating in another
economy (direct investment enterprise). The lasting interest is deemed to exist if the direct investor
acquires at least 10 per cent of the equity capital of the direct investment enterprise.”

46.The data are broken down by reporting country, activity classification of the direct investor, the
destination region and year of investment. The data cover all 25 EU Member States.

47.The FDI database is used to construct indicators of the level of FDI made by the reporting country
within and outside the EU-15, within and outside the EU-25 and in the EU-10. The FDI is classified
according to the activity classification of the investing entity, regardless of the nature of the final
destination.

48.Domestic fixed capital formation is published by Eurostat as part of their Annual National
Accounts data category.

49.Domestic fixed capital formation is defined by the database as

“the resident's product acquisitions, less disposals, of fixed assets during a given period plus
certain additions to the value of non-produced assets realised by the productive activity of
producer or institutional units.”

50.The data are broken down by the reporting country, activity classification and the year of capital
formation. The data covers all 25 EU Member States.

51.Gross fixed capital formation within an activity by a Member State is used to characterise the level of
investment occurring in the domestic economy.
 - 58-

European industry and trade associations

52.We have used data gathered from various trade associations and industry bodies to support the
analysis. In most cases, the data are obtained from published sources. In the case of the Shipbuilding
industry however, the data were provided by the association itself.

53.Data relating to the shipbuilding industry have been provided by the Community of European
Shipyards Associations (CESA). This covers the employment for 1995-2004 and production for
1997-2004 in all CESA member countries. Only 14 of the CESA member countries are Member
States of the EU and therefore this analysis only covers these countries.

54.Other supporting data have been obtained from various publications of the following organisations:

(a) European chemical industry council (CEFIC)

(b) The confederation of the food and drink industries of the EU (CIAA)
(c) The European apparel and textiles organisation (EURATEX)
(d) Association of European railway industries (UNIFE)
(e) The European leather association (COTANCE)
(f) The European confederation of woodworking industries (CEI-Bois)
(g) Standing committee of European glass industries (CPIV)
(h) Confederation of European paper industries (CEPI)
(i) Aerospace and defence industries association of Europe (ASD)
(j) European association of aerospace industries (AECMA)
(k) The European cement association (CEMBUREAU)
 - 59-

Appendix 1: Literature review

1. We have reviewed the literature on relocation in order to develop our understanding of:

a) The definition of the various terms associated with relocation and what relocation is understood to
mean;
b) The measures of relocation that have been used in the literature and the data underpinning them;
c) The business and sector specific factors that are associated with greater propensity for relocation;
d) The future trend of relocation; and of
e) The effects of relocation.

2. Weconsider each of these points in turn. A list of references is appended at the close of this
appendix.

Definition of the terms associated with relocation

3. The relevant literature offers no single definition of the term “relocation”. In fact many of the
papers reviewed do not use the term relocation at all. Instead, they discuss the issues using terms such
outsourcing, offshoring, deindustrialisation and delocalisation. Not all authors use the same
interpretation of these terms.

4. Asa starting point, relocation is often associated with the concept of delocalisation, which refers to
the cessation of a business activity followed by the reopening of that activity abroad or by sub-
contracting the activity abroad (see, for example, Aubert and Sillard, 2005). This is in line with the
definition of relocation adopted by the European Economic and Social Committee (EESC) in its 2005
opinion paper.5 However, the view taken by much of the literature is that such a definition of
relocation would be too narrow and as noted by Boulhol and Fontagné (2005) it “hardly corresponds
to any statistical category or any sizeable phenomenon”.

5. Instead,much of the literature defines the phenomenon in terms of the alternatives facing a firm
with respect to organisational decisions about how to undertake a particular production process.
These organisational decisions concern the use of outsourcing and offshoring, and it is with reference
to these two terms that most of the literature discusses relocation.

6. The use of the terms outsourcing and offshoring has not been standardised in the literature. The
most common definitions are those offered by UNCTAD (2004) and Pujals (2005). These papers
define outsourcing in terms of whether the production process for intermediate inputs is internalised
(kept in-house) or externalised (outsourced); the term offshoring is used to refer to cases where the
production process in undertaken in a foreign country.

7. Table A1.1 below highlights the dimensions captured by these two terms.

5
European Economic and Social Committee (2005). “The scope and effects of company relocation”, CCMI/014 – CESE
851/2005, para 1.18.
 - 60-

Table A1.1: Outsourcing and offshoring

Internalised or externalised production

Location of production Internalised Externalised (outsourcing)
Home country Insourcing Outsourcing
Foreign country
Captive offshoring Offshore outsourcing
(offshoring)
Source: adapted from UNCTAD (2004) and Pujals (2005)

8. Both forms of offshoring above are viewed as locating part of the value chain abroad and
characterise the main focus of interest in the relocation literature. Such an interpretation does not
require the offshored activities to have been first domestically located to be considered part of the
relocation phenomenon.

9. Thediscussion above defines outsourcing and offshoring with reference to intermediate goods, i.e.
not raw inputs or finished goods. There are however papers that do not make such a distinction.
Drumetz (2005) which defines offshoring simply as the relocation of domestic business activity
abroad and does not seem to be concerned with only intermediate inputs. A measure of relocation
centred on intermediate goods is essentially only concerned with areas where the final production
process occurs domestically. For example if a domestic car manufacturer were to offshore the
manufacturing of engines this would be picked up as the engines are an intermediate component. If
on the other hand the domestic manufacturer went out of business and demand was instead met by
imports this would not be picked up as no intermediates are being imported.

10.Some papers use a slightly different terminology for the practices described above. For example,
Geishecker (2005) and Amiti and Wei (2005) use “international outsourcing” to mean offshoring as
defined above in the table. Other papers also seem to use the terms outsourcing and offshoring
interchangeably where, typically, they are both interpreted, again, to mean what has been defined as
offshoring in Table A1.1.

11.A related concept to the notions reviewed so far is that of deindustrialisation; this is the process by
which a country or region moves from a manufacturing-based economy to a service economy. The
EESC opinion in 2005 defines the concept more precisely on an absolute and relative basis.6 It
defines absolute deindustrialisation as being associated with “a decline in employment, production,
profitability and capital stock in industry, as well as a decline in exports of industrial goods and the
emergence of persistent trade deficits in this sector.” Relative deindustrialisation is defined as “the
decline in the share of industry in the economy, reflecting a process of structural change in the
relationship between the industrial performance and the service sector.”

6
European Economic and Social Committee (2005). “The scope and effects of company relocation”, CCMI/014 – CESE
851/2005, para 1.18.
 - 61-

Measures of relocation

12.As noted by WTO (2005) a major problem with the above definitions of outsourcing and offshoring
is that they do not reconcile easily with officially collected economic data. Data are typically
collected at the sectoral level whereas relocation decisions are made at the firm level. It is difficult to
make a link between import data and a management decision to substitute domestic production for an
imported product. Another potential problem pointed out by Amiti and Wei (2005) is that the data
may underestimate the value of offshoring as the cost of the imported products is likely to be lower
than the cost of purchasing them domestically. Quantity data may be more preferable but they cannot
be aggregated beyond individual products to give a useful picture at a sectoral level and in many cases
such data are unavailable.

13.In the absence of direct data on the issue, studies have used proxies to get a sense of the magnitude
of the relocation taking place. Several different proxies have been used. Given the lack of consensus
on how relocation is defined, this is not surprising.

14.We now turn to present the indicators of relocation that have been used in the literature.

Input output tables

15.Outsourcing is typically defined in terms of intermediate inputs and hence input-output tables are
frequently used to construct measures. Perhaps the most accurate source for measuring offshore
outsourcing would be the use of import input-output tables and domestic input output tables. Import
input-output tables give the imports of each industry from other industries abroad and domestic input
output tables gives the value added by each domestic industry.

16.Using these data narrow and wide measures of outsourcing can be calculated. For each industry the
narrow measure only looks at imports from that same industry abroad and is thus only concerned with
the industry’s core activities being outsourced whereas the wide measure looks at imports from all
foreign industries. Hijzen et al. (2005) calculate these narrow and wide measures as follows:

(a) Narrow outsourcing of industry I is the ratio of the imported input purchases from industry I by
industry I to the value added of industry I.
(b) Wide outsourcing of industry I is the ratio of the sum of all inputs purchases by industry I to the
value added of industry I.

17.The main shortcoming of such measures is that the data underpinning them, import and domestic
input-output tables, are only produced at wide intervals, typically every five years. To compensate for
this deficiency and to enable analysis requiring more observation many authors, including Amiti and
Wei (2005), have made approximations of these measures using input-output tables combined with
trade data. The standard input-output tables only detail the inputs of each industry and do not split
them according to whether they are sourced domestically or from abroad. They use the standard
tables by making an assumption that the ratio of imported intermediates to domestic intermediates is
that same as the ratio between all imports in the sector to total consumption of the sector.
 - 62-

18.Consumption, perhaps more appropriately described as apparent consumption, is defined as

domestic production plus imports less exports of the industry in question. The two different
techniques are equivalent when the share of imported intermediate goods is the same as the share of
all imported goods.

19.Other authors such as Geishecker (2005) and Falk and Wolfmayr (2005) take these measures
further by disaggregating them by partner country, i.e. only looking at imports form selected countries
of interest.

National accounting data

20.Other measures of relocation do not focus on just trade in intermediates and also look at national
accounting data primarily involving imports and exports.

21.Drumetz (2005) for instance calculates an import penetration ratio and an external deficit ratio
which indirectly measures how reliant domestic consumption is on domestic production. These
measures are as follows:

(a) Import penetration ratio is calculated as the ratio of imports to the sum of domestic output and net
imports
(b) External deficit ratio is calculated as the ratio of net exports to the sum of domestic output and net
imports

22.The paper presumes that offshoring takes place in sectors where the import penetration ratio
increases sharply, the external deficit ratio drop rapidly and the share of the sectors employment in
total employment falls. Other studies that also use the import penetration ratio include Anderton and
Brenton (1999) and Campa and Goldberg (1997).

23.Otherstudies such as Amiti and Wei also look directly at the trade balance (exports less imports)
using imports as a proxy for outsourcing and exports as a measure of “insourcing”.

24.Rowthorn and Ramaswamy (1999) amongst others look at the share of total output made by the
industry in question but this is typically as a measure of deindustrialisation and it is examined how it
is affected by other factors such as the trade balance.

Employment

25.Inthe same way Rowthorn and Ramaswamy (1999) use the output share of an industry as a
measure of deindustrialisation they also use the share of total employment of the industry as another
proxy. Boulhol and Fontagné (2005) also use this measure in the same context.

26.Geishecker (2005), instead of looking at employment numbers, looks at the wage share of different
industries and examines how they are affected by international outsourcing.

27.Aubert and Sillard (2005) notes the limitations of relying on employment trends to understand the
process of relocation namely that movements in employment levels also reflect factors that bear no
 - 63-

relation to relocation. These include changing competitive pressures, both internally and externally,
productivity improvements or due to capital-labour substitution.

28.Data from the European Restructuring Monitor maintained by the European Monitoring Centre on
Change can also be used to provide a measure of delocalisation. It has monitored press articles in the
EU since 2002 for jobs lost and created due to company restructurings, and, of particular interest for
this study, it records the number of jobs lost “when the activity stays within the same company, but is
relocated to another location within the same country.” Papers such as Daudin and Levasseur (2005)
and Pujals (2005) have used this data source as an indicator of the effect of relocation on employment.
Galgoczi (2006) notes, rightly in our view, that the ERM database provides anecdotal evidence which
cannot be seen as representative. It does not allow, therefore, for robust inferences on relocation to be
drawn from it.

Foreign Direct Investment

29.Foreign Direct Investment (FDI), investment in foreign assets, can be categorised as one of two
types. The first type relates to investment in existing foreign companies (i.e. involving just a change
of ownership) which is often unlikely to change the behaviour of the recipient company in a manner
that leads it to export more to the country providing the FDI. The second type relates to investment
that creates a new company or production capacity. This class is closer to the notion of relocation.

30.In exploring the use of FDI data to inform on relocation, the Council of Europe Parliamentary
Assembly (PACE) considers a further categorisation, vertical and horizontal FDI. Vertical FDI refers
to the splitting up of the production process by a multinational with a view to locating each stage of
production in the country where it is most cost effective. Horizontal FDI refers to the circumstance
where the multinational carries out the same activity in a number of different countries in order to
serve the local markets and is not part of relocation. FDI data are not available at a disaggregated
level to distinguish between horizontal and vertical FDI except through surveys which have been few
and far between. PACE (2005) notes that “almost all empirical studies find that vertical FDI plays
only a small role as a proportion of total FDI” and acknowledges that it is “difficult to draw simple
conclusions on the economic effects of total FDI on the source country.”

31.A number of studies make use of FDI data in a discussion of relocation. We have not been
persuaded, however, for the rationale for making use of such data; typically no rationale is offered
other than that such data are available. On the other hand, critical assessment of the use of FDI data
has strengthened our conviction that a substantial portion of FDI flowing out of EU is not connected
to relocation activity and would therefore act a poor proxy.

32.In this respect we note the views set out in Drumetz (2005) commenting that “FDI statistics are not
designed for measuring offshoring and it is difficult to use them for this purpose.” There will be FDIs
carried out without domestic capacity having been closed down. Aubert and Sillard (2005) also note
that it is not the case that whatever production may be generated from a particular FDI will be
imported back to the country of origin or even, more generally, be “substituting” domestic production.
The FDI might have been done for the purpose of expanding a market that is close to the destination
country. Furthermore, the relevant investment may have a purely financial one (e.g. purchase of
 - 64-

shares in the stock market of the destination country) and have little or nothing to do with decisions
relating to production.

33.The assessment of the difficulties in inferring on relocation from FDI data is equally made by the
Belgian Bureau fédéral du Plan (2005).

Factors associated with decision to relocate

34.Some studies on relocation have sought to shed light on what factors are associated with the
decision by businesses to relocate and, more generally, on the characteristics of the firms/industries
that are most likely to experience relocation.

35.In this area, UNCTAD (2004) is particularly helpful. The study cites the following features of
services with a high probability for offshoring:
(a) “no face-to-face" servicing requirement;
(b) high information content;
(c) the work process is tele-commutable and Internet-enabled;
(d) high wage differentials with similar occupations in destination country;
(e) low set-up barriers; and
(f) low social networking requirements.”

36.A second report, the WTO (2005), gives the following factors as the major determinants of the
decision of whether outsource an activity:

(a) "technical and institutional separability;

(b) to what extent the task is standardized;
(c) transaction and managerial costs within the firm relative to outside suppliers;
(d) production costs; and
(e) the size of the market."

37.The decision of whether or not to offshore the activity adds additional relevant factors to the
decision as there are additional variable managerial costs related to offshoring which may arise due to
differences between the two countries involved in terms of language, laws, government regulations,
currency, as well as the geographic distance.

38.Girma and Görg (2004) uses UK firm-level data from three manufacturing sectors (chemicals,
mechanical and instrument engineering, and electronics) to investigate the impact of various factors
on a firm’s propensity for outsourcing. This study does not seem to distinguish between offshore
outsourcing and outsourcing to domestic producers. It finds that foreign owned firms use more
outsourcing than domestic establishments when controlling for other factors (size and labour costs).
This finding was robust under various parameterisations of their model.

39.Kakabadse and Kakabadse (2002) examines trends in outsourcing using a survey of 747 firms from
Europe and USA. The study does not seem to distinguish between domestic outsourcing and offshore
outsourcing. Table A1.2 below gives the details of the main reasons cited by European firms for
outsourcing activities.
 - 65-

Table A1.2: Reasons for outsourcing

Percentage of respondents
Reason
selecting response

Cost discipline/control 59
Aim to achieve best practice 56
Improve service quality 41
Focus on core competencies 39
Enhance capability to develop new product/service 35
Access to new technology/skills 34
Reduce headcount 34
Reduce capital cost 32
Grow in-house expertise 30
Reduce transaction costs 27
Reduce promotion costs 23
Investment in technology 18
Enhance position in value chain 17
Enhance capability for change 17
Source: Kakabadse and Kakabadse (2002)

40.Rowthorn and Ramaswamy (1997) studies the causes and implications of deindustrialisation. It
concludes that deindustrialisation is not a negative phenomenon but a natural consequence of further
growth in developed economies. The main reason cited for deindustrialisation is the faster growth of
productivity in the manufacturing sector than in the services sector. The paper also concludes that
North-South trade has played very little role in deindustrialisation.

Forecasts of relocation trends

41.We thought it a useful exercise to review what studies have been done on the likely evolution of the
process of relocation; whether it is believed to be a process set to accelerate over the next decade and
whether and how the direction in the flow of economic activity across the globe is likely to change.

42.We found but one study exploring this question from a quantitative perspective. Forrester (2004)
provides detailed forecasts of European jobs moving offshore by country and by sector for the period
up to 2015. The report forecasts that about 495,000 jobs will be moved offshore from the EU-15 by
2010 and around 1,153,000 jobs will be lost by 2015. Of these losses the UK is expected to make up
around two thirds of the total for the EU-15. Possible reasons mentioned for this high proportion
falling on the UK are that each year India trains 2 million English speakers with technical and
quantitative skills and the UK has a relatively more flexible labour market than the rest of the EU-15.
In terms of a breakdown by job type the study predicts that of the losses by 2015 around 13 per cent
will occur to information technology workers, 34 per cent to clerical workers, 29 per cent to business
and management workers, 20 per cent in science and engineering, 3 per cent to public and
governmental workers and 1 per cent to media workers.
 - 66-

Effects of relocation

43.One question that has been examined with some care by the literature relates to identifying the
effects of relocation. The interest in this question is natural in the light of the political sensitivities
and, more importantly, in the light of the conventional wisdom (not necessarily substantiated) that the
process of relocation is likely to continue growing. The analysis of the effects of relocation has
tended to focus on one of two dimensions: on the effect on employment levels in the source country
and in the country of destination, and on the effect on productivity in the source economy. We will
set out a brief summary of the relevant papers.

Effects of relocation on employment

44.Falk and Wolfmayr (2005) analyses the impact of international outsourcing on employment using
manufacturing data for seven EU countries for the period 1995-2000. The study estimates labour
demand equations that show that imports from low-wage countries have a statistically significant
effect on employment and that imports from industrialised countries have no effect on employment.
Their calculations show that observed changes in EU outsourcing between 1995 and 2000 alone
accounts for an employment reduction of 0.26 percentage points per year.

45.Stausss-Kahn (2003) constructs a model to show the effect of vertical specialisation (the share of
imported inputs in production — the wide measure of outsourcing) on the share of unskilled workers
in industry. The model is estimated using French industrial data for 14 manufacturing sectors over
two periods 1977-1985 and 1985-1993. In these periods the share of unskilled workers in total
employment decreased at 0.49 and 0.44 annual percentage points respectively. The level of vertical
specialisation over these periods increased by 0.094 and 0.185 per cent per annum respectively. The
paper estimates that the changes in vertical specialisation contributed from 11 to 15 per cent of the
decline in the share of unskilled workers in French manufacturing employment for the 1977-1985
period and 25 per cent of decline in the 1985-1993 period.

46.Egger and Egger (2000) studies the employment effects of outsourcing to Eastern Europe and the
former Soviet Union on a panel of 20 Austrian industries for the period 1990-1998. The results
indicate that a one per cent increase in outsourcing to the Eastern countries (in terms of gross
production) generates a shift in relative employment of about 0.1 per cent in favour of the high-skilled
labour segment. The authors estimate that the effect of this outsourcing is responsible for about one
quarter of the change in relative employment in favour of the high-skilled.

47.The OECD Employment Outlook 2005 report looks at the trade-adjustment costs in OECD labour
markets. Its main findings for the effects of international trade on labour markets include the
following:

(a) The most important long-run effects of international trade and investment on labour markets have
been to raise average wages and induce shifts in the sectoral and occupational composition of
employment. The report finds no theories or evidence to suggest that increased international trade
affects aggregate employment, but they find it likely that growing trade with low-wage nations has
contributed to increasing wage inequality in many OECD countries.
 - 67-

(b) Increases in international competition are associated with increased job displacement but it is
noted that trade is only one of many drivers of job turnover and structural change.

(c) Adjustment costs appear to be higher for trade-displaced workers than for other job losers as they
are slower to be reemployed and experience larger wage losses once reemployed.

48.Amiti and Wei (2005) considers whether international service outsourcing has reduced jobs in the
UK. The authors use UK data from 1995-2001 from 69 manufacturing industries and nine service
industries and conclude that outsourcing does not have a negative affect on manufacturing
employment at the sectoral level. The same result is found for the services sector. This suggests that
those individuals who lose their jobs due to outsourcing tend to find another job within the same
industry classification. Another finding of this study is that job growth at the sectoral level is not
negatively related to outsourcing.

49.Geishecker (2005) analyses the effect of international outsourcing to Central and Eastern Europe on
the relative demand for manual workers in Germany using data from a panel of 20 manufacturing
industries over the period 1991-2000. The paper combines trade and input-output data to disentangle
international outsourcing and trade in final goods and differentiate between the effects of outsourcing
in different international regions. Using a narrow measure of outsourcing and controlling for other
factors they find that international outsourcing to Central and Eastern Europe has lowered the manual
workers wage bill share by 2.7 percentage points between 1991 and 2000 which makes up 57 per cent
of the decline in manual workers wage bill share over the period.

50.Boulhol (2003) develops a model inspired by that of Rowthorn and Ramaswamy (1998) where
relocation is found to be closely linked to productivity gains. The study makes use of data for 16
OECD countries between 1970 and 2002. The results of this study reinforce those of Rowthorn and
Ramaswamy (1998) namely that deindustrialisation results primarily from a natural process of higher
productivity gains in industry. The paper’s estimates suggest that international trade has accounted
for no more than 15 per cent of the observed magnitude of deindustrialisation. This, in turn, is driven
by the increase in imports of the South (poorer countries) where it is estimated that a one per cent of
GDP increase in imports from the South causes a relative impact on relative employment of -2.8 per
cent.

Effects of relocation on productivity

51.Girma and Görg (2004), as previously mentioned, looks at the effects of outsourcing (domestic and
offshore) on domestic and foreign owned firms using UK establishment level data. The study finds
that outsourcing increases both labour productivity and TFP (total factor productivity) and that the
increase is found to be more pronounced in foreign owned firms.

52.In a follow-up with similar results study, Görg et al. (2005) investigate the impact of international
outsourcing on productivity using plant level data for Irish manufacturing from the Irish Economy
Expenditure Survey for the period 1990-1998. Econometric analysis suggests that there are
productivity gains to exporting firms which engage in the international outsourcing of intermediaries.
The study finds a one percentage point increase in outsourcing intensity increases productivity at the
plant level of foreign multinationals by 1.7 percent and of domestic firms by 0.9 per cent. A possible
 - 68-

reason for this advantage of multinational firms from international outsourcing suggested by the paper
is that multinational firms are part of international production networks and possess better knowledge
on where to procure competitively priced inputs.

Summary: findings on the effect of relocation

53.The studies exploring the effects of relocation make use of different data; different sectors,
countries and time periods are considered. Against this backdrop, it is perhaps not surprising that no
consensus is reached on the effects of relocation on employment in general. While some authors have
found relocation to be associated with falls in employment levels, a set of other authors suggest
relocation does not impact on the numbers that are employed but does have an effect on the
characterisation of those that are employed. In particular, one result echoed by several papers is that
relocation shifts the composition of employment towards the higher skilled workers. It also appears
to be a finding emerging from the literature, that relocation widens the gap between the wage levels in
the source country.

54.Perhaps more surprising is that the literature does seem to come to an agreement on the positive
effects of relocation on the productivity in the source country.
 - 69-

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from EU countries”, Austrian Institute of Economic Research WIFO working paper
 - 70-

Feenstra, R. and G. Hanson (1996) “Globalization, outsourcing and wage inequality”, The American Economic
Review, vol. 86, no. 2, pp. 240-245

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Galgoczi, B. (2006) “What is relocation. How to measure it and how extensive the phenomenon appears on the
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Germany?”, Free University Berlin and University of Nottingham working paper

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Kakabadse, A. and N. Kakabadse (2002) “Trends in outsourcing: contrasting USA and Europe”, European
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Mathieu, C. and H. Sterdyniak (2005) “International relocation and deindustrialisation: some French
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 - 73 -

PHOTO AFFICHE CONFERENCE

 - 75 -

2 8 J u n e 2 0 0 6

1.30 p.m. REGISTRATION

2.30 p.m. OPENING ADDRESSES

Speaker 1: Mr BRIESCH — Vice-President of the European Economic and Social Committee

Speaker 2: Mr KOOPMAN— European Commission, Director for Enterprise and Industry

3 p.m. KEYNOTE SPEECH — What a Europe of ambition and unity might achieve

by Mr DEFRAIGNE — Director of Eur-IFRI

3.30 p.m. OPEN DISCUSSION

4 p.m. Coffee break

4.15 pm SESSION 1 What is relocation? State of play

¾ Relocation as an expression of industrial change in a global arena

¾ Relocation vs. deindustrialisation

¾ Types of relocation and terminology

¾ Gauging relocation: available tools and indicators

¾ Main trends (geographical, sectoral, etc.)

Chair: Mr RODRÍGUEZ GARCÍA-CARO — EESC Member, Head of Delegation of the Spanish

Confederation of Employers’ Organisations (CEOE) to the EU

Speakers: Mr FERNANDES — Founding Partner of Reckon LLP, Consultancy firm, London

Mr KARPPINEN — Director of the European Foundation for the Improvement of Living and
Working Conditions, Dublin

Mr LAROSE — Economic and Social Council of France - CGT

Mr LEBRUN — European Commission, DG Employment, Social Affairs and Equal

Opportunities

Ms MARIN — Professor, University of München, Germany

5.30 p.m. OPEN DISCUSSION OF ISSUES RAISED IN SESSION 1

6.15 p.m. END OF SESSION 1

6.30 p.m. RECEPTION

[ [\ \ ]^ [ [\ \
 - 76 -

2 9 J u n e 2 0 0 6

9 a.m. SESSION 2 To relocate or not to relocate? (ex ante analysis)

¾ Factors determining choice of location
¾ Drivers of relocation
¾ Deterrents to relocation
¾ Implications for companies, regions and individuals
Chair: Mr ZÖHRER — EESC Member, International Secretary, Union of Metalworkers,
Mineworkers and Energy Sector Workers (GMBE - Austria)

Speakers: Mr ALTOMONTE — Professor, Bocconi University - Milan

Mr HOLMQVIST — CEO, European Association of Automotive Suppliers (CLEPA)

Mr MARTENS — CEO, European Policy Center (EPC)

Mr ROOME — Professor, Solvay Business School – ULB

Mr TOTH — EESC Member, Vice-President of the Hungarian Association of Industrial Parks

(IPE - Hungary)

10.15 a.m. OPEN DISCUSSION OF ISSUES RAISED IN SESSION 2

11 a.m. SESSION 3 Relocation: A double-edged sword (ex post analysis)

¾ Impact on source regions

¾ Impact on destination regions

¾ Secondary relocation

¾ Macroeconomic aspects

Chair: Mr NUSSER — CCMI Delegate, General Director, National Association of Steel Traders

(BDS – Germany)

Speakers: Mr BERGE-KLEBER — Vice-President of L&SEK (Swedish association for local social

economy development)
Mr GALGÓCZI — Senior researcher, ETUI-REHS
Mr SHESHABALAYA — Business consultant, Founder of India Advisory
Mr VAN ASSCHE — Advisor on Social affairs – European Association of Craft SMEs
UEAPME / UNIZO
12.15 p.m. OPEN DISCUSSION OF ISSUES RAISED IN SESSION 3

1 - 2.30 p.m. Free time

 - 77 -

2 9 J u n e 2 0 0 6

2.30 p.m. SESSION 4 Dealing with relocation

¾ Role of social partners and other stakeholders

¾ Role of the public authorities

¾ Policy options

¾ The CCMI: anticipating and managing industrial change

Chair: Mr VAN IERSEL — EESC Member Former chairman of Den Haag Chamber of
Commerce, Former member of the Dutch House of Representatives

Speakers: Mr DE BUCK — Secretary General, UNICE

Mr DE BUCQUOIS — Vice-President of the European Council for non-profit

organisations (CEDAG)

Mr DIJKSMA — President of the Commission ECOS — Committee of the Regions

Mr HERZOG — President of Confrontations Europe

Mr MONKS — General Secretary of the European Trade Union Confederation,

CES/ETUC

4 p.m. OPEN DISCUSSION OF ISSUES RAISED IN SESSION 4

5 p.m. CONCLUSIONS

Ms VEUGELERS — Economic Advisor, BEPA – KU LEUVEN

5.15 p.m. CLOSING REMARKS

Mr PIETTE — President of the CCMI

5.30 p.m. END OF CONFERENCE

[ [\ \ ]^ [ [\ \

VENUE: European Economic and Social Committee, rue Belliard 99, 1040 Brussels - Belgium
DOCUMENTATION: available in English and French
INTERPRETATION:
FR-DE-EN-IT-NL-DA-EL-ES-PT-FI-SV-CS-HU-PL-SK into FR-DE-EN-IT-NL-ES-PT-CS-HU-PL
WEBSITE CCMI: http://eesc.europa.eu/sections/ccmi/events/index_en.asp?id=1470001ccmien
 - 81 -

C O N F E R E N C E R E P O R T

"RELOCATION – CHALLENGES

AND OPPORTUNITIES"

2 8 - 2 9 J U N E 2 0 0 6

The Consultative Commission on Industrial Change’s conference "Relocation –

Challenges and Opportunities" on June 28-29 was a convincing demonstration of the
continuing need for thorough debate on this sensitive and controversial subject. The
high-level panel of speakers diverged sharply on important aspects of relocation – its
gravity, its scope, its legitimacy and the motivations behind it. The attractive
opportunities that relocation offers were repeatedly contrasted with stark depictions
of the challenges it creates. And throughout the day and a half of discussions,
questions constantly re-surfaced over the responses that Europe should adopt.

But although opinions differed, the conference was no mere parade of polarised
stereotypes. And even if unanimously accepted answers did not emerge, the
discussions it provoked proved that the conference had targeted the right issues in its
aiming to refine understanding of the current state of play of relocation, the factors
that determine the process, the impacts and the policy options for managing it.
 - 82 -

L O C A T I N G R E L O C A T I O N

From the outset, it was evident that there are still serious gaps in the definition of relocation and in the
data about it. Roger Briesch, Vice-President of the European Economic and Social Committee
(EESC), acknowledged in his opening remarks that despite the importance of the subject, it is
surrounded by misunderstanding, disagreements and confusion. "There is no commonly-accepted
definition of what it is, nor a unique and universally-agreed measurement of its scope and
consequences. Greater clarity is necessary as a precondition to appropriate policy formation", he
said.

So far, there is no single authoritative data set or solid statistics, echoed Gert-Jan Koopman, Director,
DG Enterprise – European Commission, and Gustav Zöhrer, European Economic and Social
Committee Member. And Pedro Fernandes of Reckon LLP reported that his recent study of the
subject for the EESC's Consultative Commission on Industrial Change (CCMI) had revealed evidence
of relocation at EU level only for textiles and for leather, clothing and footwear, with some mixed
signals on electro-mechanical engineering. "There are few data on the nature and impact of
relocation", he concluded, and "no data that measure relocation directly".

… only 27,000 jobs last year? ...

Gert-Jan Koopman and Jorma Karppinen, Director of the European Foundation for the Improvement
of Living and Working Conditions, coincided with other speakers in their estimate that relocations are
responsible for only a small proportion of annual net job losses in the EU, perhaps only 5% - or
27,000 jobs in the year to June 2006.

Meanwhile, in the absence of concrete figures, rival schools of thought abound. The claim by Lars
Holmqvist of the European Association of Automotive Suppliers that a Polish car plant offers a clear
cost advantage over an identical plant in Sweden was questioned by Hans Martens of the European
Policy Centre, who suggested the comparison lacked key data on relative productivity. And OECD-
based allegations of barriers to setting up companies in Eastern Europe were contested by Dominica
Ostrowska, a representative of the city of Lódź in Brussels, who cited the establishment of firms such
as Siemens or Philips around Poznan as evidence to the contrary.

… a complex phenomenon …

The sheer complexity of the phenomenon of relocation was powerfully and repeatedly illustrated.
Professor Carlo Altomonte of Italian Bocconi University described the division of labour for the
manufacture of an electric toothbrush – stretching across three continents and a dozen countries.
Ashutosh Sheshabalaya of India-Advisory spelled out even wider variations on the theme. He drew
attention not only to General Electric's employment of more PhDs in Bangalore than in its US
research base, but also to Indian drug firms' outsourcing of software design to the US, or ABN-Amro's
outsourcing of high-end work to India and only low-end back-office work to the US.
 - 83 -
The risk of confusion about relocation – or, in some lexicons, "delocalisation"– is increased by some
overlap in the terminology employed. For instance, for Professor Dalia Marin of Munich University,
what was recently seen as outsourcing to eastern Europe is now called relocation. Successive
interventions attempted to locate relocation precisely within the more diffuse context of offshoring,
outsourcing, restructuring and globalisation – but total consistency did not result.

1
Even the definition in the July 2005 EESC Opinion ("…when a business activity is totally or
partially ceased, to be reopened abroad by means of direct investment") proved to be open to some
interpretation as to what "abroad" means. There is persistent uncertainty over whether to focus the
discussion on relocation from the EU15 only, or from the EU25, and on relocation only into the new
Member States, or into countries beyond.

Philippe De Buck of UNICE highlighted the protean potential of "relocation" when he commented on
the diverse responses even within regions, with battles breaking out between municipalities over
movement of local companies.

… the broader context …

In his keynote speech, Pierre Defraigne of Eur-IFRI set relocation in its broadest context. He signalled
how globalisation could – at best – bring radical new perspectives to world order. It offered, he said,
unprecedented prospects for boosting productivity, prosperity, and innovation, for integrating the
South, and for tackling environmental questions at world level. But, he insisted, for this to happen, the
EU must learn to become the master of the process. It will also have to be able to exert pressure
incisively at international level so as to avert degradation of the social fabric, and to ensure more
equitable distribution of wealth.

Other simultaneous dynamics obscure the picture too, demanding nuanced rather than simplistic
responses. For instance, Jürgen Nusser of the CCMI pointed out that the German steel industry has the
same output as ten years ago, but employs only one-fifth of the previous workforce. This is not, as he
acknowledged, a matter of relocation, but simply the impact of technology - even if it is just as
devastating for jobs. Roger Briesch made a similar point trenchantly: "It is undeniable that relocation
is taking place and is inextricably linked to other aspects of industrial change. It can’t be separated
from other economic developments, particularly in redeployment of resources, rationalisation,
expansion of enterprises as well as the natural rise and fall of sectors."

MIXED MOTIVES

The analyses of the motivations for relocation displayed differences that corresponded broadly with
distinct points of view – either as protagonists of relocation, or as victims of the process.

Speakers from the business world suggested the key drivers were related principally to taking
advantage of changes. Jürgen Nusser's list, for instance, stressed maximising the possibilities of

1
CCMI/014 - CESE 851/2005 : "The scope and effects of company relocations".
 - 84 -
industrial modifications (such as using outsourcing to broaden the options in distinct phases or aspects
of production). It also took account of access to new markets on the back of evolving market
perspectives, or shifts in the business environment (such as investment incentives in the new Member
States, availability and cost of premises, or tax differences), or new conditions (such as the
availability of better-skilled or cheaper labour forces, or the possibility of more competitive sourcing
of raw materials or semi-finished products).

… seizing opportunities …

Philippe De Buck depicted companies under an obligation to grasp the opportunities – which might be
varying costs from country to country or region to region (such as tax or wage levels), technology-
driven change (such as pharmaceutical firms moving so as to be closer to research centres), or altered
consumption patterns induced by demographics.

For Lars Holmqvist, “Low cost production – and therefore relocation – is forced on us by progressive
cuts in car prices”. But his ranking of factors also included employee qualifications (which he said
were often more easily available in eastern Europe: "High-tech car suppliers are comfortable in
Slovakia with the high standards attained for production of their top-range models"), good
engineering skills, flexible and motivated labour markets, good working attitudes, proximity to
attractive sales markets with growth potential, and political and economic stability.

... incentives and disincentives …

Hans Martens underlined how wide was the range of influential factors. A country's economic growth
alone will not induce relocation there (if it did, Equatorial Guinea or Chad would be favoured
destinations, he suggested). It is rather the combination of circumstances – very much in line with the
elements of the EU's Lisbon agenda – that encourages relocation, he said. For EESC Member José
Isaías Rodríguez García-Caro, the principal motivation is the search for educated workers.

Economists and officials tended to focus on similar motivations. For Gert-Jan Koopman, relocation or
outsourcing is sometimes motivated by positive incentives such as reorganisation that increases a
company’s overall efficiency - particularly for out-sourcing supplies of intermediate inputs, as in the
car industry. Sometimes it is the result of negative incentives, such as unattractive conditions for
business and investment, high levels of regulation, or social and environmental constraints. The
essence of Dalia Marin's observations was that the real threat is that high-skilled jobs are moving to
eastern Europe because of higher education levels. She predicted a war of talent rather than a war
between companies.
 - 85 -
… not a value-free area …

But trade unionists and others who represent those who see their jobs moved elsewhere drew attention
to the other side of the picture. They tended to contest the clinically detached approach, and to insist
instead that value judgments should also come into play. “Some motives for relocation are more
acceptable and legitimate than others”, said Roger Briesch. Some speakers (including Pierre
Defraigne) were more insistent, dismissing purely economic arguments, and alleging that relocation
can also be driven by the pursuit of higher profits and lower costs, rather than by a virtuous struggle
for corporate survival. The consistent message was that a company contemplating relocation should
consider the pros and cons not just from an "egocentric" point of view, but also in the light of its
social responsibility – notably the stakes for the people and regions affected by its departure.

"The problem is unfair redistribution of wealth”, argued Enrico Gibellieri of the CCMI, and more
than one speaker suggested that relocation is the consequence of companies acting like bounty-
hunters, devoid of loyalty and constantly on the move in pursuit of better deals. "The reality of
relocation is bitter for the victims", said EESC Member Michel Nollet citing Renault's departure from
its Vilvoorde plant as a demonstration of a widespread and inappropriate focus on the interests of
shareholders rather than of workers.

There were calls for a greater emphasis on an ethical dimension too. French trade unionist Christian
Larose suggested a mechanism that could help overcome the vulnerability to relocation decisions
suffered not only in respect of wages but also of workers' rights. It is time, he said, to involve
consumers, and to make them aware of the conditions in which goods are made. In this way, better-
informed buying patterns could exert pressure on companies and countries to broaden their vision
beyond their own self-centred economic concerns and to respect high social and environmental
standards. Gustav Zöhrer suggested tightening corporate social responsibility obligations. This was,
he said, particularly important as a response to the persistence of child labour and forced labour in the
textile industry, which distorted relocation decisions. His view found support from Lars Holmqvist
too. When talking about corporate social responsibility Professor Nigel Roome from Belgium's
Solvay Business School admitted that engaging with stakeholders is not yet a core competence of
most companies.

… how much does tax matter? ...

The role of taxation in relocation decisions divides opinions sharply. Roger Briesch, Gustav Zöhrer
and successive trade unionists insisted that varying corporate tax levels unfairly influenced relocation
decisions, and they argued strenuously for harmonisation. Economists suggested that tax only
marginally influences whether firms move (but Dalia Marin pointed out that it does influence
choosing between offshoring or outsourcing). Lars Holmqvist and Hans Martens dismissed tax as a
virtually irrelevant factor in relocation. But there were divergences even among the representatives of
business. In Jürgen Nusser's view, "Tax does make a difference - from 15% in Latvia to 38% in
Germany". He pointed out that tax lawyers are now crucial components of any team making Foreign
Direct Investments decisions.
 - 86 -
I M P A S S I O N E D D E B A T E S O N I M P A C T

Passions ran high in discussions of the impacts of relocation. The claims - from one side - of heroic
company survival, increased competitiveness, enhanced consumer choice, and new job creation, were
met - from the other side - by counterclaims of undervalued work-forces, wage competition, social
decay and savage job cuts.

… the good …

The positive impacts invoked included cheaper prices for consumers, higher profits for companies,
stronger stimulus to emerging economies, upgrading of workers' skills, redeployment to higher-value
jobs, more efficient use of resources, and the creation of new jobs to replace those that have
disappeared. Overall, it leads to improved profitability, generating growth and job-creation, insisted
Jean-François Lebrun, Head of Unit for "working conditions, adaptation to changes" in the European
Commission's DG Employment. Lars Holmqvist predicted that new capacity in Eastern Europe will
produce a million cars this year. One of the most energetic defences of relocation came from Enrique
Calvet Chambon of the CCMI, who insisted it is "a force for good – for destination countries and in
source countries, where energy and resources can be reallocated to more effective activity".

Dalia Marin's research on Austria and Germany had led her to the conclusion that job losses there
from relocation have been below 1%, because, she claims, skill-intensive and research-dependent jobs
being transferred to "new Europe" are not competing with jobs in Austria and Germany. The
consequences have been beneficial, in her view: "Low wages in new Europe have helped Germany
and Austria stay competitive", she said, by allowing them to keep costs down on some aspects of their
operations.

… the bad …

The negative impacts were perceived most clearly in the human dimension of relocation, with myriad
examples of social blight in victim regions and sectors. EESC Member José Custódio Leirião
recounted the fate of the workers in the Portuguese car plant now being moved to Spain to cut costs.
"Most of the 2,000 people are 45 years old or more, and have no chance of another job", he lamented.
Christian Larose remarked that half of the jobs in the French textiles sector have been lost in the last
ten years – "and even if economists say the effect is marginal, that isn't how the victims see it!".
Business was also accused of "camouflaging" relocation as restructuring, and abusing relocation as a
threat. Firms are, it was argued, obtaining unfair leverage over workers’ rights and pay levels – the
term "blackmail" was used more than once – in an ultimately futile bid to match China by reducing
companies' social charges.
 - 87 -
… and the ugly …

The negative economic impact also received attention – even from those who, in general terms,
advocated relocation. “Automotive manufacture is increasingly under threat in western Europe”, and
“relocation is a danger for our western society and we need to do something about it”, according to
Lars Holmqvist. Jürgen Nusser warned that "the German car industry is not just on the move, it’s on
the run”, and he pointed to the risk that since Siemens sold its mobile phone operation to an Asian
company, "no-one in Germany will know how to build a mobile phone five years from now”. And
Danny Van Assche, from UEAPME (the European Association of Craft, Small and Medium-sized
Enterprises), suggested that SMEs have become the passive – and largely ignored - victims of
relocations by big business.

… complexity of impacts …

Relocation's impacts are as complex as the motives that inspire it. As Danny Van Assche observed, so
many factors are at play that “Regions can be winners and losers at the same time", and – as others
remarked - successful adaptation has also occurred even within some declining sectors. Philippe De
Buck qualified his optimistic observations about the merits of relocation with an admission that
national economies adapt differently – so that, for instance, when firms in Denmark relocate to India
they win more back than they invest, but in larger and more introverted European economies like
France and Germany, companies tend to be net losers from relocation. Gert-Jan Koopman too
described differing national responses: he compared the beneficial shift from low-skill to high-skill
activities practised by Finland, Hungary or Poland with the failure to adapt that has left France,
Germany or Spain vulnerable to relocation. Carlo Altomonte highlighted how the US economy has
benefited from outward relocation through overall productivity gains at home that have compensated
for initial job losses. By contrast, Europe, he suggested, benefited less, largely because of the
handicaps presented by its labour market rigidities and immobility (although his view was contested
by Hans Martens, who insisted that in some places in Europe relocation has led to net job creation).

This mixed picture was further elaborated by speakers from across the widest spectrum. The varying
impact of relocation was neatly illustrated by Jorma Karpinnen's detailed breakdown of job-creation
in Poland and Slovakia, where adjoining regions revealed wide differences according to whether or
not they had attracted investment from the motor industry. Gert-Jan Koopman, whilst insisting on the
strong potential benefits of relocation, also acknowledged the importance of the social dimension. The
short-term local human costs were often concentrated on particular jobs, sectors and regions,
especially among low-skilled workers, he observed.

From the perspective of the EU’s Committee of the Regions, Harry Dijksma accepted that
globalisation has brought new impetus to the economy. But he stressed the need for sensitivity to the
repercussions of restructuring, and he argued a role for the regions in the accompanying measures.
EESC Member Viliam Páleník from Slovakia contended that internal EU relocations on an east-west
axis are beneficial, and that it is north-south relocations that cause problems. Roger Briesch
recognised that "relocation can bring real opportunities, in reorganising and improving supply chains
and production and distribution processes, or even assuring the survival of a company facing tougher
international competition" – on condition that "it is based on legitimate motives and is conducted
 - 88 -
wisely and responsibly". Jürgen Nusser, with his conviction that relocation is "a great opportunity",
acknowledged that it is a double-edged weapon.

… "differentiated analysis needed" …

As Bela Galgóczi of European Trade Union Institute remarked, "A proper and differentiated analysis
of the phenomenon is needed in order to explore the wide range of impacts". He outlined his concerns
over the emergence of a two-tier labour force. Decreased demand for low-skilled work and increased
unemployment due to lack of adaptability threaten to create segregated labour markets and to
jeopardise social cohesion. But, he concluded, while the challenge of relocation is serious, the impact
on employment should not be over-dramatised.

P E R C E I V I N G P O L I C Y O P T I O N S

Despite the concerns that relocation raises, there was general acknowledgement of its inevitability.
The focus, consequently, was on managing the phenomenon rather than resisting it.

… an inescapable reality …

John Monks of the European Trade Union Confederation acknowledged that relocation was nothing
new – one of the aims of the UK's Trade Union Congress when it was set up in 1868 had been to
prevent the export of textile jobs from the UK to Asia, he recalled.

"Relocation is inevitable", pronounced Jean-François Lebrun unambiguously. "We cannot stop this
process", asserted Gert-Jan Koopman. “To try to avoid it or regulate it is futile”, acknowledged
Danny Van Assche. Carlo Altomonte dismissed attempts to limit it through rules as unworkable – and
in any case "only a defensive strategy".

… policy responses …

The broad consensus to emerge was the need to boost job creation in Europe. But there were,
nonetheless, differences of emphasis as to how this task could best be accomplished.

Gert-Jan Koopman recommended a mixture of industrial policy and accompanying measures to

guarantee success for everyone. Relocations require targeted measures to mitigate adjustment costs
and actions to facilitate the shift of resources, he said. But the wider structural change of economies
requires a range of policies to improve the framework conditions – in line with the industrial policy
recommendations in the renewed Lisbon Agenda. Similarly, in Jean-François Lebrun's view, the
immediate victims of relocation require social security support and short-term re-training; but any
long term solution depends on education and more structural change.

Palliative accompanying measures have been deployed with success by bottom-up local actions in
Sweden, according to Lars Berge-Kleber of L&SEK, who claimed: “If the public sector supports the
social economy, the changes in the private sector are easier to handle and the social damage is
minimised”. In the same vein, Patrick De Bucquois of CEDAG urged increased recognition of social
 - 89 -
economy enterprises at European level, including in discussions on the supply of cross-border
services or corporate social responsibility.

… concerted EU action against business abuses …

John Monks wanted to see more stakeholder and worker interests brought into the shareholder mix.
He also wanted the EU to promote international collaboration to minimise the risk from alienated
investors of massive capital flight. He saw a role too for concerted EU action against tax havens and
against the growing influence of the financial community in industrial decisions: "If the EU can take
on Microsoft it can take on other big companies to remind them they have responsibilities to others as
well as to their shareholders", he said. Michel Nollet urged a bigger role –and more EU
encouragement– for European works councils: "Does the Mittal takeover of Arcelor show we are just
passive?", he demanded.

… industrial policy renaissance …

The recent reinforcement of the EU commitment to industrial policy was widely welcomed. There
was convergence of views in favour of the classic solutions advanced – increased innovation, research
and competitiveness, improved conditions for business, appropriate labour and welfare policies,
targeting of structural funds, and even limited sector-specific assistance (although "this does not mean
helping and sheltering some sectors from international competition, but identifying at sectoral level
the factors that may hamper their productivity growth", as Gert-Jan Koopman underlined).

EESC Member Edwin Calleja accompanied his advice to "go on with the logic of enlargement" with
encouragement to focus on areas where the EU still has a lead – such as in business-related services.
Viliam Páleník suggested that enlargement could offer a more efficient EU response to globalisation
if free movement of workers was to be allowed. And EESC Member János Tóth underlined the value
of technology parks as instruments to facilitate innovation.

The most disconcerting messages came from Dalia Marin, whose views struck a discordant note with
some of the orthodoxy. She warned that subsidizing research is not effective in countries with a skill
shortage, because it pushes up wages rather than increasing research output. And her view of the skill
shortage in old Europe was even more alarming: the export of high value jobs from Germany and
Austria to eastern Europe shows that old Europe’s skilled workers are losing out too, she said. The
conclusion she drew is that east Europe is cheaper for innovation. As a consequence, there will be less
economic incentive to educate western workers – because they will not, in any case, have high-skill
jobs to go to.
 - 90 -
… raising understanding …

There was wide support too for actions to refine understanding of the phenomenon. Ashutosh
Sheshabalaya pondered, for instance, whether Europe is not deliberately growing slowly to allow
other parts of the world to catch up with it. EESC Member Joost van Iersel perceived Europe "at the
beginning of a very long road in data collection and analysis". Philippe Herzog of Confrontations
Europe urged action to help people see the opportunities as well as the risks of change.

In a plea for justice to be incorporated into economics, Pierre Defraigne argued that current growth-
oriented single market policies are failing to generate major gains in wealth or employment. Instead,
he said, they are widening the gap between rich and poor, and inhibiting public confidence in change.
Christian Larose stressed the need for companies to understand the impact of their decisions better
and advocated “intelligent relocation” – action taken only after long reflection with all stakeholders.

By contrast, José Isaías Rodríguez García-Caro wanted greater comprehension of competitiveness –

"not a dirty word ", he insisted; "It’s not a matter of robbing people of their jobs or reducing their
wages. It’s responding to change". Disproportionate attention to relocation's effects on the workforce
can be harmful, he warned: "You have to give confidence not only to workers, but also to investors".

Similarly, Enrique Calvet Chambon warned that opposition to relocation risks reinforcing frontiers,
retarding the development of the internal market, and discouraging investment. "Relocation shouldn’t
be stopped because the necessary palliative mechanisms are not working sufficiently well. The answer
is to proceed with relocation and improve the palliatives", he said. Viliam Páleník noted the need for
better explanation of the –often immediate– negative aspects of relocation, so they are more
accurately perceived as preludes to positive effects.

… more dialogue, please …

From all sides there was support for the concept of closer dialogue. "Getting this equation right is
going to be crucial to preserving the values of our society", said Gert-Jan Koopman. José Isaías
Rodríguez García-Caro recognised the "need for dialogue between employers and unions to find
solutions". According to Jean-François Lebrun, "The big challenge is to find the balance between
winners and losers". Philippe De Buck took the view that "social partners must discuss – and when
this is done properly change can be accepted better and lead to better outcomes". Even John Monks
admitted that in a world now open to international capitalism, communications technology and
transport, "trade unions and public authorities are struggling to catch up".

NEXT STEPS

Reflecting on the conference debates, Reinhilde Veugelers, member of the Commission's Bureau of
European Policy Advisers noted in her conclusions that despite the confusion around the subject of
relocation, there is sufficient data to make realistic policy responses. The key, she said, is not
harmonising tax levels or providing subsidies. The solution lies in the capacity of the European
economy to change. There is net growth across Europe, so it is possible to manage the process to
 - 91 -
compensate losers – and to help them adjust, so that resentments do not feed into protectionist
tendencies.

It is a process in which the EU and the member states will have to work together in complementary
roles. They will have to address the long-term objective of improving the capacity to adjust through
Lisbon-type measures, and at the same time to introduce short-term measures to manage and assist
transition.

In the future, Europeans will be obliged to switch within and across jobs and firms and even countries
in their working lives, she recognised. Therefore, incentives and systems must be created for training
and flexibility, particularly to overcome the continued delays that Europe suffers in deriving net
benefits from relocation.

Veugelers underlined the need for creating confidence. "EU concerns are warranted, but we all know
it’s an opportunity, and we know very largely what to do. We just need to stop fearing it so much", she
said, urging intensified dialogue across all stakeholders and policy makers, employees, employers and
consumers, at national, European and international level, and involving both host and home countries.
"The EU has the instruments for combating not just relocation, but all aspects of restructuring", she
said. "It just needs rather more coordination".

The EESC’s CCMI President Josly Piette picked up the cue. "We have a good base for organizing this
type of reflection", he remarked. The CCMI's formal role is to promote coordination and coherence of
Community action in relation to the main industrial changes in the context of the enlarged EU, and to
ensure balance between the need for socially acceptable change and the retention of a competitive
edge for industry.

As Josly Piette pointed out, the CCMI already adopted an own-initiative Opinion in July 2005
defining the principal themes. Furthermore, he reminded participants that the CCMI has gone on to set
up a series of studies to define the subject with clear data and to examine possible responses to
confront and manage it, with an emphasis on anticipation, prevention and analysis. This rapidly-
evolving discussion of relocation is an obvious candidate, he suggested, for further and even more
systematic treatment by CCMI, so as to attain improved understanding and more informed
judgements of just what is at stake for Europe and how it should implement its response.

__________________________________________
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