Regionalisation and Globalisation in Europe : the Case of Fiat Auto Poland and its Suppliers

G. Balcet and A. Enrietti


Introduction

Fiat and Italian component suppliers : towards a specific multi-regional configuration ?

The experience of Fiat and of Italian suppliers of car components and parts in Poland is illuminating in different respects 1.

First of all, it represents one of the most relevant case of foreign direct investment (FDI) in the Central and Eastern European Countries (CEECs) since the economic liberalisation process began, and there have been important backward and downward spillovers as well as inducement effects. The long-term presence of the Fiat group in this area in the context of co-operative agreements has greatly facilitated the process of establishing new operations in the area.

Moreover, this exemple illustrates a transition from a typical multi-domestic configuration towards a regional strategy, that can be interpreted as an intermediate phase towards new multi-regional or global developments.

If localisation of production, marketing and R&D facilities of multinational enterprises (MNEs) are considered, then four main strategies can be identified within the car industry 2.

a) Multi-domestic strategies : foreign affiliates are oriented to serve local national markets, as an alternative to exports and licensing, through local assembling or more value-adding manufacturing. Strategic functions, such as product design and R&D, remain centralised in the home country, giving rise to technology flows from the centre to the periphery. The main motivation, i.e. the access to attractive (large and growing) markets, may be strengthened by the need to overcome protectionnist barriers.

b) Regional strategies : an intra-group division of labour is developed within a macro-region, through integrated activities and specialised foreign affiliates, increasingly export-oriented ; cost-saving targets are reached through better economies of scale and sourcing in low wage areas ; R&D and finance are partly decentralised to the regional headquarters.

The range of products tends to be unified on a regional basis.

c) Multi-regional strategies : the same kind of intra-firm division of labour, as in the simple regional pattern, is developed within two or three macro-regions of the world economy, usually identified with the Triad (North America, Western Europe, Japan). Alliances and partnerships and co-operative networks are developed at regional level.

d) Trans-regional or global strategies : intra-group division of labour, rationalisation and integration of corporate activities involve two or more macro-regions. Every regional network of affiliates tends to specialise in a set of production or in a specific function (e.g., in R&D and manufacture of a specific range of new models), on a world scale. As a consequence, such a configuration can be taken to imply a degree of interdependence between regions within the MNE.2 3.

The new international growth of Fiat Auto, in the early '90s was due to increasing competitive pressure within the European and the domestic Italian car markets (where the Fiat share fell from 52.8 % in 1990 to 46.0 % in 1995). Given the difficulty of penetrating the slowing and difficult North American (and even more Japanese) markets, the strategic choice of internationalisation has been to concentrate efforts on emerging markets : Latin America (where an important production has developed since the post-war period, mainly in Brazil and Argentina), Eastern Europe (where important cooperations has taken place since the '60s in Yugoslavia, Poland and Soviet Union), Mediterranean countries (mainly Turkey) and, to a lesser extent, Asia.

In the second half of the '90s, the international stucture of Fiat Auto appeared to be based on an axis between two regional poles :

a) one pole of integrated activities in Europe, extended to the East, thanks to the Polish affiliate ;

b) one new pole in Latin America, centred on the Mercosur area, based on the Brazilian and Argentinean affiliates.

It shoul be noted that the second pole is an area outside the Triad. Similar to other car makers, Fiat's path towards internationalisation in the '90s seems in this respect to diverge from the standard hypothesis on globalisation considered as "triadisation".

As far as Fiat Auto is concerned, possible evolutive scenarios of this dual configuration may include :

In this respect, the new Palio model (April 1996) is a significant attempt to launch a "world car", especially conceived for intermediate emerging countries ; during this first phase production is located in Brazil, while in future it is planned for Argentina and Poland in 1997,, Turkey, and possibly South Africa and Morocco. This "global product" strategy, especially oriented to medium-income countries, may represent a major new stage in theFiat Auto internationalisation process.

Polish automotive industry in transition.

The liberalisation process since mid-1989 has radically changed the institutional framework and the economic conditions of Fiat's strategies in Poland. The dramatic recession that hit the country in 1990-92, with industrial production falling by 24 % in 1990 and by then 12 % in 1991, accelerated the deep crisis of the national automotive industry : car production declined by 40 % in the 1989-1991 period, while employment in the whole sector (including industrial vehicles and buses) fell from 114,000 to 80,000 (Poznanska, 1995). Fiat's industrial partner, the State-owned FSM, was virtually bankrupt.

However, the recovery of the automotive sector was above the average of Polish industry in the years 1992-95. Poland's 40 millions population and its still low car ownership explain the attractiveness of this growing market for foreign car makers.

In 1990, an economic reform package was adopted, including the progressive privatisation of State-owned companies, a substantial relaxation of import tariffs as well as non-tariff barriers, and the creation of a securities market. In 1993, the Polish government introduced regulations to halt used-car imports which had got out of control during the 1990-92 period, and was severely disrupting the domestic market.

In 1994, Polish imports of road vehicles were worth 1,033 million $ (222 of which from Italy) and exports were worth 794 million $ (257 of which to Italy). As a consequence of Fiat's foreign production and export orientation, Poland's bilateral trade balance with Italy was positive, while the trade balance of the whole industry was in deficit.

Following the negotiations for the association of the CEECs to the EU, a tariff of 35 % was imposed on imported cars, and a scheme for progressive reduction from 1996 to 2002 was adopted (see table 1)


Table 1. Polish tariff scheme for motor vehicles (1993-2002).

Imports from the EU and EFTA

1993 19941995 19961997 19981999 20002001 2002
Passenger cars35 3030 2525 2015 105 0
Buses35 3528 2114 70 00 0
Trucks35 3030 2525 2015 105 0

Source : Poznanska (1995)


At the same time, some tariff-free quotas were created for specific categories of vehicles and their allocation had a discriminatory impact on foreign car makers ; so that the government decided to allocate quotas to foreign firms which invested directly in Poland. Such a trade policy, therefore, created strong incentives to FDI, pushing several MNFs to make acquisitions or to build assembly units. Among them, the most relevant case is represented by the acquisition of FSO, the second Polish car maker, by South Korean Daewoo in 1995.

The Internationalization of Fiat Auto

The Company's internationalization strategy since the end of the second world war may be summarized as :

1. The Fifties and Sixties. Despite its activities being clearly concentrated in Italy, Fiat followed a policy of expansion abroad : the Company invested in Spain and bought into the Spanish state company SEAT (1953), made an agreement with Zavodi Crvena Zastava, Yugoslavia (1954), created an affiliate in Argentina (1960) and concluded an important cooperation agreement in the URSS (1966) ; in 1968 il also bought a 15% interest in Citroen. The agreement, however, was broken off in 1973.

2. The Seventies. The internationalization strategy was strengthened by setting up a Brazilian subsidiary in 1973, but the process was interrupted because of the petrol crisis and trade union clashes in Italy, so that in the eighties a policy of disinvestment abroad was embarked upon by selling those activities which did not appear to be strategic or which did not guarantee a sufficient level of profit. In 1979, Fiat Auto turned down the Spanish government's invitation that Fiat took over SEAT (Wolkswagen later took over the company).

3. The Eighties. In fact Fiat Auto liquidated most of its investments in Latin America (Uruguay, Colombia, Argentina, and Chile) and withdrew from the US market. However, during these years there were some unsuccessful chances of internationalization.

In 1985 Fiat came up against its first insuccess when after some months, negotiations with Ford to create what would have been the largest European car group were broken off. At that time, in 1985, Fiat had 12.6% of the European market and Ford 11.8%, and it would have provided them with a dominant position in various national markets, with potential economies of scale in investment and R&D and with an opportunity to merge their range of models and rationalize their distribution networks. The negotiations broke down on questions of organization, (Pierce,1987), who would control the company ? who would take decisions ? A more recent insuccess in Fiat's internationalization strategy was its failure to reach an agreement with SAAB in 1989. SAAB chose GM as an equal partner for both financial (Fiat wanted to take over the company) and industrial reasons (the wide range of possible areas of collaboration, including the electronics, aeronautical and military sectors) (Pierce 1987).

4. The Nineties - During this decade Fiat revived its internationalization strategy, but it was directed towards the developing countries after the difficulties in reaching agreements with its European competitors :

The planned production of the new world car, "Palio", in the developing countries will make a significant contribution to this internationalization process. Production of the car (350,000 units per year) has begun in Brazil in April, 1996. Production will start in Argentina and in Poland in 1997 (100,000 cars) and a further 320,000 cars per year is planned in Venezuela, Morocco, Turkey and South Africa. If projects to manufacture the car in India and China are included total production of the vehicle will be over a million (table 2).


Table 2 : The Palio Project (1996)

APPROVED
- Brazil(350.000)
- Argentine(100.000)
- Poland(50.000)
______________________________
- Total(500.000)

 

PLANNED
- Morocco(30.000)
- Tourkey(125.000)
- Venezuela(23.000)
______________________________
- Total(178.000)

 

POSSIBLE
- Algeria(30.000)
- Egypt(10.000)
- South Africa(20.000)
- India(50.000)
- China(150.000)
______________________________
- Total(260.000)

Source : Fiat Auto


Table 3 gives informations about the plant's localisation of Fiat Auto outside Italy in 1996.

EUROPE
- Poland (cars and engines)
SOUTH AMERICA
- Brazil (cars and engines)
- Argentina (cars and engines)

Source : Fiat Auto activities outside Italy


The Fiat Auto in Poland

History of Fiat's involvement in Poland

The Polish car industry and Fiat began to work together in 1921 when the company Polski Fiat was set up in Warsaw to manufacture cars and trucks.

Production was suspended because of the second world war and the cold war and contacts were resumed in 1965 when Fiat granted FSO (Fabryka Samochodow Osobowych), based in Warsaw, a company specialized in manufacturing medium-sized cars, a license to produce 70,000 cars, model 125, a year. As a result of the stable relationship of technical cooperation other Fiat models, the 127, 128, 131 and 132 were later assembled in Poland.

Partnership between Fiat and FSM

A dramatic change in the relationship occurred in 1971 when the Polish government chose Fiat as its partner in offering car ownership to the whole nation.

In October a technical collaboration and license contract' was concluded by the Polish government and Fiat for the production of a new model of small car, the Fiat 126, also produced in Italy. The factory FSM (Fabryka Samochodow Malolitrazowych) at Bielsko Biala was chosen to produce the car and on January 1st 1972, it was officially opened. Annual production rose to 250,000 units by 1979 and in the early 1980s when Fiat stopped production of the 126 in Italy, FSM Poland, became the sole supplier for both the domestic market and for the wider West European market.

A second important step was taken in 1987 when a contract was signed to manufacture a small-sized car, the Cinquecento, exclusively in Poland. Advanced assembly lines were set up and production started in June, 1991, in a new factory at Tychy, with a production capacity of 250,000 cars per year.

Fiat was the first Western manufacturer to concentrate the production of a new car destined for all markets in an East European country. In fact about 80% of the production is exported.

Fiat takes over FSM

The political changes which took place in 1989 opened new avenues for Fiat in Poland. On the one hand the privatization programme led Fiat into an apparent dead-end forcing to take over FSM so as not to lose both its specific investments in fixed capital and the labour force for the production of the 'Cinquecento' and the large credits which had been granted to FSM in order to set up the assembly lines, while on the other hand, the process of bringing democracy and freeing the East European countries promised to open up new expanding markets and offered opportunities for the systematic integration of the activity in Poland within Fiat's wider general productive structure. Following protracted negotiations started on March, 1992, Fiat became majority shareholder (a 92% stake with a total investment of 1,000 million $) of FSM's motor manufacturing operations on September 17, 1993, through the formation of three joint-stock companies : Fiat Auto Poland SA, Magneti Marelli Poland, and Teksid Poland. The last two are companies controlled by component manufacturers belonging to the Fiat Group.

FSM actually produced not only cars but also bicycles, machinery and building equipment. In fact the Fiat Group limited its purchase to the core car manufacturing business :

Fiat Auto Poland's initial investment plan was :

The Polish government promised Fiat a number of specific incentives covering a period from five to eight years. Certain materials and equipment destined for the new company could be imported free of tax and Fiat Auto Poland would operate in a free market in which it would be free to set prices for its cars, goods and services and would be free from any interference from the government. Further, initially the Polish government granted Fiat (as with VW and GM too) a free-tax import quota for cars but, as a consequence the Europen Community stopped the car agreement with Poland, and later quotas were given to all car manufacturers 4. Any imports over and above these quotas are subject to duties which will be gradually abolished, as has been agreed with the EU (see table 1).

The reorganization of Fiat Auto Poland

Having taken over FSM, Fiat carried out its reorganization programme with the aim of reaching four goals

The main points of intervention can be summarized as follows :

1) the range of models which are produced has been extended, beginning in 1994 with the assembly of the Uno (segment B) by CKD 5. It is an example of Fiat's global approach, in fact while engines come from Italy and Brazil, bodywork and components are made in Italy. However, assembling the Uno is only for a limited time as it is planned that the Palio will also be produced in Poland. In 1996 Fiat started the assembly of Punto, Bravo/Brava and a light truck, Ducato, by CKD too, as an answer to Korean Daewoo's strategy to assemble in FSO 6 plants 110.000 Nexia and Tico models duty free. In the first half of 1997 the Palio will also be produced in Poland in 40-50,000 units. In the same year the Cinquecento's substitute, the "Seicento", will be produced.

2) The position as a leading manufacturer in Poland (FSO is the second largest manufacturer in terms of volume) and the extensive sales network has enabled Fiat to adopt a strategy which strongly favours importing Fiat cars from Italy (including models made by Lancia and Alfa Romeo). In fact the number of cars imported has increased from 7,729 in 1992 to 16,546 in 1994 and 18,940 in 1996. In 1996 Fiat's share of the Polish market was 44%.

3) At the beginning of the nineties Fiat Auto's strategy aimed at integrating operations in Poland into the CEECs context. In fact, initially 4 cylinder engines were to imported from Zastava in former Yugoslavia but sanctions against Serbia meant that Fiat had to turn to its plants in Italy. But in 1996 cylinder head manufacture and engine assembly has come into operation in Poland, and the local content of the cars produced in Poland has consequently increased.

4) Considerable attention has been devoted to increasing productivity. The number of cars per worker per year increased from 4.8 in September 1991 to 17.8 in December 1993, to 23 by 1995 and to 26,6 by 1996 by means of a large increase in the production and a decrease in the number of employees (table 4). In order to improve efficiency, the ratio of indirect workers to direct workers was reduced from 1.39 in 1991 to 0.54 in 1995 and to 0,48 in 1996.


Table 4. Employment, Production, Productivity of Fiat Auto Poland

Years Employment Production Productivity

per capite

1992 16.039

(100)

144.434

(100)

9.0

(100)

199315.754

(98)

261.788

(181)

16.6

(184)

199413.885

(87)

247.723

(172)

17.8

(198)

199513.190

(82)

278.162

(193)

21.1

(234)

1996 11.532

(72)

307,277

(213)

26.6

(296)

Source : Fiat Auto


The increases in productivity are also due to investments in training employees : between 1993 and 1996 $ 15 million were spent on training a total of 5,700 employees.

5) The main aim regarding the suppliers was to replace components made in Italy with Polish made components and in fact, if engines are excluded, in 1992, 55% of the value of components used by Fiat Auto Poland were made in Poland, 41% came from Italy and the remaining 4% came from other countries while in 1996 the percentages were 73% from Poland, 23.7% from Italy and 3.3% from other countries (table 5).


Table 5 : Value of components used by Fiat Auto Poland (%)

1992 1996
Poland 55 73
Italy 41 23,7
Restof the world 4 3,3
Total 100 100

Source : Fiat Auto


At the same time the number of suppliers has been reduced from 620 in December,1992 to 445 in October, 1995, and 412 in September, 1996 (table 6), in order to take advantage of economies of scale and do business with the supplier who offers the best, most efficient service at the lowest cost, thus following the same policy adopted in Italy (Enrietti, 1995).


Table 6. Supplier Rationalization by Fiat Auto Poland

Number of suppliers

Polish Foreign Total
Dec 92405 215620
Sept 93352 208560
Dec 94297 193490
Dec 95248 188436
Sept 96235 177412

Source : European Motor Business, 1st quarter 1994 ; Fiat Auto


In order to choose and improve the service offered by the local suppliers Fiat Auto Poland has adopted a policy of "guided development" which has meant that

In order to improve component quality several suppliers have been certificated (11 firms for ISO 9001 and 15 for ISO 9002) or are working in autocertification (19 firms).

Further, Fiat has encouraged its suppliers to look for other outlets both at home (for example, supplying FSO) and abroad (neighbouring countries and western markets).

Italian and International Car Suppliers in Poland

By December, 1996, 28 component suppliers had followed Fiat into Poland, some of which had chosen to set up joint-ventures with local firms and some others had established direct investments. They belong to three typologies :

They were vigorously encouraged to invest directly to Poland by the agreement made with Fiat for the purchase of FSM. Firstly, Fiat took over only the car manufacturing activities which involved 8 factories, but the 126 model and the Cinquecento were manufactured at only four of these factories : Bielsko Biala (where there are assembly lines for the 126 and the Uno and where parts for the Cinquecento are produced including the 2-cylinder engine 7 ; Tychy (where the Cinquecento is assembled and the bodywork of both cars is pressed, as well as other parts for the Cinquecento) ; Czechowice (where the steering equipment is manufactured) and a part of the Twardogora factory (production of steering equipment for 126).

These factories represent the investment in Fiat Auto Poland. The other factories have been sold to foreign suppliers. In 1993 the factory at Sosnowiec was bought by Marelli, Roltra and Ersi for the production of indicators, lights, dashboards, electric windows and bumpers ; at Wapienica, Gestind Poland manufactures headrests and steering wheels ; at Twagdogora Allied Signal produces braking equipment ; at Skoczow GT Poland makes doors ; finally, at Czestochowa Sila Telecomandi manufactures flexible cables for the brakes, the clutch, the gears and CF Gomma makes anti-vibration materials.

In the following years the deverticalisation process was continued by selling the Czechowice and Twardogora factories.

Other companies also set up factories or invested in firms in Poland. Joint-ventures have enabled Italian firms, especially small and medium-sized firms, to reduce the risks of entering a new market and take advantage of local expertise, with relevant learning effects.

Fiat's policy of getting a number of foreign suppliers to follow it was designed to :

The advantages for the foreign component manufacturers is in being close to local and regional markets, which offer great potential due to the high rate of growth of car demand

A complete network of relationships links Fiat Auto and Fiat Auto Poland with both the component suppliers within the Fiat Group (Magneti Marelli and Teksid), and the independent Italian, Polish and international suppliers. Figure 1 describes the main flows of goods, services and technologies already established or planned, as well as the links of ownership.


Figure 1. A complex web of relationships


Strategies of Italian component suppliers

Some common features of the experience of Italian car suppliers in Poland, collected through direct interviews at the firm headquarters in Italy, can be pointed out as follows.

- Investment strategies were initially of a "follow-the-client" type, actively encouraged by Fiat Auto ; but they soon tended to evolve towards active initiatives, aiming to the diversification of local clients (such as FSO or GM) and towards export. In some cases, a product specialisation of the Polish units emerges, within a regional or even a global sourcing strategy.

- Labour cost differentials between Poland and Italy, evaluated at 1/4, are an important source of cost competitiveness, but it contrasts with persistent efficiency gaps and lower productivity. The level of formal technical education of workers, on the contrary, is considered good, and superior to the level of corresponding workers in Northern Italy.

- Great productivity gains have been generally obtained through restructuring plants and introducing new organization of work, including a major shift from indirect to direct jobs. Labour training too is very important.

- Local content is generally growing, thanks to the selection and re-organisation of second and third-level local suppliers. Every affiliate or joint venture tends to reproduce the schemes of vertical partnership experienced in Italy and elsewhere in Europe, through the "guided growth" of local suppliers.

- R&D is always still concentrated in Italy. Co-design, joint product development and other partnerships in R&D activity, till the pre-production stage, involve parent companies and Fiat Auto headquarters in Turin area, while technology transfer and adaptation to local conditions are assured through technical assistance, training and technical missions.

A member of the Fiat Group, the Magneti Marelli, which produces electrical components (including high-tech innovative systems), emerges because of the extent of its involvement in Poland, and the huge restructuring of the plants operated after their acquisition in 1992. Organisational innovations (including the introduction of lean production within the "integrated factory") seem to be crucial factors in explaining the fast growth of labour productivity, while process technologies are not as automatised as they are in Italy.

The rapid evolution from the initial "follow-the-client" motivation, as well as cost-saving motivations, towards an increasing integration of the Polish plants within its wide international network is peculiar to this firm. Product specialisation has improved the economies of scale, while the search of diversification of clients has reduced the share of the sales to the rest of Fiat Group (to 35 % in 1995). New outlets have been found in Poland (Opel and FSO-Daewoo), and (more important) exports have grown steadly, to neighbouring countries (for instance, to Skoda in the Czech Republic), to Europe and to other areas. As a consequence, intra-firm trade increased, as well as the internal division of labour : as an exemple, one can take the case of the transfer of the production of watches from France to Poland (destined to the whole European market) and the assembly in Poland of a new technology-intensive component (headlamp levelling device), destined to the world market.

A complex inter-action of domestic, regional and global configuration is under way in the Magneti Marelli case, involving the creation of new flows of international trade both to and from Poland, and substantial technological and organizational spillovers to the local suppliers.

Among the small and medium-sized Italian independent investors, there are cases of highly specialised "niche" firms, wich are leaders in a certain product, technology or system. They are typically very efficient in acquiring, adapting and transferring technologies incorporated in specific components. The initial strong stimoulus provided by Fiat Auto set off a second stage of diversification of market outlets, including exports. In several cases, both employment and productivity grew in the 1992-1995 period ; as a consequence, levels of employment in Poland may be higher than in Italy : it is the case, for instance, of Sila Telecomandi (producing remote control and remote drive devices in a former FSM plant), and of Ovatex (producing textile and ovatta components), which holds a monopoly position on the domestic market. In the last case, transportation costs have been a strong motivation to invest.

An evaluation of the impact on employment

In order to evaluate the impact on employment in both Poland and Italy it is first necessary to remember the size of Fiat's direct and indirect investment in FSM :

- firstly, Fiat took over a company which was already a licensee, exclusively manufacturing two products, the 126 for sale in Poland and the Cinquecento for sale in both the domestic and European markets : it was not a matter of delocalization from Italy ;

- FSM was also a highly vertically integrated firm with many plants specialized in manufacturing components with 24,427 employees in 1991 ;

- initially Fiat bought all the FSM automobile factories and later sold some of the component manufacturers to its own subsidiaries and the rest to other companies ;

- the imports of components from Italy to Poland was relatively high (41%) when the Cinquecento was first brought on the market because there were no suitable local supplies. Local production standards have to be the same as those in the West and this naturally meant that the quality of locally manufactured components had to be improved in order to take advantage of the lower labour costs. The high level of imports from Italy was also due to the fact that at the outbreak of the war in Serbia sanctions were imposed on importing goods from that country, and so engines had to be brought from the Fiat factory at Mirafiori (Turin) in Italy instead of from Serbia as had been planned initially.

The effects of all this on employment in both Poland and in Italy can be summarized as follows :

The effects on employment in Fiat Auto Poland

This evaluation may be made following several steps (figure 2) :

  1. 24,427 emplyees was on the FSM's payroll before Fiat's take over, including diversified activities ;
  2. at first Fiat Auto bought only the eight plants specialized in car and components productions, with 19,408 employees in 1992 : so 4,183 employees remained in old FSM ;
  3. but Magneti Marelli Poland bought from Fiat Auto the bumper and dashboard plant with 1,163 employees on the payroll ; the same operation was carried out by Teksid Poland that bought the casting plant with 2,206 employees ;
  4. therefore, Fiat Auto Poland had 16,039 employees at the end of 1992 (table 4) and the loss of about 8,400 employees from 1991 to 1992 was only due to a different definition of firm borders ;
  5. in the following years Fiat Auto Poland continued this deverticalisation process by selling further plants, with 2,256 employees, to other foreign suppliers ;
  6. the conclusion is that the real cut of employment by Fiat Auto Poland between 1992 and 1996 has been of 3,082 units.

Figure 2 : Reduction of employment in consequence of Fiat's take over on FSM


Summarizing, between 1991 and 1996 total employment in FSM-Fiat Auto Poland has been cut of 12,895 employees (from 24,427 to 11,532, see table 3), that is 52,7%, distributed as follows :


Table 7

Reduction of employment Reasons
4.18317,1% due to FSM's diversified productions
3.36913,8% due to productions transferred to Teksid and Magneti
2.2569,2% due to productions transferred to foreigner suppliers
3.08712,6% due to resignations and retirements from Fiat Auto Poland
---------- ----------
12.89552,7%

In brief, it can be said that there was a limited fall in employment levels as a consequence of the restructuring process carried out by Fiat (12,6% of total loss of jobs), but this was voluntary (resignations and retirements and not dismissals). It has to be pointed out that resignations were mostly connected with the process of decentralization of several activities which were previously internalized. In the same period, as we have seen (table 4), production and productivity had a big rise.

The effects on Employment in Fiat Auto in Italy

- Fiat's purchase of FSM did not lead to any loss of employment on the assembly lines in Italy because the cars, which FSM manufactures, were already being made in Poland and not in Italy. The 900cc engine and the relative spare parts will be supplied directly from Turin up to June 1996, when cylinder head manufacture and engine assembly has come into operation in Poland. However, this will not lead to any unemployment in Italy for the employees will be transfered to work on the new medium-sized model (the new Marea).

Assembly of the Uno, a model which was no longer made in Italy, began in Poland in 1994 ; but this should not have caused any unemployment of the assembly workers in Italy for they were transfered to the lines of other models while the work for those employees involved in the bodywork and other components has not had to be reduced because assembly in Poland is based on a CKD made in Italy.

Further, a new model of the Cinquecento, Sporting, has been launched, and it is equipped with a Fire engine made at Termoli, Italy and exported to Poland.

Finally, as has already been mentioned, there has been a significant increase in the number of cars exported to Poland (7,729 cars in 1992 rising to 18,940 in 1996). Thus it can be said that investment in Poland has not been considered only as the creation of an export platform, motivated by cost-saving considerations, but also as an important local market oriented operation.

Such strategies should have beneficial effects on employment in Italy.

The effects on Suppliers in Poland.

As has already noted, the number of Polish suppliers has fallen both because of a process of natural selection and because of a switch from simple components to whole systems. Further, this fall does not necessarily mean that the firms are no longer part of the Fiat network, for some of them will become secondary suppliers, that is to say, they will supply firms which supply Fiat directly. It is therefore very difficult to assess the indirect effects on employment.

The fall in the number of suppliers has, however, been offset by both an increase in local content and by the increased number of cars produced in Poland by Fiat.

Direct foreign investment and joint-ventures between suppliers have, for some firms, enabled employment levels to be maintained or increased, due to growing production, and the creation of new outlets both on the domestic market (e.g., supplying FSO) and abroad (e.g. Skoda in Czech Republic) ; for some others they have meant, initially, a loss in employment to improve efficiency and productivity. The prospects of these firms are also linked to the possibility of entering Fiat's international suppliers' network, which would open up new export markets.

It is important to note the importance of the improvements in quality obtained through Fiat's rationalization of the suppliers in Poland for only by introducing more advanced technology and a more efficient organization could those firms hope for future growth in a market which has to reach world quality standards

The Effects on Italian Suppliers.

Italian suppliers are mainly affected in two ways :

- those suppliers who already exported parts to FSM initially saw their exports decline because of the investment abroad as local Polish content increased. However, if the supplier served Fiat for other models, these losses were offset by Fiat Auto eitherby increasing purchases for existing models or by involving the firm in the design and production of new models (e.g. Punto and Bravo/Brava). These moves aimed at building up a closer and stronger partnership between Fiat and its suppliers, which implies mutual trust, medium and long term contracts and the determination to keep up the relationship (Enrietti, 1995). It is also possible to argue that being established in Poland facilitates the sales of other goods made in Italy, and so new flows of exports were initiated.

- For those firms which did not export products to FSM (that is to say, products made exclusively in Poland), investment in Poland was made to create added production and in many cases, it would never have been made in Italy because of the high transport costs and the wide differences in salaries. An initial analysis would suggest that investment in Poland has not influenced the level of employment in Italy. In fact, the purchase of FSM probably led to an increase in production for two reasons : on the one hand, production in Poland probably meant that there was a flow of components to Polish subsidiaries which were not able to guarantee the necessary quality, and on the other hand, setting up assembly lines for the Uno in Poland has also meant increases in the export of components for firms which are not involved in supplying parts for the Cinquecento.

Conclusions

In a post-fordist era, organisational and technological innovation on the one hand, and internationalisation on the other, are different but complementary ways to react to a slow down in the rate of growth of demand in the auto industry in the major developed markets.

In this context, re-scaling strategies take place at the national, regional and global levels. For Italian car maker and component suppliers, a regional dimension seems to have become crucial, following a long period of export strategies and multi-domestic multinational growth.

Fiat Group from multi-domestic to multi-regional strategies

Fiat Auto is still, in the mid-'90s, the least internationalised productive sector within the Fiat Group. However, increasing competition and slowing demand in Europe, as well as decreasing market shares in Italy, has induced major strategic changes. A clear evolution is under way, from a multi-domestic configuration, heavily dependent on the Italian market, towards a specific multi-regional configuration, based on two poles : a European pole, extended to CEECs, and a Latin American pole in the South Cone (i.e., the Mercosur area). In the first case, production facilities are organised within three interconnected networks :

In the second pole are integrated productive facilities in Brazil and Argentina. In the first country Fiat operates since 1973, is highly vertically integrated, and its dominant strategy has been local market oriented (which has not excluded some exports to Europe). In Argentina, where a partial divestment took place in the '70s, a new huge investment was launched in 1995, in the new regional integration perspective.

In both regions, Fiat is the second car producer, howewer, outside these two poles, Fiat Auto's international operations still are part of a market-oriented strategy, namely in the Mediterranean area, Asia and possibly South Africa.

The present configuration represents a break with respect to a long historical evolution, characterised by strong dependence on the Italian market, export strategies and, since the '70s, significant market-oriented operations, giving rise to several assembling plants being set up in developing countries (e.g. in the Mediterranean area), and to integrated manufacturing in Spain, Argentina and Brazil. The '80s on the contrary were a period of redeployment and divestment : Seat in Spain and Sevel in Argentina were divested.

The configuration based on a central European pole and a second South American pole does not fit in with the traditional literature on the Triad, seen as the dominant area of globalisation processes ; this approach seems to be largely inadequate with respect to the auto industry.

The present situation is not necessairly a stable outcome ; on the contrary, it could well represent a period of transition towards a new pattern. Setting up production of the Palio model in Brazil (April 1996), as we have seen previously, can be interpreted as an original attempt, by Fiat, to move towards a specific pattern of a multi-regional organisation of production.

The rise of small multinationals : the role of joint ventures and partnerships.

If we look not only at the Fiat Group, but at all the vertically integrated filière, FDIs in Poland offer a good insight into a typical feature of the new stage of the multinational growth by Italian firms : the emergence of new medium-sized minor multinationals (Balcet, 1996).

They are primarily the result of the growth of highly specialised and flexible firms, which have an exceptional ability to adapt imported technology and to develop design, brand and marketing policies. These firms achieved large economies of scale in the '80s. As a result, they were able to take advantage of new opportunities offered by the unification of the European market, industrial growth in the Far East (including China) and, in particular, by the opening of Central and Eastern European economies.

Cooperative behaviour, through licensing, joint ventures or contractual agreements, has always been a specific feature of the Italian pattern of multinational growth, and is related to the geographical destination of the international operations, the size of investing firms and the technological weakness of the oligopolistic heart of Italian industry.

In the early '90s, Fiat Auto itself stopped searching for strategic alliances with other car makers, after the tentatives with Ford, Citroen and SAAB failed. However, the case of Poland confirms the role of cooperative strategies at two levels :

The complex network of the partnership that has been built up support the idea that joint ventures act as an important learning tool : on local market and institutions for the Italian partners and on technology, organisation and marketing for the Polish partners. The idea of "learning-by-cooperating" processes (Balcet, 1988) as a main motivation for joint ventures, seems to be supported by such developments.

In some cases of Italian component suppliers, joint ventures have been a temporary learning tool in the move towards Eastern European markets, and whole ownership has been acquired at a later time, when legislations has been liberalised. However, it should not to be concluded that they represent simply second-best solutions, imposed to foreign investors by national restrictive rules. In many cases foreign firms, especially if they are followers or minor multinationals, prefer partnerships to wholly-owned affiliates in order to share investment risks and have access to information on local market and institutions.

Foreign firms, trade policies and regional integration.

As we have noted previously, Fiat's huge involvement in Poland corresponds both to cost-saving and to market-oriented strategies, within a regional configuration. Therefore, producing in Poland enabled Italian firms not only to get round protectionist barriers but also to benefit from the access to a still protected market (see the Polish tariff scheme in table 1), acquiring the related rents.

Table 8 shows the bilateral trade balance of Poland with Italy in the automotive industry. On the one hand, the flows of passenger car exports from Poland significantly exceed imports, thanks to the “ Cinquecento ” model. On the other hand, Italy compensates this deficit with trade surpluses in components (which include the import of CKD car models) and in industrial vehicles.


Table 8. Poland. Bilateral Trade Balance with Italy in Car Industry ($ m)

1992 1993 1994 1995
Passenger Cars (781) 184.6 178.5 163.9 247.2
Motor Vehicle Parts (784) -55.7 -99.6 -97.5 -141.6
Total (781+784) 128.9 78.9 66.4 105.5
Lorries (782) -4.4 -10.3 -11.1 -141.6

Source : Central Statistical Office of Poland


Post-1989 transition to a market economy, liberalisation and privatisations in Poland created the pre-conditions for the transformation of Fiat's previous involvement as a technical and industrial partner, into a foreign investor directly controlling huge productive capacities, and involving a number of other Italian firms in the internationalisation process.

Trade, investment and industrial policies, as well as macro-economic policies, deeply affected internationalisation strategies in the CEECs. In particular, the prospects of trade integration with the EU has changed the strategic goals of foreign investors. In the case of Fiat Auto Poland, it is interesting to note that initially, after the liberalisation began, the strategic choice was to serve the former-COMECON area, integrating the Polish units with plants in former-Yugoslavia, the Czech Republic, and possibly Russia. According to the evolution of the political and economic situation, and the new prospects of trade integration with the EU, multinational strategies were changed so as to encompass an enlarged European configuration. Such a strategic change, which implied modifications in product designs, intra-firm international trade flows, and network linkages, shows Fiat management's remarkable flexibility and capacity to adapt to the evolving international context.

Another important factor in Fiat's investment in Poland was the government's policy of encouraging Italian and other foreign suppliers to make direct investments in Poland, either by arranging joint-ventures with local suppliers or by setting up their own factories.

The role played by direct negotiations between Fiat and the Polish government during and after the takeover was important, not least because the strategy of Italian investors was affected by the evolving trade and import policies, by tax legislation, and by antitrust regulations.

A minimum level of regional trade integration may be considered as a necessary condition to the development of an intra-firm division of labour on a regional scale, including specialisation of foreign affiliates, optimising the economies of scale and of the access to the markets and to the relevant externalities, and minimising costs.

This case study seems to suggest that regional integration may increase the influence of policy makers on multinational strategies and may make the whole area more attractive.

References

Balcet G., "Italian Non-equity Ventures Abroad", in : F. Onida, G. Viesti (a cura di), Italian Multinationals, Croom Helm, London, 1988.

Balcet G., "Strategies of Foreign Delocations of Italian Firms", in : P. Buckley, J. L. Mucchielli (éditeurs), Multinational Firm Strategies and the Impact of Their Location Decisions, Edward Elgar, 1996.

Bélis-Bergouignan M.C., Bordenave G., Lung Y., "Hiérarchie et multinationalisation. Une application à l'industrie automobile", Revue d'Economie Politique, 5, 1994.

Enrietti A., "Il settore dei componenti auto : struttura e dinamica", in Economia e Politica Industriale, n° 88, 1995

Isvor-Fiat, La trasformazione di Fiat Auto Poland : 1991-1994. Storia di una acquisizione, ISVOR-Fiat, Torino, 1995.

Pearce M.C., "Joint Ventures and Agreements in thre Western Europe Motor Industry", in THE ECONOMIST INTELLIGENCE UNIT, "Automobile Special Report", n. 7, London, 1987

Poznanska J., Foreign Investment in the East European Automotive Industry : Strategies and Performance, EIBA Annual Conference, Urbino, December, 1995.


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