Restructuring, internationalization and geographic change in the European automotive industry

Abstract:

 Purpose

This presentation examines the restructuring of the European automotive industry by analyzing job creation and job losses by large automotive firms in the EU and Norway (henceforth EU+1) between 2005 and 2016 and by investigating the investment and location decisions of foreign automotive companies in East-Central Europe (henceforth Eastern Europe). I address five research questions: First, how can we conceptualize the changing geography of the European automotive industry? Second, what was the geography of job creation and job losses in the EU+1 automotive industry between 2005 and 2016? Third, what were the underlying reasons behind the geography of job creation and job losses? Fourth, what kind of firms were driving the job creation and job losses in terms of their ownership (domestic or foreign) and nationality? Fifth, what were the most important types of restructuring events resulting in job creation and job losses?

Design

The automotive industry restructuring database of 2,124 restructuring events resulting in the creation or loss of at least 100 jobs or 10% or more of the labor force in firms or factories employing at least 250 workers was constructed and analyzed for the EU+1 countries for the 2005-2016 period. The nationality of firms creating or cutting jobs was determined, which allowed for the analysis of the role of foreign and domestic firms in the restructuring of the automotive industry. The second unique dataset was based on 91 interviews with managers of foreign automotive subsidiaries in Czechia and Slovakia that collected information about the reasons for investment, location choice, perceived national competitive advantages in the automotive industry, strategic needs of parent companies in foreign locations, relocations, and reasons for the continuing production in these countries.

Findings

In the context of the European automotive industry, the empirical evidence confirmed that growth of the automotive industry in the East European integrated periphery has been driven by the search for low-cost locations compared to exiting locations in Western Europe. The importance of low wages and low corporate taxes for the development of the automotive industry in Eastern Europe was statistically confirmed by the correlation analysis and supported by company interviews in Czechia and Slovakia, which also highlighted the importance of other cost-cutting reasons, along with organizational, institutional and technical factors. The firm-level analysis of large restructuring events in the EU+1 automotive industry provided evidence of the increased internationalization of the European automotive industry through the increased role of foreign transnational corporations (TNCs) in both job creation and job losses. The geographic change in the European automotive industry was driven by the investment/disinvestment activities of automotive TNCs, mainly based in the global automotive industry core countries as TNCs from France, Germany, Italy, Japan, South Korea and the United States accounted for four-fifths of all created and lost jobs in the EU+1 and also for four-fifths of all created and lost jobs outside their home economies between 2005 and 2016. Four-fifths of all newly created jobs in the EU+1 were created by foreign firms, which also accounted for almost half of all job losses. The fact that large domestic firms accounted for only one-fifth of created jobs but more than half of jobs lost shows that large domestic firms, both in Western and Eastern Europe, were losing ground at the expense of foreign firms. The automotive industry in integrated peripheries was more significantly affected by this development than the automotive industry in core regions. This situation is reflected in the overall weak performance of domestic firms compared to foreign firms in job creation in both old (Belgium, Portugal, Spain) and new (Eastern Europe) integrated peripheries. The empirical evidence also demonstrates that large domestic firms in Eastern Europe failed to significantly benefit from the massive job creation by foreign firms between 2005 and 2016. Instead, the position of domestic firms continued to weaken during the study period. The empirical analysis also demonstrated that the ongoing growth in the East European integrated periphery results in geographic restructuring in existing locations in Western Europe, which is reflected in in-situ restructurings, job losses, factory closures and relocations. The largest number of jobs created and lost were through in-situ restructuring in Western Europe, which shows the continuing attractiveness of traditional automotive industry regions and strong commitment of automotive companies to existing locations.