The Challenges of Upgrading: Dynamics of East Central Europe’s integration into the European Automobile Networks

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Résumé:

Relatively rapid integration of East Central Europe into the European automobile production networks has been a subject of scholarly debates since very early on, both in the East and in the West. The main controversy rests on conflicting understanding of the position of the region within the broader European production architecture: those who believe that we are witnessing a case of more or less flexible vertical integration have pointed out the limits to upgrading in the East, with the region essentially coming to occupy the lower ends of the international production chains within a complementary division of labour. Others have provided evidence of growing competition, arguing that upgrading in the East has produced similar levels of production capability, sufficient to create severe pressures on employment and working standards in the West.
 
This paper reconstructs the trajectory of the changing division of labour between East Central and Western Europe (mostly Germany), and argues that rather than two positions on the same issue, we are dealing with two distinct stages of upgrading, each entailing a different set of challenges in both East and West. We analyse these stages separately, showing that they were marked by different strategies of automobile OEMs and accompanied by a different response by the trade unions and other political actors.
The first section focuses on the early 1990s-late 1990s period, which we claim was characterised by predominantly market-seeking orientation of OEMs. While the automobile market crisis of the early 1990s forced the manufacturers to cut costs, they succeeded in doing so mostly by reliance on national solutions (employment pacts), and/or by transferring only the most labour-intensive activities to Eastern Europe. The second section documents a shift in firms’ strategies in the late 1990s and early 2000s, in response to persistent cost pressures and a transformation within industry itself. As a result of this change, East Central Europe was transformed into an export hub for ever higher value-added products, which brought it into direct distributional conflicts with locations in Western Europe. We also show how this lead to a transformation in strategies of Western trade unions, who found national solutions increasingly ineffective and sought to engage in cross-border cooperation with their Eastern counterparts to alleviate the dangers of competition. The final section of the paper examines the impact of the crisis of late 2000s on the automobile industries in Eastern and Western Europe, the divergent reactions of OEMs in the two regions, the salience of political responses, and the ways in which the crisis might announce another shift in the East-West division of labour.