Relocation
84. Since the opening of the Central and Eastern
European economies, and particularly since their accession to
the European Union, there have been a series of high-profile relocations
of production facilities from the UK to the A8/A2 countries. This
is particularly true in the manufacturing and automotive sectors.
EEF evidence to us shows that 17% of surveyed UK manufacturing
companies in 2004 who had located any production overseas had
chosen new EU member states in Eastern or Central Europe.[117]
The SMMT noted that passenger car production in Central and Eastern
Europe had doubled over the period 1997-2005 and expressed the
view that production would continue to relocate from the UK eastwards.[118]
Our Report into the future of the UK automotive industry agreed
with this assessment, concluding "we believe that the closure
of car plants in Western Europe and the opening of up-to-date
facilities in Eastern Europe, using cheaper labour, will continue."[119]
Media reports have claimed a significant negative impact on employment
in certain areas of the UK caused by off-shoring production to
Central and Eastern Europe. For example, earlier this year BBC
Wales ran a documentary 'Going East' which claimed that 4,500
jobs had been lost in Wales due to relocation to Eastern Europe—a
claim picked up in the local press.[120]
85. The European Commission report on the impacts
of enlargement cites several studies that show a small negative
impact (around 1% of all employment) in countries which have closer
economic ties with the A8/A2, such as Germany and the Netherlands—an
impact concentrated on lower-skilled, manual workers.[121]
Studies also suggest that these countries have experienced a counteracting
positive impact on employment as a result of increased competitiveness
resulting from offshoring. For example, a survey conducted in
Germany found that 20% of companies surveyed said they had shifted
jobs eastwards as a result of enlargement but 60% of these companies
said such investments had preserved jobs in their German operations
by making them more competitive.[122]
86. Similarly, a research paper by two economists
from the OECD concluded that the productivity gains and resulting
job creation generated by offshoring were sufficient to offset
the jobs originally lost in the 'home' country and, in some cases,
result in a net increase in 'home' employment. This does not imply
that the process is without cost to the domestic labour force;
the authors concede that the additional jobs generated are likely
to have higher skill requirements than those lost—increasing
the value of the business and therefore the economy, but potentially
excluding those who were affected by the original relocation.[123]
87. Intellect told us that, in their sectors, offshoring
business functions to the A8/A2 countries is driven by the need
to remain competitive by accessing a wider talent pool and reducing
costs.[124] A report
by the consultancy Ovum into the impact of offshoring in the software
and IT industries found that onshore labour costs were increasing
faster than market growth—a situation that they concluded
was unsustainable. Ovum estimated that to remain competitive,
the percentage of the workforce employed by UK-owned software
and IT companies based overseas had to increase from 13% in 2005
to 26% in 2008—a total reduction in UK headcount of 21,000.
Increased competitiveness would result in employment gains in
the UK, but importantly—and contrary to the findings of
the Hijzen and Swaim paper cited above—only 5,500 jobs would
be created in this way, leading to a net loss of 15,500 jobs over
the three year period.[125]
88. It was stressed in evidence to us that the accession
of the A8/A2 into the European Union occurred over a similar timescale
to the integration of China, India and other emerging economies
into the world market.[126]
The European Commission in its report on enlargement noted that
the impacts of A8/A2 accession "mirror closely" those
of globalisation more generally.[127]
The House of Lords European Union Committee in its report on the
possible further enlargement of the EU noted that the sectors
which had come under most pressure from the addition of the A8/A2
were those which had also come under most pressure from global
competition, including automotive, pharmaceuticals and ICT. They
argued that "for the investing companies, the choice was
not between producing in their home companies or in a cheaper
location. The choice was between cutting costs or losing market
shares—and thus reducing employment at home anyway."[128]
The British Chambers of Commerce agreed with this assessment;
they told us that the key to ensuring that the UK did not begin
to lose economically through offshoring was to maintain a competitive
environment in the UK for the high-value-added aspects of production,
design, research and development.[129]
89. The accession
of the A8/A2 has led some companies to move production and other
business activities from the UK to these countries. This has led
to concern that UK jobs are being 'exported' overseas. The evidence
we received suggests that a degree of relocation has been necessary
to maintain UK companies' competitiveness in the face of global
competition and can be compensated for to some extent by resulting
gains in employment in higher value-added areas of the same industry.
Nonetheless, it is clear that some sectors—such as IT and
automotive—are experiencing net reductions in their UK based
workforce. We would welcome a comprehensive study into the net
effects on UK business and employment of relocation overseas to
inform public policy responses more accurately.
90. Although
the A8/A2 have proved attractive locations for UK companies looking
to offshore some of their business activities, the evidence we
received suggests that the phenomenon itself was not a direct
consequence of these countries' accession to the European Union.
Rather, relocation overseas has been driven by global competition
from a variety of locations—including the A8/A2 but also
Asia and more widely.
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