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Abstract
This study looks at the reorganization of production in the context of a multi-plant firm in the automotive industry. Changes in such firms may result in the closure of some plants and/or the opening of others. The article provides a method for assessing the risk of plant closure, and then applies that method to a specific case: the automotive plants located in the Spanish region of Navarre. This entails acknowledging the factors that increase what has come to be known as the “degree of vulnerability” of the plant, including sunk costs and relative productivity levels. This paper can also be understood as a source of information for designing developmental after-care programmes for foreign direct investors in the periphery of the European Union.
Acknowledgements
The authors wish to thank two anonymous referees for their comments. Support for field work and other expenses was provided by the research projects SEC 2001-2148 (Ministerio de Ciencia y Tecnología, Spain) and 9/UPV 00036.321-13654/2001 (University of the Basque Country).
Notes
1. The proportion of the German hourly wages to those of their counterparts in Eastern European countries has been estimated as ten to one, and eight to one in the case of France (Camino et al., Citation2005).
2. The other type of closure distinguished by these authors is cessation closure, which entails the cessation of a particular activity or product (Watts & Stafford, Citation1986; Stafford & Watts, Citation1990). Stafford Citation(1991) also subdivides selective closure into two types, the first characterized by the reduction of production of a particular product and the closure of certain plants, and the type relating to the closure of certain plants but maintaining—or even expanding—production in other places. This second type of selective closure is the kind examined in this study.
3. Young et al. (Citation1994, p. 45) define “after care” “as comprising all potential services offered at the company level by Governments and their agencies designed to facilitate both the successful start-up and the continuing development of a foreign affiliate in a host country or region with a view towards maximising its contribution to the local economic development”.
4. The analysis is applied to a sample of 200,000 industrial establishments in the US, and looks at plant openings and closures from 1963 to 1982. Its results also include a high plant mobility rate that varies from sector to sector.
5. The sample comprises 7000 Swedish industrial plants closed between 1991 and 1996. The incidence of industry-related factors is another result obtained: the higher the uncertainty and the lower the degree of skill and the demand for the product, the more likely plants are to close.
6. This refers to the closure of Portuguese industrial plants between 1983 and 1987. Among the industry-related factors, growth rate and entry barriers appear as significant.
7. The sample used by these authors comprises 252 manufacturing plants owned by multinational firms located in the north of the UK from 1970 to 1993.
8. The data come from a survey of 33 industrial establishments in England owned by multi-plant firms that were closed down in the late 1980s.
9. The plants referred to in this case closed down in the early 1980s.
10. The authors attribute the absence of these variables at the end of the decade to the loss of trade union power during that period.
11. The study refers to US plants from 1972 to 1992.
12. The results of the study point to a higher rate of mobility on the industrial periphery: although most new plants are located on the periphery, the risk of closure is greater there than in industrial centres.
13. The type II selective closure in Stafford and Watts' (1990) classification, chosen for this study, is included in what Clark and Wrigley Citation(1997b) call “strategic reallocation” in their typology.
14. The authors say that in the developed countries the importance of this type of investment is much higher than greenfields investment.
15. The original definition of these sunk costs is due to Baumol and Willig Citation(1981).
16. Since we are dealing with multi-plant firms, productivity is taken relative to the remaining plants owned by the same firm.
17. This variable is also used as a productivity indicator to reflect the effect of economies of scale. However, it is not included as a measure of productivity here as it is considered that all the plants studied are at least of the minimum efficient size and therefore take advantage of such economies.
18. A vision of the relationship between age and sunk costs can be consulted in Audretsch Citation(1995).
19. However Rev. 1 of the NACE classification does not offer an adequate measurement of the automotive industry, mainly because it is excessively rigid and fails to consider other firms that devote part of their output to the industry but are classified under other NACE headings. Apart from the official classification, it is estimated that there are 156 firms in Navarre that devote part of their output to the automotive industry. They provide jobs for 11,007 people (Chamber of Commerce & Industry of Navarre).
20. See Longás Citation(1998).
21. 1982, when Volkswagen signed a technology cooperation contract with SEAT, marked the beginning of the Navarre assembly plant's development under the Volkswagen name. From its opening in 1966 to September 2004, the plant assembled around 4.4 million passenger cars, 4 million of them Polos manufactured during the Volkswagen period, i.e. since 1984. For a more exhaustive presentation of the industry and of the Volkswagen Navarra plant see Aláez and Erro Citation(2006).
22. In financial year 2001 exports of motor cars, tractors, velocipedes and other land vehicles accounted for 48.9% of exports from Navarre, while imports of these products accounted for 42.1% of total imports into the region, according to data from the Dirección General de Aduanas.
23. Information on levels of competition in different industries was obtained from Barneto Citation(2001), based on answers by managers of assembly plants in Spain to a questionnaire on relations with suppliers. The interviews were held between December 1999 and February 2000, and reflect the perception of assemblers concerning the degree of competition in their industry.
24. The 1002 jobs at the six plants that depend solely on the Volkswagen plant are counted along with the jobs at that plant.
25. This statistical procedure enables one or more characteristics common to a set of variables to be found by assigning numerical values to the categories of each variable and grouping cases with similar scores (SPSS Categories 8.0, User's Manual, 1998).
26. In social science an extracted variance percentage of at least 50% is usually required (Hair et al., Citation1998, p. 104).