The delocalization of production in labour intensive industries: instances of triangular manufacturing between Germany, Greece and FYROM

Abstract

The clothing industry, by virtue of its labour intensity and low barriers to entry and exit, is at the forefront of the processes of integration in a global network of production and distribution. During the 1970s and 1980s ‘intermediate’ regimes (such as Greece) benefited from the diffusion in clothing production from advanced industrialized countries (such as Germany); however, this trend was reversed during the 1990s. This is because of the intensification of competition from both developed countries (for high quality products) and less developed countries (for price competitive items), as well as the new threat posed by competitors from post‐socialist economies that are trying to find a role in the ‘Newer’ International Division of Labour. Within this context, this article sets out to analyse to what extent collaborative forms of diffuse manufacture, and particularly triangular manufacturing, may be used in the context of south‐eastern Europe. This article argues that ‘triangular manufacturing’ between the industrialized core of the European Union (EU) (and especially Germany), Greece and the Former Yugoslav Republic of Macedonia (FYROM) was the outcome of spontaneous entrepreneurial decision‐making. In the main, it was parent enterprises in Germany and to some extent Greek intermediaries who were the main beneficiaries of the emerging triangular relationships. Enterprises and workers in FYROM remained vulnerable and dependent. However, there were also a handful of instances of ‘good practice’, where relationships were beneficial to all the participating parties. We argue that these examples provide lessons for policy intervention both nationally and locally (in both Greece and FYROM).

Notes

Globalization is a widely used, but poorly defined, concept of scholarly inquiry—it means a lot of things to some people and almost nothing to others. It came to prominence in the 1990s following changes in the ‘real world’, namely improvements in information and communication technologies that facilitated global exchange, and the pursuit of a liberal economic policy agenda. Diversity in conceptualization emanates from the development of opposing arguments regarding the characteristics of the globalization process. There are those that have a positive view of globalization (Levitt, 1995; Ohmae, 1995). The pervasive influence of transnational companies (TNCs) leads to a degree of global economic integration absolutely and proportionately more important than ever before (Dunning, 1993a,b,c). Within this context, Biersteker (1998), argues that globalization is affecting not just the quantity of transactions in the global economy but also their quality. Advocates of this approach do recognize that globalization produces winners and losers: both in terms of countries and regions, as well as people belonging to certain socio‐economic strata, ethnic groups or gender. However, declining wages and deteriorating working conditions will be combined with the opening‐up of economies and the release of market forces (Biersteker, 1998). As a result, the argument goes, there will be new opportunities afforded to those who were previously marginalized: in other words the accomplishment of a world‐wide marketplace will function as a tide that will lift everyone into the new regime (Williamson & Haggard, 1994). However, there are those that have a more sceptical view of globalization. As Hirst and Thompson (1996) argue, TNCs concentrate on clustered sites. As a result, the ensuing patterns of international economic transactions result in multi‐faceted outcomes, which demonstrate advanced integration in some facets, and retarded in others. Within this context, economic globalization is far from becoming a world‐wide reality.

The choice of Germany was on account of the very strong linkages between parent enterprises in that country and subcontractors in Greece. Indeed, there is a large and convincing body of evidence lending support to this thesis (Simmons & Kalantaridis, 1995; Labrianidis et al., 1997).

The argument in favour of a ‘Balkan economic area’ is within the context of an existing polycentric Europe consisting of groups of neighbouring countries with similar economic conditions (see the Benelux, Visegrad states, Baltic region CADSES, Black sea zone, Adriatic zone, etc). Such an argument is advanced not as a defensive option (based on isolationist/self‐centred ideas) but because it will allow a better integration of the Balkan area both to the EU and to the world.

The opening of Greek companies to the Balkans also has its negative side, especially the relocation of production in CEECs.

Labour force 789,082 in 1996, 800,511 in 1997, 823,828 in 1998, 806,675 in 1999. Of them unemployed 31.9%, 36%, 34.5% and 32.4%, respectively.

The labour legislation makes it very difficult and costly to dismiss workers. These high dismissal costs have discouraged employers from hiring new workers for fear of being unable to downsize the labour force during economic downturns. Hiring is also directly inhibited by high labour costs imposed by the wage legislation and the fiscal code (high payroll taxes, high non‐wage benefits and mandatory wage floors for tax assessment) (IMF, 2000, pp. 77–83).

These features are: (a) The concentration of unemployment among the entrants into the labour market, the young, and the less educated/low skilled. In particular, unemployment rate is high among those with low education and decreases with the level of education. (b) Its long duration. In 1998, about 83% of the unemployed had been without a job for more than 1 year. (c) The low rates of inflow into and outflow from unemployment. (d) The low share of unemployment due to layoffs. (e) Its concentration among some minority groups. The unemployment rates are highest among the Roma (76% in 1998), Albanians (60%) and Turks (43%) (IMF, 2000, pp. 77–83).

There are no reliable official estimates of Greek outward FDI. The Empirical findings presented here are the result of extensive fieldwork investigation on the internationalization of Greek entrepreneurship and the ensuing effects upon regional economic integration on south‐eastern Europe (see Labrianidis 1996 ; 1997; 2000a,b,c; 2001).

Between 1969 and 1988 the recorded number employed in clothing enterprises rose from 39,144 to 92,969, and the value of total production expressed in constant 1970 prices rose by 86.8% (NSSG, 1996).

In 1960 1.4% of domestic consumption of clothes was imported, in 1970 1.6%, in 1980 2.9–4.7% and in mid 1980s 19–65% (Lolos & Papagiannakis, 1993, pp. 56–57; Bank of Greece, 1993, p. 70; IOBE 1995, p. 37) which is an increase of 1380%.

In fact, developments in Bulgaria and Albania are only a small part of a process observed in all CEEC's. Countries such as Poland, Hungary, the Baltic states, and Ukraine, pose probably much more of a threat to Greek garment exports than its two neighbours.

The consequence of this lasting increase in labour cost was the growth of the share of labour cost by 2% on the gross value of production, while during the same period in EU countries it fell by 2–5% (IOBE, 1995).

Interviews to the authors and ILO (1999).

The decentralisation of production in the FYROM started with a considerable delay – following the trade blockade imposed by the Greek government. Thus, Bulgaria enjoys a seven‐year lead over FYROM in such activities.

This is because transactions take place through banks who guarantee payment. This is because once the order is complete funds are transferred by the bank. Penalties for late delivery apply to manufacturers in FYROM but are well bellow the penalties confronting Greek exporters by foreign buyers in case of delays in delivery.