Transborder clusters as a means to enhance competitiveness:

University of Macedonia Regional Development & Policy Research Unit

Transborder clusters as a means to enhance competitiveness:

the transformation of a quasi cluster in N. Greece to a quasi cluster that embraces

Southern Balkans

Lois LabrianidisEconomic Geographer, Professor Dept of Economics,

University of Macedonia

DIME-LIFE Conference 30/11- 1/12/06 Athens


Changes of Global Inward FDI, imports and GDP 1970-2003 (1970=100), current prices

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2000

4000

6000

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10000

12000

Εισερχόμενες ΞΑΕ ΑΕΠ ΕισαγωγέςΠηγή: UNCTAD FDI database online


0

0,05

0,1

0,15

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0,25

0,3

0,35

1980

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Απόθεμα εισερχομένων ΞΑΕ ($ΗΠΑ εκ.) ως % του συνόλου Απόθεμα εξερχομένων ΞΑΕ ($ΗΠΑ εκ.) ως % του συνόλου

Participation of under-developed countries in the global stocks of FDI inflows and outflows,

1980-2004

Πηγή: UNCTAD FDI database online


Stocks of inward FDI, 1980, 1990 and 2003 ($USA millions)


Πηγή : Για τα έτη 1953-1980 Dicken P. (1998) ‘Global Shift: Transforming the World Economy’, London: Paul Chapman, σελ. 93. Για τα έτη 1990-2001 World Bank, WDI online

0%

20%

40%

60%

80%

100%

1953 1963 1970 1980 1990 1995 2001

Αναπτυγμένες Υπανάπτυκτες

Distribution of global value-added in manufacturing between the developed and the under-developed

countries, 1953-2001


Stocks of FDI/capita, 1993, 1998, 2004


Development of the per capita outward FDI stocks of Greece, the developed and the under-developed countries, 1980-2004

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Αναπτυγμένες χώρες Υπανάπτυκτες χώρες ΕλλάδαΠηγή: UNCTAD FDI Database


Periodisation of Greek companies entering CEECs

1st period: 1989-1996 Exclusively in the CEECs, primarily in the Balkans, small size mainly in trade and light industry, looking for low labour cost and esay entry to the market 1989-1993 – “the El Dorado”: could enjoy high and easy profits/ supposedly effortless opportunities. micro SMEs or individual “entrepreneurs” 1994-97 – “The Mafia Period”: situation in the country of destination was characterised by the proliferation of illegal practices in the economic sphere, the lack of market institutions, lack of intra state agreements for the protection of investments, etc.

2ndt period: 1997- today “Normalisation”: “rationalisation” of the internationalisation process on the Greek side. large investments with long term prospects, mainly by established companies in Greece, NOT only in CEECS. Since 1999 boost to the engagement of big Greek companies due to stockmarket (Labrianidis, 2001)


Number of Greek affiliates and of their employees per geographical region of activity, 2006 (% and n.n.)

Geographical region

Number of affiliates

Employees

Balkans 48,8 67,8 Rest of Europe 35,7 21,0 USA 5,7 0,1 Africa 3,8 6,4 Asia 5,6 4,8 Australia 0,4 0,1 Total % 100 100 Total n.n. 1.116 116.081 Source: Field work (interviews with entrepreneurs, newspapers, commercial attaché, web sites, etc)


TotalL.L. BNSI

Sofia 52,7 56,8 48,5Northern Bulgaria 34,8 8,6 2,3Southern Bulgaria 10,2 31,7 44,6Rest of country 2,3 2,9 4,6Total 100 100 100

Spatial distribution of FDIs in Bulgaria, 1992-97

Greek


Geography matters!

Percentage of total trade and FDI outflows in neighbouring countries, for selected

countries

Country Total trade (1989-98) FDI (1980-97) Germany 40.6 37.3 France 50.2 38.5 Austria 54.9 46.4 Denmark 50.1 39.5 Belgium-Luxemburg 62.0 66.3 Greece 19.0 90.0?

Source: IMF (1999), OECD (2000).


Why this acceleration in the global integration in the clothing industry

1st General changes, not industry specific: - globalisation (Held 1995)

- that has been enhanced by advances in technology (Castells 1996)

- especially telecommunications, transportation, IT (Lash and Urry 1994), - made the world smaller (Harvey 1982) - extending the reach of people+businesses over space (Giddens

1990). • - predominance of neo-liberal ideology prioritising free market

over state regulation,interests of global over national capital, of capital over labour (Hirst and Thompson 1996, Jessop 2002)

2nd relative ease of global integration of clothing industry due to low entry barriers, low capital and skills requirements, labour intensive (60% of total costs - Scheffer 1994; OECD 2004) easy delocalisation to countries with cheap, flexible labour (Phizacklea 1990, Hanzl-Weiss 2004)

3rd rise of global buyers: such as retailers, branders, marketers (Gererffi 1994; Smith et al. 2002)


Clothing is the paramount global commodity has some of the highest levels of: - import penetration - volume of trade - degree of supply chain internationalisation Trade in clothing is among the oldest in the world, since 1960s there has been a

dramatic increase of interdependence in production +consumption

Geographic shifts in clothing production - In 1960s from W. Europe + US Japan- In 1970s-1980s: from W. Europe Southern Europe (Greece etc),

from Japan Hong Kong, South Korea, Singapore, Taiwan - In late 1980s from W. Europe further east in Europe,

–from US L. America, Caribbean, mainland China, Sri Lanka other Southeast Asian countries (Gerefffi and Memedovic, 2003)

- In 1990s South Asian and N. African suppliers were added (Gibbon, 2001), while the

significance of L. America, E. Europe, Turkey and recently the Middle East increased (Scheffer 1994, Kessler 1999, Begg, Smith& Pickles 2003, Gereffi and Memedovic 2003).


«Washington’s consensus»: FreeTrade yes! only when we are competitive!

(e.g. garment manufacturing) Since the 1970s world clothing industry has been undergoing major structural reorganisation UDCs, taking advantage of their “favourable” competitive position, began to pose a serious threat to levels of employment in core economies (focused on: mass produced items and relatively limited degree of product differentiation) Faced with the choice of - undertaking costly adjustment measures and the spectre of bankruptcy (employers) + - unemployment (workers) - co-operated to convince governments of the need to postpone choice. Thus a “temporary” framework for regulating the world clothing trade has been in place > 30 years

“Short term Arrangement” “Long term Arrangement” Multi Fibre Arrangement (1974) all abolished in 2005


Total wage cost/hour in textiles and garment industry 2005

Direct Wages in US$

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Switz

erlan

dBe

lgium

Ger

man

yAu

stria

Fran

ce UK Italy

Japa

nCa

nada

Irelan

dAu

stra

lia USA

Spain

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ece

Malt

aIs

rael

Taiw

anS,

Kor

eaPo

rtuga

lHo

ng K

ong

Czec

h Re

p,Po

land

S.Af

rica

Slov

akia

Esto

niaTu

rkey

Arge

ntina

Vene

zuela Br

azil

Mor

occo

Mex

icoO

man

Tunis

iaCo

lombia Pe

ruM

aurit

iusBu

lgaria

Thail

and

Mala

ysia

Egyp

tCh

ina C

oast

alKe

nya

India

Indo

nesia

China

Main

land

Sri L

anka

Pakis

tan

Bang

lades

hVi

etna

m


Employment of Greek garment manufacturing firms in South Eastern

Europe

Country Employees % Albania 1.075 7,4 Bulgaria 11.833 80,9 Romania 855 5,8

FYR Macedonia 842 5,8 Turkey 15 0,1

ΣΥΝΟΛΟ 14.620 100,0 Source Federation of Knitting Companies of Northern Greece (2001)


• There is a quasi cluster of garment textile manufacturing in N. Greece since the ‘60s (Greece low levels of trust. Levels of trust differ across countries as well as regions and sectors – Welter +Smallbone, 2006)

• This quasi cluster since the early ’90s transcends national boundaries (other e.g. Medicon Valley –Copenhagen/Skane Sweden)

• The identity of the entrepreneur is shaped by his role in cross-border transaction:

- international commuting

- Entrepreneur that leaves in his ivory tower (draw parallel with “cathedrals in the desert” parachute

industries”)


Cross-border entrepreneurial activities in Eastern Europe

•Entrepreneurs involved in cross-border activities face continuous challenges and transformation regarding their identities and their behavior - To understand these transformations we need to overcome popular beliefs claiming the revival of past identities (“deep freeze theory”)

•Entrepreneurial cross-border activities are to a great extent based on informal networks and do not exclusively aim on long-term capital accumulation. Such activities may also cover symbolic and material consumption needs

- were initially based on petty trade and household enterprises

- presently involve a special kind of postsocialist elites called “the cell and Mercedes people”


Textile and clothing companies that have relocated in part to the Balkans are doing much

better in every respect compared to those that have not

relocated


Investments on mechanical equipment

Μηχανήματα

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Όχι Βαλκάνια Βαλκάνια


Turnover

Τζίρος

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2.000.000

4.000.000

6.000.000

8.000.000

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Gross profit

Μικτό κέρδος

0200.000400.000600.000800.000

1.000.0001.200.0001.400.0001.600.0001.800.000

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Investment on buildings

Κτίρια

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1.000.000

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2.000.000

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Profits before interests and taxes

Κέρδη προ τόκων και φόρων

-100.000-50.000

050.000

100.000150.000200.000250.000300.000350.000400.000450.000

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Development of the company’s sales, production and employment (F Company)

YEARS 1986 1993 1994 1995 1996 1997 1998 1999 Production volume (in thousands of pieces) 502 3.046 3.919 3.942 4.498 4.778 5.242 7.245 % of production in the Balkans 0 16 22 43 58 63 71 86

Employees in Greece 226 413 440 454 466 461 439 421

Employees in the Balkans 0 50 80 150 250 310 400 500 Employees in Greece/the Balkans 226 8,3 5,5 3,0 1,9 1,5 1,1 0,8 % of cost for cutting, sewing, packaging in price 27,4 26,6 28,7 28,6 27,3 27,2 24,7 19,7 % of employees in Greece 21,6 22,0 22,7 24,4 26,0 30,6 32,3 37,8

Albania and Bulgaria since 1994, FYROM since 1996 and Romania since 1997


Employment in the F company in Greece and the Balkans

Greece

Year Blue collars

% White collars

% Total a.n.. Total % Greece/ Balkans

1986 226 226

1993 78,0 22,0 413 100,0 8,3

1994 77,3 22,7 440 100,0 5,5

1995 75,6 24,4 454 100,0 3,0

1996 74,0 26,0 466 100,0 1,9

1997 69,4 30,6 461 100,0 1,5

1998 67,7 32,3 439 100,0 1,1

1999 62,2 37,8 421 100,0 0,8

Source: Data from company F


Theories , typologies of delocalisation:

some preliminary thoughts• A firm (e.g. a Greek firm) can either undertake and/ or give

subcontracting, while at the same time being a parent of a firm in the Balkans (the typical case of Greek MNEs), or an affiliate of a developed country firm . – What is then, the defining feature of the internationalisation

process?

• Different theories would have different predictions about what actually determines why, when and where (to mention only some of the questions) firms internationalise

• Extant theories– Supply chain theory (Gereffi)– Internalization theory (Buckley) – Ownership advantages (Hymer)– Resource based theory (Penrose)– Divide and rule theory (Peoples)


• Supply chain theory The testable hypothesis here could be whether firms organising the supply chain (their ‘own’ network of subcontractors or affiliates) would behave in different ways and be able to better defend their positions in the market than firms that are parts of a supply chain organised by another (e.g. a W. European firm).

• Internalisation theoryAre firms which are part of a MNE (either as parents

or affiliates) better endowed with the knowledge and information freely flowing within the MNE network, to mention only one of the benefits stemming from being part of a multinational firm.

• Ownership advantagesIt is not clear whether labour intensive firms must have

specific ownership advantages, which they must exploit themselves in order to become multinational.


• Resource based theoryFor many firms, delocalisation (especially FDI) was

easy, since it was possible through the utilisation of the firms’ existing resources. In a sense, therefore, FDI does not represent an expansion of the firm, but rather a reconfiguration. For many firms FDI was not the daunting challenge we often think it is but the best solution in the choice between perishing, upgrading or delocalising.

• Did firms acquire more resources prior to internationalising?• Is internationalisation one of the stages of the growth of a firm, or simply

a survival strategy?

• Divide and ruleLabour considerations are of primary importance to

labour-intensive firms. Do the firms use delocalisation as a possible threat in order to squeeze labour costs in their home markets?


In favour of a “Balkan economic area”:

In favour of supporting the transnational cluster to be

The argument is within the context of an existing polycentric Europe, consisting of groups of neighbouring countries (Benelux, Visegrad states, Baltic region CADSES, Black sea zone, Adriatic zone etc): construction of a unified geographical space.

It is not a defensive option (based on isolationist/ self centred ideas).

It will offer the opportunity to the Balkans to face the adverse consequences of European unification and a better integration to the world. Upward shift in the value chain

Greece will play a leading role in the “Balkan economic area” . Greece can play: the role of the “North” in the Balkans

while continuing to play the role of “South” towards the ded world (EU, USA etc)

This new reality demands long term goals on behalf of the Greek government that will advance co-operation as well as stability in the Balkans and direct actions in crucial issues. So far, the Greek State has not been particularly forthcoming in providing tangible support for the development of economic linkages with the Balkans.


Greek interests in the Balkans can be very important for both parties

For the Balkans Positive “new” TNCs and SMEs of Greek interests are very important for the Balkans at least in the

short and medium run: provide employment and technology that is more adequate the existence of significant Intra Industry Trade between Greece and the other Balkan

countries will prevent socks to their economies. Greek FDIs: do not enhance regional imbalances. No political or economic threat

Negative Labour exploitation Little transfer of knowledge

For Greece Positive increase their foreign trade and Greek FDIs in the Balkans give Greek firms necessary time to restructure

negative (especially the relocation of production) short-term (lost jobs mainly in certain sectors - garments - and areas - Northern Greece) long term. postpone the necessary restructuring of firms. Greece is loosing its

competitiveness in the advanced international markets (e.g. decrease of exports to EU increase to Balkans). Due to low-value added of manufacturing activities in Greece not many stages can be relocated abroad


Greek exports, 1950-2003

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EU 25 United States and Canada South-East Europe and CIS Developing economies

Source: UNCTAD Handbook of Statistics on-line


Triangular manufacturing

G r e e c e B a l k a n s

D C g e r m a n y )

O r d e r P r o d u c t

Transborder clusters as a means to enhance competitiveness:

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