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Relocating Productive Capacity to China? Or Elsewhere?
9/30/2008
Author : European Institute for Asian Studies (EIAS - Belgium)
By Prof Em Sylvain Plasschaert, University of Antwerp and Catholic University of Leuven
 
This paper attempts to chart and analyse the phenomenon of delocalisation, which is by no means a novel one, but which is no doubt accelerating in rapidly evolving and globalizing world arena, with a focus on China an the new EU Member States (MS) in Europe. It characterises subcontracting within the same country as externalisation whereas 'outsourcing' refers to subcontracting abroad, typically in a lower-cost location.

It looks at the two main categories of Foreign Direct Investments, namely those motivated by market-seeking and efficiency-seeking respectively. In recent years, China has become the most important recipient of FDI funds thereby dislodging the USA. China's recent accession to the WTO further stimulates the eagerness of foreign firms -- amongst them almost al large MNE's -- to set up production in China. The opening of great many service sectors to foreign participation appears to uinleash a new round of FDI's such as those of the large supermarket chains.

As regards FDI's, China presents a most favourable position, indeed which no other country can probably match, namely the (unbeatable?) combination of low wages and of other costs on the one hand, and of an alluring large domestic market, on the other hand. How does the group of new MS in Central Europe compare with China in terms of its capacity for attracting FDI's? Can they also be turned into an export platform for EU companies and perhaps become another 'workshop for the world'?

As these MS now belong to the overall single EUmarket exports from one new MS, say from Hungary, to another new MS or one of the EU-15 are no longer subject to import duties. A large number of parameters which would otherwise constrain inter-national transactions are now unified. Central Europe also presents a number of comparative advantages over West European markets with respect to the cost-minimizing variety of FDI: close proximity to these markets; much lower wages; cultural affinities and the option to join the Euro currency; a workforce with a hig level of technical skills and the scope for fragmented production to thrive due to an integrated market.

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Vienna Institute for International Economic Studies (WIIW) (Austria) 
Fundacion para las Relaciones Internacionales y el Dialogo Exterior (FRIDE) (Spain)
 
Center for International Studies at the University of Cambridge (United Kingdom)   Faculty of International relations at the University of Economics in Prague (UEP) (Czech Republic) 
Kiel Institute for World Economics (Germany) 
Real Instituto Elcano de Estudios Internacionales y Estratégicos (Spain)
 
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Mannheim Centre for European Social Research (MZES) (Germany) 
Hellenic Foundation for European & Foreign Policy (ELIAMEP) (Greece)
 
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Stockholm International Peace Research Institute (SIPRI) (Sweden) 
Economic Development Foundation (IKV) (Turkey)
 
Center for European Programmes at the American University in Bulgaria    Europa-Institut (Germany)
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Department of Political Science at the University of Lund (Sweden)
 
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European Centre for International Political Economy (ECIPE) (Belgium) 
European Institute for Asian Studies (EIAS) (Belgium)
 
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European Trade Union Confederation (ETUC) (Belgium)
 

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European Centre for Development Policy Management (ECDPM - Netherlands)
 
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University of Malta 
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Europe's World is also adding a new section entitled the Arab World to complement existing sections that as well as covering international and European issues include Security & defence, the Developing World and Sustainable Europe.

 
 
 
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