GENEVA (ILO News) - Globalization is forging a revolution in the US$ 1.7 trillion transport equipment manufacturing (TEM) sector, with fierce competition leading to unprecedented mergers and acquisitions, increasing downward pressure on wages and unionized jobs, and "the end of the factory as we know it," according to a new report * by the International Labour Office (ILO).
The report, prepared for a meeting on "the Social and Labour Impact of Globalization on the Transportation Equipment Manufacturing Industry" to be held at ILO offices in Geneva on 8-12 May 2000, shows that globalization is radically altering the way cars, trucks, planes, trains and other equipment for moving people or goods are ordered, built, sold and scrapped by more than 7 million workers worldwide.
"While the nation-State remains the main point of reference for societies, it is becoming less relevant for economic matters," says Paul Bailey of the ILO's Sectoral Activities Programme and main author of the report. "With improved, speedier transportation, freer trade, lower tariffs and new pricing structures, globalization has become the most profound development in transport equipment manufacturing since Henry Ford's assembly line."
The report says automotive companies may ultimately become marketing firms, grouping a transportation system around a recognized logo and providing the customer with credit, insurance and financing. A car billed as "Made in the USA," for example, may be the result of German design, Singaporean parts, Japanese electronics, Republic of Korean sub-assembly, British marketing and Irish data processing.
These changes are significant for governments, workers and employers because of the importance of the TEM sector, especially the automobile industry which "is so paramount in many countries that it is often considered by governments to be a barometer of their economies." In the new globalization paradigm of vehicle manufacturing, shop floor employment in TEM is increasingly taking a back seat to outsourcing, marketing, IT and leasing, as well as design, marketing, advertising and sales.
One major finding of the report is the rise in employment in the automobile parts (components) industry. All major employment increases in the sector have been among such suppliers the report says, noting that workers in the car parts industry in such countries as Canada and the United States already outnumber those in final automobile assembly by a factor of 2:1.
Such employment shifts are cause for concern among TEM unions, traditionally the powerhouses of organized labour in many countries. The report notes that suppliers are taking on less and less unionized labour, often resulting in lower wages than in the factories where final assembly is done.
Industry profile
In 1996, the TEM sector as a whole accounted for 13% of manufacturing employment in Canada and Germany, 12% in France and Sweden, 11% in the Republic of Korea, 10% in Spain, the United Kingdom, Mexico and Belgium, 9.5% in the United States and 8.3% in Japan. Five million of these workers were in the Triad (Japan, the United States and the European Union [EU]) alone, with the EU accounting for half, followed by the United States with one-third and Japan with 16%.
The TEM sector accounted for between 30 and 40% of Canada's manufactured exports during the last ten years, and respectively in 1996, 31% in Spain, 24% in Japan and 21% in Germany. The absolute value of exports from the TEM sector was the highest for Germany at US$ 104 billion, followed by Japan with US$ 94 billion and the United States with US$ 79 billion. Italy, Belgium and the United Kingdom also have high TEM export ratios, accounting for as much as one-fifth of their exports in the manufacturing sector (followed by Austria, France, Sweden).
Although motor vehicles, and automobiles in particular, have the largest share of exports within the TEM sector, the export of aircraft and their parts represents a significant share of the export sector for the United States, the United Kingdom and France, and their value can be almost as significant as that of automobiles.
TEM workers tend to be the best paid in the manufacturing industry (which is shrinking) and more highly unionized, with multi-year collective agreements characterized by pattern bargaining, and with many benefits other workers do not enjoy. Remuneration of TEM workers is typically above the manufacturing average; within the sector, auto workers are the highest compensated.
Assemblers and suppliers
The automobile industry is the most significant segment of the TEM sector. Two-thirds of world automobile production is concentrated in just six countries: Japan (20%), the United States (14%), Germany (13%), France (6.6%), Spain (5.4%) and the Republic of Korea (5%). Another five - the United Kingdom (4.5%), Canada (3.8%), Italy (3.3%), Belgium (2.6%) and Brazil (2.8%) - account for over 20%. Of the developing countries only the ROK and Brazil have made it into the major producers. Mexico has potential and Asian countries such as Thailand, Malaysia, the Philippines and Indonesia are pinning their hopes on future projects. (Some projections predict that the number of cars in the world will more than double in the next 15 years, with most of the increase being produced and sold in Asia. This would bring enormous employment opportunities but may pose severe infrastructure and pollution problems.)
With the exception of South Africa, few countries in Africa have been able to mount large-scale assembly (or manufacturing) activities, although many are trying, such as Botswana, which hopes for export opportunities with the disappearance of customs duties.
The ascendancy of the parts (components) industry and the fact that workers in the car parts industry in some countries already outnumber those in final automobile assembly is largely due to outsourcing of work formerly done in the automobile factories.
The report cites such Mexico where the so-called " maquiladora" (or in-bond) industry has seen an increase of 31.4% or employment for 200,000 workers in the auto parts industry since the start of the decade. In the United States, final assemblers shed some 50,000 jobs between 1987 and 1998, while parts suppliers generated almost 150,000 jobs, according to the US Bureau of labour Statistics. While Canadian assemblers actually created some 3,000 new jobs between 1991 and 1996, independent parts producers generated about 30,000 new jobs according to the Canadian Auto Workers Union (CAW) and now employ about twice as many workers as the automobile manufacturers themselves.
"Understandably, trade unions are concerned that the increased use of suppliers will result in the outsourcing of previous union jobs, at lower wages, to outside suppliers," the report says. "They also fear that such companies, whether old or new, will not be unionized, or will be difficult to organize. A first look at the available data confirms this line."
The Internet is also changing the way people order cars, how companies sell them, how parts (suppliers) are coordinated and how production is organized and may also have an impact on organized labour, the report says. The concept of " Auto.com" has become a virtual reality in many countries, and some companies now have a WYSIWYG ("What You See is What You Get") web site that allows customers to configure and order their own cars, potentially eliminating automobile dealers, sales personnel and other employees, the report says.
Other TEM industries
Other transport industries also face significant impacts from globalization. As a result of global competition, shipbuilding has suffered major declines in Europe and North America in recent years. As a result of reunification, Germany still maintains a prominent position in Europe. Poland and Romania have potential, but are still relatively small and may have more of a role in supplying parts of vessels for assembly elsewhere. Asia states ( Japan, the Republic of Korea and China) have become the big winners, while Viet Nam and India are developing capabilities.
The flip side of shipbuilding - ship breaking - is also seeing significant impacts from globalization. With the introduction of environmental and safety laws in China - once the major breaking nation-ship breaking is involved in a "race to the bottom" to find countries where occupational health and safety standards are not enforced for this highly dangerous work, the report says. Often, such work is done in Asian countries (India, Bangladesh) by migrants, in a total absence of any collective bargaining or industrial relations procedures.
With only two manufacturers of large civilian aircraft, the competition between them will increase. Makers of military aircraft have become fewer and fewer, but also follow the global trend of large-scale cross-border mergers and strategic alliances. The two major manufacturers of civilian planes and three builders of under-100 seat planes can trace their origins to over 30 companies. There remain only three manufacturers of aircraft engines, all of which saw job losses in recent years, and none of which manufacture a single part, with virtually all components being supplied through subcontracting.
The pressures of globalization and mergers has also been felt in the manufacture of locomotives, with four leading manufacturers emerging worldwide. One company, Adtranz, formed through the merger of AEG-Daimler Benz with ABB Henschel, can trace its origins back to 46 companies from 13 different countries, the report says. Adtranz restructured and shed 1,100 jobs in the last two years and plans to cut another 1,400 jobs in Germany in the next years, bringing its workforce in that country down to 6,000.
Social and labour issues
Organized labour and employers have reacted to the globalization of TEM in a number of ways. Major new forms of work organization such as teamwork, flexible working arrangements, time accounts, the four-day week, etc., have been pioneered in the automobile industry and are often imitated in other sectors. However, many of these flexible arrangements are also introduced under the menace of global competition and the threat that work and jobs will have to go elsewhere unless established work patterns become less rigid.
For example, Japanese or German companies with long-standing union tradition at home may embark on so-called "greenfield" or new plant investments, in environments not conducive to unionization. Some examples are Mercedes in Tuscaloosa (Alabama), BMW in Spartanburg (South Carolina) or the Smart car in Alsace.
"Under such new production systems the traditional role of unions in controlling jobs is diluted almost to the point of disappearing," the report says. "Nevertheless, a study of Mercedes and BMW in the United States found that despite the absence of trade unions, low age of the workforce and lack of previous experience ... management always had the spectre of the union in the back of their minds. For example, initially low wages are now reported to be approaching the levels paid to workers under collective agreements in other factories."
To combat these tendencies, unions have resorted to a number of tactics. One such has been to negotiate "neutrality letters" (or agreements), in which the employers agree not to hinder union-organizing campaigns. Another is the adoption of "employment pacts" (in Germany referred to as Standortsicherungsvereinbarungen (production site guarantees) and multi-year collective agreements providing guarantees about employment and the continuation of production at local sites over a certain period of time.
What will the workforce in the transport equipment manufacturing industry look like in the 21 st century? Based on available data, it is obvious that fewer and fewer workers will be directly employed for assembly operations. This does not mean that the vehicles will build themselves, although automation and the use of robots are on the increase, signifying "the end of the factory as we know it," the report says.
Increased attention will be paid to the design of the vehicle, implying more scientific, information technology (IT) and engineering jobs. Employment in the industry as whole may remain stable or even increase as jobs which were previously done in-house are now done by suppliers, which may even install the component they produce.
* The social and labour impact of globalization in the manufacture of transport equipment, Report for discussion at the Tripartite Meeting on Social and Labour Impact of Globalization in the Manufactures of Transport Equipment, Geneva, International Labour Office, Geneva, 2000. ISBN 92-2-112032-5. Price: 27.50 Swiss francs. Website: http://www.ilo.org/public/english/dialogue/sector/techmeet/tmte2000/index.htm.