The social and labour impact of globalization in the manufacture of transport equipment

This chapter will look at the position of the manufacture of transport equipment within the manufacturing industry as a whole in terms of share in production, exports, imports, employment, wages, hours worked, value added and research and development (R&D). The tables and figures have been placed at the end of the chapter.

1.1. Definition of the sector

For the purposes of statistical analysis, data are mainly presented and analysed according to the United Nations International Standard Industrial Classification of all Economic Activities (ISIC), divisions 34 and 35 for those countries reporting under Rev. 3 (from 1989 onwards) or major group 384 for those countries still reporting under Rev. 2 (of 1968) for historical reasons. This facilitates the analysis of internationally comparable data, since not all national definitions are the same, but use of ISIC involves a certain time lag. Although each country’s national statistical office or industry association may have more recent data, the classifications used are usually not completely internationally comparable, and therefore could be misleading.

Box 1.1.
The transport equipment manufacturing (TEM) sector at a glance

ISIC Rev. 3

TEM industry

ISIC Rev. 2

34

Manufacture of motor vehicles, trailers and semi-trailers

341

Motor vehicles (cars, buses, light commercial vehicles and heavy trucks)

3843

342

Bodies

343

Parts and accessories

35

Manufacture of other transport equipment

3511

Shipbuilding, repair and breaking

3841

3520

Railroad equipment (locomotives, trams, subway cars and rolling stock)

3842

3530

Aircraft, spacecraft (excluding ballistic missiles)

3845

3591-3592

Motorcycles and bicycles

3844

3599

n.e.c.= not elsewhere classified

3849

Source: International Standard Industrial Classification of all Economic Activities (ISIC), Rev. 2, 1968, and Rev. 3, 1990.

Analysis over time is complicated by the fact that some countries and databases have information under the old ISIC (Rev. 2), while others report under the new one (Rev. 3). A variety of databases were used, including UNIDO’s industrial statistics, the OECD’s structural analysis (STAN) database, the Statistical Office of the European Communities (EUROSTAT), the United States Bureau of Labor Statistics, the ILO’s Labour Statistics Database (LABORSTA),[1] information from the International Metalworkers’ Federation (IMF), replies to an ILO questionnaire completed by several national statistical offices and publications of various industry associations such as the Employers’ Organization of the Metal Trades in Europe (WEM), the German Automobile Industry Association (Verband der Automobilindustrie – VDA), Fabrimetal (Belgium), and the French automobile manufacturers’ association (Comité des Constructeurs Français d’Automobiles – CCFA).

As already mentioned, for the purpose of comparability, the data on the transport equipment manufacturing (TEM) industry analysed here are largely arranged according to ISIC Rev. 3, which comprises:

The categorization is largely consistent with the European Union’s NACE,[2] which divides the TEM industry into the manufacture of motor vehicles and their parts (NACE 34), and the rest of the industry (NACE 35, which includes the manufacture of ships, trains, aircraft and motorcycles and bicycles). Obviously there are some exceptions, with some of the components of the industry being classified elsewhere, and national statistical classifications can also differ. Taken together ISIC divisions 34 and 35 correspond approximately to the previous ISIC (Rev. 2) major group 384, with some exceptions.

Notwithstanding this statistical classification, some of the manufacture of electrical equipment used in transport equipment is classified under the manufacture of “electrical machinery and apparatus n.e.c.” (ISIC division 31), tyres under rubber and plastics products (ISIC division 25), car radios and car phones under communication equipment (ISIC division 32), and tractors are considered agricultural equipment (ISIC class 2921) although they are often made by many of the same firms. However, with more and more companies going over to modular assembly, and with the first-tier suppliers increasingly being called upon to actually install the part (or section) they have produced on the assembler’s shop floor, it is not known with certainty how the workers in these industries are statistically accounted for. Likewise, although the predecessor of this meeting was the Metal Trades Committee, many of the elements used in the manufacture of transport equipment today are made of complex electrical components or high-strength composite or synthetic materials.

These basic ISIC categories provide a reference point and permit a uniform presentation of comparable data for the purpose of international analysis, and the information in the subsequent chapters of the report has been organized accordingly: the manufacture of motor vehicles and bodies (ISIC groups 341 and 342) is dealt with in Chapter 2; parts and accessories (ISIC group 343) in Chapter 3; and the rest of the TEM industry (ISIC division 35) in Chapter 4.

Table 1.1(a). Transport equipment manufacturing (boxTEM) sector (ISIC 3840) as part of total manufacturing (3000) (%)

Table 1.1(b). Motor vehicles (3843) as part of total manufacturing (%)

Table 1.1(c). Shipbuilding (3841) as part of total manufacturing (%)

Table 1.1(d). Railroad equipment (3842) as part of total manufacturing (%)

Table 1.1(e). Motorcycles and bicycles (3844) as part of total manufacturing (%)

Table 1.1(f). Aircraft (3845) as part of total manufacturing (%)

1.2. Globalization

Much has been written about globalization, and it means many things to many people.

Globalization is an imprecise word with many meanings. Economists who use the term “globalization” have in mind something more specific than greater integration but there is little agreement on what it is … There are frequent references to global industries or global firms or global products or global technologies.[3]

The ILO Task Force on the Country Studies on the Social Dimensions of Globalization defined economic globalization as a process of economic integration, manifested in the following areas:

Viewed from another perspective globalization can be seen in terms of improved, cheap and speedy transportation (air freight) and delivery, freer trade resulting in the easier entry of goods and parts because of lower tariffs under the new rules of the World Trade Organization (WTO) and new pricing structures (with the introduction of the euro). It also implies sufficient financial resources and knowledge to engage in the process. [5] And it means that the behaviour of companies and countries will increasingly be scrutinized by supranational bodies such as the Commission of the European Union (EU) or the WTO, whose rulings will ultimately affect employment and wages in the countries concerned.

For example, Canada claimed at the WTO that Brazil’s subsidies to its aircraft manufacturer Embraer were destroying Canadian jobs at Bombardier because of loss of sales, while Brazil countered that Canada was doing the same. In the end, both were found to have violated WTO rules. Similarly, Japan and the EU have also brought a case to the WTO against Canada concerning domestic content rules under the Canada-United States auto pact whereby trade in vehicles and parts is tariff-free between the two North American countries. United States car makers could also import vehicles made elsewhere tariff-free into Canada, while Japanese producers had to pay a 6.1 per cent duty. The WTO decision is expected to find that the 35 year-old agreement breached both Most Favoured Nation (MFN) and national treatment principles of the Uruguay Round Agreements, since the import duty exemption provided a subsidy to the Big Three car manufacturers (Ford, General Motors and DaimlerChrysler) based on an illegal performance requirement. Under pressure from trade unions, Canada will probably impose an equal tariff on all imported vehicles rather than opening the Canadian market up to duty-free imports from any country in the world.[6]

As regards the euro, it was recently reported that BMW had summoned Rover’s top ten suppliers and told them that costing in the future would be in euros and if prices did not come down they would source anywhere in the world. There are indications that some 20,000 jobs in the suppliers could be affected. [7] Euro-pricing will also impact on the cost of a car in Europe, and hence on how and where cars are sold, and by whom.

Although globalization must thus also be seen from the perspective of markets and production, market share and profits alone are no longer sufficient in a world expecting even greater returns on capital employed (ROCE) for investors. Global competitive economic pressure has also forced national producers to lower the price of their products in order to win or maintain customers, in the face of cheaper foreign imports. This cost cutting can take place anywhere in the production chain, starting at the initial research stage, when computer simulations can be used to save time and money or joint research undertaken in new areas. Since design and marques are selling points, many companies can share common vehicle platforms for different models, or two companies can share a common platform for entirely different vehicles. The cost of components can also be cut by buying cheaper parts, through common sourcing, or by having suppliers bear part of the risk in developing new designs. The application of various flexible methods of work organization and the use of teams can also reduce the number of hours needed to assemble a car. [8] This can also involve extending the running hours of machines (seven days a week, 24 hours a day) while also actually achieving working time reductions for employees. Where changes are introduced in the organization of work, the agreement of the workforce is needed.

Generally speaking, in return for a reduction of working time to around 35 or 37 hours a week and other employment security guarantees, workers have usually agreed to management’s request for various flexible arrangements, such as the extension of working time on peak days or on weekends (without overtime pay), as along as it remains within an agreed overall time corridor. [9]

From another point of view, globalization can be seen as the growing disparity between the increasingly rapid way in which the world’s economy works – how markets and production are organized, how companies are structured and restructured, how capital flows through the global system – and the way societies are structured, in terms of their political and educational systems and their social, cultural and labour institutions. [10] While the nation-State remains the main point of reference for societies, it is becoming less relevant for economic matters. Global economic trends have clearly proceeded at a more rapid pace than the capacity of the international community to develop supporting norms and institutions. Meanwhile norms and institutions that have been firmly rooted at national and subnational levels may be increasingly subject to economic influences external to those which they were traditionally designed to regulate.

Table 1.2. Total production in the TEM sector (in million US$)

1.3. The case of the automotive industry

According to Tim Sturgeon of the International Motor Vehicle Program at the Massachusetts Institute of Technology (MIT), [11] the standard indicators of globalization are: intra-firm trade, parts trade v. finished vehicles, share of revenues and employment outside the home country and, of course, FDI. An interesting point is that while globalization is often equated with free trade, or “openness”, FDI in the auto industry is driven in large part by tariff and, increasingly, non-tariff barriers to trade (such as local content rules, “voluntary” import quotas, etc.). Globalization has four parts:

However, in the case of the automotive industry, the question really is what is new, since from the very beginning the industry had already gone global in the 1920s. Generally speaking there is much evidence to suggest that the automotive industry is more of a regional phenomenon than anything else. [12]

Table 1.3. Total production in the TEM sector (in millions of national currency)

1.4. Production

In most countries the manufacture of motor vehicles is the largest component in the total production of transport equipment (the value of production referred to in this section has been calculated in terms of the value of total output in dollars, and not in units of production). Figure 1.1 shows that in 1996 the share of motor vehicles in TEM was the highest in Germany at 94 per cent, followed by Japan (88 per cent) and Canada (87 per cent). For most major producers, the share of motor vehicles in the production of transport equipment is over two-thirds.

Aircraft production comes second after automobiles in the United States and France, which form an unprecedented duopoly in aircraft production. France’s share is exaggerated however because Toulouse is the point of final assembly of the European Airbus, with components coming from Germany, the United Kingdom and Spain. In the United States the share of aircraft in overall TEM fell from 31 per cent in 1985 to 23 per cent in 1995. Shipbuilding accounts for a large share of TEM in the Republic of Korea and Finland. The percentage change in production in TEM shows a sharp increase of output for all the major manufacturing countries between 1990 and 1992, followed by a decline in total world output. Over the last ten years the United States had the largest share of production of transport equipment, followed by the EU and Japan. The 1990s saw a 10 per cent reduction in the United States share, the emergence of other producing countries such as the Republic of Korea and Brazil, and an increase in production of the Japanese auto industry. This trend is even more evident in motor vehicle output in the last three decades.

1.4.1. Trends

In terms of real value, the TEM sector has shown rapid changes in the past years. Production has increased in most OECD countries and especially in North America.

1.4.1.1. Motor vehicles

Within the motor vehicle sector, in the EU the automobile sector accounts for about three-quarters of the production covered by division 34 of NACE Rev. 1. In 1997, the production of automobiles increased by 10.6 per cent, i.e. a higher rate than that observed in the entire TEM sector (7.9 per cent). [13] International comparisons show an increase in production in the United States and a decline in Japan. In recent years the automobile market faced overcapacity, as well as increased competition, and reached a saturation point which resulted in a restructuring of the production process. Research conducted in the field of safety and environmental protection was conducive to global integration by strengthening technical cooperation and mergers and acquisitions.

As regards the larger Member States of the EU, the most recent available data for the automobile industry [14] show an increasing trend in Germany (5 per cent) and France (4.5per cent). On the other hand, production decreased in the United Kingdom by 2.5 per cent and the production of motor vehicles (NACE Rev. 1, group 34.1) remained the same.

1.4.1.2. Other TEM

Turning to the manufacture of other modes of transport taken together, in the EU aircraft manufacturing has a significant share in terms of value of production (54.3 per cent, data for 1994) followed by shipbuilding (25 per cent), the construction of railroad equipment (12.5 per cent) and lastly motorcycles and bicycles (8 per cent). [15]

In the past few years, production increased by 16 and 11 per cent, respectively, for railway equipment and motorcycles and bicycles, while shipbuilding grew by 6 per cent, although it progressed slowly. For the latter activity a large increase was seen in Spain (59 per cent) and the Netherlands (30 per cent), while in Germany and France decreases of 13.6 and 8.8 per cent were registered.

In the Netherlands a high rate of expansion in aircraft production was seen in 1997 (23.4 per cent), after a decrease of 58.4 per cent in 1996. The situation in the other countries also varied surprisingly. The United Kingdom and Italy experienced an increase of 38.4 and 22 per cent, respectively, while the aerospace industry in Germany and France faced a decline of 2.8 and 0.8 per cent, respectively. [16]

The situation in the “other” TEM sector appears to be the opposite of that in the automotive industry described above: production in the United Kingdom has decreased (-0.8 per cent in November 1998) and remains more or less stable in France (0.1 per cent in November 1998 against 1.3 per cent in January 1998).

1.4.1.3. Comparison with total manufacturing production

As can be seen in table 1.1b, the production of motor vehicles accounts for a significant share in total manufacturing production in several countries. This is more obvious for countries such as Canada, with a share of nearly 15 per cent in 1985 and 19 per cent in 1995. In Germany, the share of motor vehicle production in total manufacturing was 12.4 per cent in 1985 and 16.2 per cent in 1995; in Japan 10 per cent in 1985 and 11per cent in 1995. In other EU countries the share varies considerably: in Spain it was 10.7 per cent in 1990 – up about 3 percentage points compared with 1985; in the UnitedKingdom it was 2.2 per cent in 1990, 1.3 per cent less than in 1985; France, Sweden and Portugal show an increasing trend. A large increase can be observed in the share of motor vehicle production in the Republic of Korea, from 3.3 per cent in 1985 to 10.5 per cent in 1995.

Table 1.2 shows that motor vehicle production in the Republic of Korea had the largest increase (almost fivefold) between 1985 and 1990 (487 per cent), and has continued this upward trend during the period 1990-96, although to a lesser extent, with an annual increase ranging from a low of 5 per cent to a high of 26.7 per cent for the period 1995-96. All other countries show a very strong upward trend in their production of motor vehicles between 1985 and 1990, with Portugal experiencing a 231 per cent increase, followed closely by the Netherlands, Spain, the United Kingdom and France, etc. (table 1.3, in national currencies, in order to remove the exchange rate bias). German production of motor vehicles has also grown, especially during the period 1985-90 with an increase of 44 per cent and 1990-91 with 30 per cent. Japanese production increased too in the same period by 31 per cent, although since 1992 the trend has turned slightly negative.

1.4.1.4. Production of aircraft as part of total manufacturing production

The production of aircraft (table 1.1f) accounts for a relatively important proportion of total manufacturing production for the United Kingdom, with a 3.5 per cent share in 1990 compared to 2.8 per cent in 1985. In France, this share hovered around 3 per cent during the period 1985-95. In the United States, the share of aircraft production had fallen by 1995 compared to 1985, from 4.7 to 3 per cent. Other countries, where the share of aircraft production in total manufacturing production is small, witnessed an increase in production: in Germany the level of production had increased by 22 per cent in 1996 compared to 1990, in Canada by 42 per cent, in Italy by 26 per cent and in Japan by 18 per cent (table 1.3).

Table 1.4(a). Value of TEM exports (in million US$)

Table 1.4(b). Value of TEM exports (in thousand US$)

Table 1.4(c). Value of TEM exports (in millions of national currency)

[2] Statistical classification of economic activities in the European Community (NACE), Rev. 1, 1990.

[3] P.J. Lloyd: “Globalization and competition policies”, in Weltwirtschaftliches Archiv, Vol. 134(2), 1998, p. 162. See also Adrian Wood: “Globalisation and the rise in labour market inequalities”, in Economic Journal, Sep. 1989, pp. 1463-1482.

[4] GB.274/WP/SDL/2, para. 14. See also Ken Swinnerton, speaking in the panel discussion on “Globalization and structural change”, in Note on the Proceedings, Tripartite Meeting on the Impact of Flexible Labour Market Arrangements in the Machinery, Electrical and Electronic Industries Geneva, ILO, 1999, p. 39.

[5] M. Edwards et al.: “NGOs in a global future”, in Public Administration and Development, Vol. 19 (1999), p. 118.

[6] Edward Alden: “Canada loses car import case at WTO”, in Financial Times, 15 Oct. 1999, p. 9.

[7] Tim Burt and John Griffiths: “BMW board to review Rover unit”, ibid., p. 10.

[8] See ILO: Impact of flexible labour market arrangements in the machinery, electrical and electronic industries, Report for discussion at the Tripartite Meeting on the Impact of Flexible Labour Market Arrangements in the Machinery, Electrical and Electronic Industries, Geneva, 1998, and Note on the Proceedings, op. cit.

[9] At Rover for example, a reduction in a planned pay increase was compensated by crediting an additional hour per week to the time accounts. BMW Annual Report 1998, p. 147.

[10] Duncan Campbell: “The globalizing firm and labour institutions”, in P. Bailey, A. Parisotto and G. Renshaw (eds.): Multinationals and employment: The global economy of the 1990s (Geneva, ILO, 1993), p. 267.

[11] E-mail of 3 February 1999. See also Tim Sturgeon and Richard Florida: The world that changed the machine: Globalization and jobs in the automotive industry, Final report to the Alfred P. Sloan Foundation, draft, 5 May 1999.

[12] Nikki Tait: “Ford to focus on regional markets in global revamp”, in Financial Times, 16/17 Oct.1999.

[13] EUROSTAT data. Detailed statistics available in EUROSTAT Data Shop, Luxembourg.

Report for discussion at the Tripartite Meeting on the Social and
Labour Impact of Globalization in the Manufacture of Transport Equipment

Part I

1. The overall setting of the transport
equipment manufacturing industry