The Opening Up of Eastern Europe at 20-Jobs, Skills, and ‘Reverse Maquiladoras’ in Austria and Germany

Many people in the European Union fear that Eastern Enlargement leads to major job losses. More recently, these fears about job losses have extended to high skill labor and IT jobs. The paper examines with unique firm level data whether these fears are justified for the two neighboring countries of Eastern Enlargement Austria and Germany. We find that Eastern Enlargement leads to surprising small job losses of less than 0.5 percent of total employment in Germany and of 1.5 percent in Austria, because jobs in Eastern Europe do not compete with jobs in Austria and Germany. Low cost jobs of affiliates in Eastern Europe help Austrian and German firms to stay competitive in an increasingly competitive environment. However, we also find that multinational firms in Austria and Germany are outsourcing skill intensive activities to Eastern Europe taking advantage of cheap abundant skilled labor there. We find that the firms’ outsourcing activities to Eastern Europe are a response to a human capital scarcity in Austria and Germany which has become particularly severe in the 1990s. We indeed find a reverse pattern of ‘Maquiladoras’ emerging with Eastern Enlargement in Austria and Germany compared to what economists have found for the North American Free Trade Agreement. Skilled workers in Austria and Germany are losing from outsourcing. In both countries outsourcing contributes 35 percent and 41 percent, respectively, to changes in relative wages for skilled workers in Austria and Germany. To address the skill exodus to Eastern Europe we suggest liberalizing the movement of high skill labor

What Permits Small Firms to Compete in High-Tech Industries? Inter-Organizational Knowledge Creation in the Taiwanese Computer Industry

This paper addresses a puzzle related to firm size and competition. Since Stephen Hymer´s pioneering contribution (Hymer, 1960/1976), theories of the firm implicitly assume that only large, diversified multinational enterprises can compete in industries that combine high capital intensity, high knowledge-intensity and a high degree of internationalization. Small firms, by definition, have limited resources and capabilities and are unlikely to possess substantial ownership advantages. They also have a limited capacity to influence and shape the development of markets, market structure and technological change. One would thus expect that they are ill-equipped to compete in a knowledge-intensive industry that is highly globalized. Taiwan’s experience in the computer industry tells a different story: despite the dominance of small- and medium-sized enterprises (SMEs), Taiwan successfully competes in the international market for PC-related products, key components and knowledge-intensive services. The paper inquires into how this was possible. It is argued that organizational innovations related to the creation of knowledge are of critical importance. Taiwanese computer firms were able to develop their own distinctive approach: due to their initially very narrow knowledge base, access to external sources of knowledge has been an essential prerequisite for their knowledge creation. Such “inter-organizational knowledge creation” (Nonaka and Takeuchi, 1995) was facilitated by two factors: active, yet selective and continuously adjusted industrial development policies; and a variety of linkages with large Taiwanese business groups, foreign sales and manufacturing affiliates and an early participation in international production networks established by foreign electronics companies. A novel contribution of this paper is its focus on inter-organizational knowledge creation. I first describe Taiwan´s achievements in the computer industry. The dominance of SMEs and their role as a source of flexibility is documented in part II. Part III describes some policy innovations that have shaped the process of knowledge creation. The rest of the paper inquires how inter-organizational knowledge creation has benefited from a variety of linkages with large domestic and foreign firms; I also address some industrial upgrading requirements that result from this peculiar type of knowledge creation.knowledge creation; learning; small firms; networks; firm strategy; industrial policies;

The impact of contract enforcement costs onoutsourcing and aggregate productivity

Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the impact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium model. Contract enforcement costs lead suppliers to under produce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I present reduced-form evidence for this hypothesis using a novel measure of relationship-specificity, which I construct from microdata on US case law. I then structurally estimate my model, and perform welfare counterfactuals. Setting enforcement costs to US levels would increase real income by an average of 7.5 percent across all countries, and by an average of 15.3 percent across low-income countries. Hence, transaction costs and the determinants of firm boundaries are important for countries' aggregate level of development

Sustainability and economic governance: Reconfiguring cocoa-chocolate production networks in Indonesia

The concept of sustainability has recently become integrated into mainstream commercial spheres of cocoa-chocolate industries, whilst the concept remains elusive and debateable in the political sphere. The sustainability initiatives attempt to improve both farm management and farmer livelihoods by voluntarily integrating certification schemes (e.g., RA, Utzcertified, and Fairtrade) along with other initiatives. Exploring the implications of the sustainability initiatives beyond vertical industrial governance, this study contributes to the extant literature on GVCS/GPNs and provides an understanding of the extension of sustainability concept into horizontal extrafirm bargaining strategies. This study highlights the increasing industrial-centred power beyond a reorganisation of industrial activities of two case studies, Mars and Nestlé. The initiatives have resulted an increase vertical coordination with the upstream cocoa production networks, as the schemes become an instrument to minimise the supply risks. Also, the horizontal engagement through public private partnerships has created a negotiation space with extrafirm actors, yet the state participation in sustainability (keberlanjutan) discourse appeared to support local industrialists and the transnational firms to secure cocoa supply. Sustainability has strengthened the firm position in the upstream production networks, but the local actors and farmers continue struggle to overcome increasing market barriers and uneven competition. Eventually, the initiatives emphasize the economic interests, but at the expense of the cheaper productive capital supplied by the smallholder farmers and creating new processes of uneven development

Sustainability and economic governance: Reconfiguring cocoa-chocolate production networks in Indonesia

The concept of sustainability has recently become integrated into mainstream commercial spheres of cocoa-chocolate industries, whilst the concept remains elusive and debateable in the political sphere. The sustainability initiatives attempt to improve both farm management and farmer livelihoods by voluntarily integrating certification schemes (e.g., RA, Utzcertified, and Fairtrade) along with other initiatives. Exploring the implications of the sustainability initiatives beyond vertical industrial governance, this study contributes to the extant literature on GVCS/GPNs and provides an understanding of the extension of sustainability concept into horizontal extrafirm bargaining strategies. This study highlights the increasing industrial-centred power beyond a reorganisation of industrial activities of two case studies, Mars and Nestlé. The initiatives have resulted an increase vertical coordination with the upstream cocoa production networks, as the schemes become an instrument to minimise the supply risks. Also, the horizontal engagement through public private partnerships has created a negotiation space with extrafirm actors, yet the state participation in sustainability (keberlanjutan) discourse appeared to support local industrialists and the transnational firms to secure cocoa supply. Sustainability has strengthened the firm position in the upstream production networks, but the local actors and farmers continue struggle to overcome increasing market barriers and uneven competition. Eventually, the initiatives emphasize the economic interests, but at the expense of the cheaper productive capital supplied by the smallholder farmers and creating new processes of uneven development

The competitive repositioning of automotive firms in Turin: innovation, internationalisation and the role of ICT

Following the increasing competitive pressure and the emergence of new industrial poles within the auto industry, Italian firms have been the protagonists of an intense reorganisation, which is still ongoing. This case-study involves 13 supplier firms, operating in the automotive industry, localised in Turin, that have adopted a series of strategies aimed at improving their international competitiveness. The empirical findings show that there is a particularly strong innovative drive for the interviewed firms to position themselves in activities with greater added value and to undertake internationalisation strategies, from the 'lighter' to the more 'complex' forms, coupled with a use of information and communication technologies epresents a case of excellence.Innovation, Internationalisation, ICT, Automotive Industry

What lies between market and hierarchy? Insights from internalization theory and global value chain theory

In this paper, we suggest that internalization theory might be extended by incorporating complementary insights from GVC theory. More specifically, we argue that internalization theory can explain why lead firms might wish to externalize selected activities, but that it is largely silent on the mechanisms by which those lead firms might exercise control over the resultant externalized relationships with their GVC partners. We advance an explanation linking the choice of control mechanism to two factors: power asymmetries between the lead firms and their GVC partners, and the degree of codifiability of the information to be exchanged in the relationship

Competitive, but too small - productivity and entry-exit determinants in European business services

The paper investigates whether scale effects, market structure, and regulation determine the poor productivity performance of the European business services industry. We apply parametric and nonparametric methods to estimate the productivity frontier and subsequently explain the distance of firms to the productivity frontier by market characteristics, entry- and exit dynamics and national regulation. The frontier is assessed using detailed industry data panel for 13 EU countries. Our estimates suggest that most scale advantages are exhausted after reaching a size of 20 employees. This scale inefficiency is persistent over time and points to weak competitive selection. Market and regulation characteristics explain the persistence of X-inefficiency (sub-optimal productivity relative to the industry frontier). More entry and exit are favourable for productivity performance, while higher market concentration works out negatively. Regulatory differences also appear to explain part of the business services' productivity performance. In particular regulation-caused exit and labour reallocation costs have significant and large negative impacts on the process of competitive selection and hence on productivity performance. Overall we find that the most efficient scale in business services is close to 20 employees and that scale inefficiencies show a hump-shape pattern with strong potential scale economies for the smallest firms and diseconomies of scale for the largest firms. The smallest firms operate under competitive conditions, but they are too small to be efficient. And since this conclusion holds for about 95 out of every 100 European business services firms, this factor weighs heavily for the overall productivity performance of this industry