PSA Peugeot Citroen's move to axe 850 UK jobs has been heavily criticised by trade unions.

However, it must be seen in the context of exogenous factors, principally the relocation of car manufacturing jobs to countries with lower labour costs. This globalising trend cannot be reversed, but with a benign economic climate and low unemployment, there is no need for Britons to panic at Peugeot's choice.

The job losses will centre on Peugeot's Ryton plant, near Coventry, UK, reducing production at the factory from three shifts a day to two during the summer. Furthermore, the company has not committed itself to continuing production at the plant after 2010, when production of the 206 is scheduled to end. According to the company, the cutbacks have come as a result of dwindling sales of the supermini model line, a reduced demand for small cars and increased competition.

The proposed job losses come in the light of Ford's decision to move production of Jaguar cars from Coventry to Birmingham, resulting in 400 voluntary redundancies. There are also concerns that MG Rover's Birmingham factory could also start shedding jobs if the firm is bought out by China's Shanghai Automotive Industry Corporation.

The common theme underpinning this scaling down of production in the UK is the need to shift manufacturing to developing countries in eastern Europe and Asia, where labour costs are often only half those of western European countries. For example, Peugeot's competitor, Renault, is to increase production in Romania and GM has recently announced a doubling of output in India. Competition between manufacturers is such that if one firm reduces its costs by moving its production operations abroad, many of its rivals feel obliged to follow suit.

While news of Peugeot's shift has caused understandable dismay among workers' representatives and politicians, it should be remembered that the UK continues to enjoy general economic prosperity and near full employment. Indeed, it could be argued that Britain has itself benefited from the globalising trend as continental companies such as Peugeot opted to set up operations in the UK rather than investing in the struggling, less flexible economies of the Eurozone.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.