Blog: Europe’s centre of gravity shifts east
Dave Leggett | 3 October 2005
I remember a trip to Portugal a few years ago that highlighted some major strategic challenges facing the Portuguese automotive industry, especially at the supplier level. Various Portuguese bodies were working hard to develop automotive ‘clusters’ where investment could be concentrated. That process, I believe, is still very much ‘work in progress’ but there has been an acute awareness in Portugal – situated in the far southwestern corner of the continent - of the need to move up the value chain in order to retain output and employment in the sector in the long-term.
Sitting still, it was realised, would expose Portuguese suppliers and the Portugal-based subsidiaries of the multi-national VMs and Tier 1s to increasing competition from lower cost suppliers, both globally and, especially, in eastern Europe – which is closer to the big European markets than the Iberian peninsula.
I’m not sure the same sense of urgency has been evident in Spain which has seen rapidly rising living standards and wages over the past few decades, steadily eroding its status as the low-cost manufacturing location for Europe. Higher incomes are a generally a good thing, unless you are trying to compete with the emerging lowest-cost places in areas of activity like assembly. Much of the vehicle assembly capacity in Spain grew up following the country’s EU accession in 1986. In those days there was a stampede by vehicle manufacturers to enjoy labour rates that were a lot lower than those prevailing in Germany, France and Benelux. The gap has since narrowed.
Spain needs to be moving to the next level up, in value added terms, like Portugal is trying to do. But losing some vehicle assembly to lower cost countries in central and eastern European countries looks inevitable. Those countries now get the EU development grants, develop their markets and become richer – just as Spain once strived to do. And it succeeded.
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