Electronics Production | March 16, 2010

On the move – The Electronics Industry in Central and Eastern Europe

The makeITfair campaign – a European project informing young consumers about social and environmental issues in the electronic industry – has taken a close look at labour conditions in CEE. Studies have been carried out in Poland, Hungary and the Czech Republic.
When centrally controlled economic systems collapsed and the markets of Central and Eastern Europe (CEE) opened up to foreign capital, most of the world’s biggest electronics companies started to invest in the region.

In the past, civil society organisations and trade unions in ‘old’ European Union (EU) countries have mainly emphasised labour rights issues in Asia. With the rapid and profound changes in the CEE labour market over the past ten years, however, these issues have become acute for this region as well.

Electronics production already existed in CEE during the period of centrally controlled national economies. With the collapse of the previous system, however, markets opened up and formerly state-owned firms generally proved unable to compete with advanced US, Asian and European companies. As a result, foreign multinational corporations (MNCs) have become the key actors in CEE’s export-oriented electronics sector.

EU companies were among the first to invest in the region, responding to strategic opportunities such as lower labour costs and geographical proximity to the western European market. Korean firms also moved in early, looking to use central Europe as a production platform for the entire European market. By the mid-1990s, US firms had also moved in, followed by Japanese firms by the end of the 1990s. Nowadays, most major electronics brands are operating within the region, such as Phillips, Siemens, Nokia, Motorola, Sony, Matshushita, LG Electronics, Ericsson, Daewoo, HP, Dell, IBM, Microsoft, Intel, Canon and Samsung. All the major manufacturers are also present; Flextronics, Foxconn, Celestica, Jabil, Solectron, Sanmina, Zollner, Benchmark, Plexus and Elcoteq.

Competitive advantages of the CEE market
Electronics companies have seized the opportunity to invest in CEE, attracted by the competitive advantages of the CEE market. These include a large pool of skilled labour, combined with a flexible labour market and low labour costs. For example, in January 2009 the minimum wage in Romania was q153 per month. Investing in the CEE also spreads the risks involved in producing goods in a single country (mostly China). Proximity to the EU market (especially compared to China) is an important factor as well. It enables companies to respond quickly to consumers’ demands and allows for shorter delivery times. Incentives such as subsidies and industrial park policies from national governments also contributed significantly to the creation of favourable investment conditions. Tax holidays and structural funds from the EU have helped Hungary to become the largest electronics manufacturing market in CEE. Gradually, CEE is becoming a support platform for advanced producers in Western Europe. The question is whether these current growth figures will be maintained. The region is mainly involved in low technology and labour intensive segments of electronics production, and labour costs are on the increase.

Low wages and temporary labour
Low labour costs have been one of the major motivations for companies to move into CEE. Over the years, however, successive countries have joined the EU, which had an enormous impact on the local labour market. Huge numbers of young workers migrated to other parts of Europe. They were no longer just looking for jobs, but for jobs that provided them with decent wages. Companies had trouble hiring as many workers as they needed for their newly built factories. These developments led companies to seek low-cost labour in other parts of CEE – and sometimes to bring in workers from other countries, such as Ukraine, Mongolia and Vietnam.

Flexible labour supply is a key concern to the entire electronics sector, as the electronics market is dictated by highly fluctuating consumer demand. Companies respond to the constant changes in production volumes by making extensive use of temporary employment agencies. A 2007 survey of the International Metal Federation confirms that the electronics industry is the most affected industry in the metal sector: 58% of the labour force in electronics factories is affected one way or the other by temporary contracts.3 Temporary workers are extremely vulnerable to different forms of labour abuse. If production volumes decline, they will be the first to go. Moreover, unions cannot adequately represent them, especially when they are hired through an employment agency – and not directly by the employer.

In a tight spot: Labour unions
In the electronic sector, trade unionsare generally weak. This is for severalreasons; firstly, most electronics plants have been established through Greenfield investments, i.e. investments in areas where no union structures existed before. Secondly, most of the employees of the electronics industry are women who traditionally have been reluctant to join the unions. Women are even more reluctant to participate in spectacular union activities, and they are often treated in a very patronising manner by trade union representatives, resulting in the quite limited impact of the unions on the improvement of working conditions in the electronic industry. Although unions in the electronics sector are overall rather weak in Poland, there are several powerful unions in other sectors, for example, the coal miners union. Their power is linked to the strong position of the coal miners in Polish society before the economic restructuring in 1989, as well as their ‘negotiating’ methods characterised by violent clashes with police.

Dutch based makeITfair is a European project focusing on the electronics industry, especially on consumer electronics like mobile phones, laptops and MP3 players. It want to let young people across Europe know about the labour abuses and environmental problems that are going on right now around the world – just to satisfy our demand for all the latest electronic gadgets. And we want young people to get active to improve the situation. Together we can hold big brand electronics companies to account – asking them to take responsibility for the labour abuses and environmental damage at the bottom of their supply chain.
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