Larger EU sees slower exodus of firms

The European Union has expressed concern over the increasing number of companies relocating to countries with abundant cheap labour like India and China. However, it is of the opinion that the enlargement of the bloc, following the inclusion of 10 new members from Saturday, can check the trend.

The European Commission in a paper "" Fostering structural change: An industrial policy for an enlarged Europe "" said in the recent past companies like Philips and Samsung had relocated their production activities to countries like China.

Similarly, India, with its large English speaking population, had emerged a cheap source for services sector, ranging from call centres and IT services, to accountancy and data processing.

"The de-localisation of industrial activities appears no longer limited only to traditional sectors with a high labour density, but is beginning to be observed in intermediate sectors, which constituted the established strengths of European industry, in some high-technology sectors and in the services sector. India and China are the main beneficiaries of these movements," the report said.

The report said while China had emerged a competitor in the toys and textiles sectors in the 1980s, it has now expanded its dominance to the chemicals and electronics sectors.

In the last few years, large brands like TCL, Haier and Galanz, have emerged from the country. Similarly, India has emerged a threat in biotechnology and ICT (information, communication and telecom).

"In fact, the phenomenon of relocation is beginning to extend to research activities and high-tech sectors. With improvement in infrastructure, knowledge acquired in various high-tech sectors, high level of education, increasingly qualified workforce, high-quality universities and research costs lower than those in Europe, some emerging countries, particularly China and India, have an advantage that cannot be ignored by European or American industrial groups.

The entry of new members could check the trend since the unit labour cost in the acceding countries was considerably lower, it said. The paper cited the example of Finland-based telecom major Nokia, which de-localised part of its production to East European countries and preserved its factories in Finland for high-technology items.

The report suggested a host of measures for curbing the de-localisation process, including changes in the taxation structure and increased spending on research and development to encourage innovations.

Apart from this, the EU also hoped to increase the use of stringent environmental and labour standards.

It also said through the current round of multilateral negotiations, EU would lobby for a reduction in duties as well as non-tariff barriers and seek a redressal on the issue of tariff peaks.