Challenges of Upgrading: The Dynamics of East Central Europe's Integration Into the European Automotive Production Networks**/Probleme Industrieller Aufwertung: Die Integration Mittelosteuropäischer Standorte in Produktionsnetzwerke Der Europäischen Automobilindustrie

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Challenges of Upgrading: The Dynamics of East Central Europe's Integration Into the European Automotive Production Networks**/Probleme Industrieller Aufwertung: Die Integration Mittelosteuropäischer Standorte in Produktionsnetzwerke Der Europäischen Automobilindustrie

Introduction

After a period of postcommunist recession, East Central European (ECE) states quickly became a magnet for foreign direct investment (FDI) in the automotive industry. The region's rapid integration into the European car production networks has been a subject of scholarly debates since very early on. The controversies rest mainly on conflicting understandings of the position taken by ECE countries within the European production architecture, the impact of the changing division of labour on the relations between unions at "new" and "old" sites and states' involvement in the industry's transformation. To what extent have the ECE sites caught up with the Western production centres in terms of production capability? Are we witnessing a case of vertical integration, with the former coming to occupy the lower ends of the international production chains, or the emergence of parallel production structures in the East, challenging the position of their West European counterparts? How do unions react to growing transnationalisation of the sector; has the eastward expansion of car MNCs turned eastern and western European workers into rivals or allies? Finally, in what ways have states influenced the direction of industry's development?

In this paper, we reconstruct the trajectory of the changing division of labour between East Central and Western Europe and argue that rather than two sides of the same debate, we are dealing with distinct phases of the industry's upgrading in the East. In line with Bluhm (2007), we reject the concept of upgrading as a linear, deterministic process and instead view it as an outcome of different, sometimes conflicting strategies of investors, states and organised labour. In our analysis, we first outline two phases of the car sector's expansion to ECE, demonstrating how each of them was marked by different policies of automotive OEMs and accompanied by varying responses by unions and other political players. In the first phase, which lasted from the early 1990s until late 1990s, car firms adopted a predominantly market-seeking orientation towards ECE. To the extent that they used the eastward expansion to restore their competitiveness in West European markets, they mostly exploited labour cost advantages of the region. Hence, they mostly transferred labour-intensive activities to ECE countries, capitalising on their institutional stability and, later on, on investment incentives granted by ECE governments. At the same time, they sought to enhance their competitiveness at home by concluding concession agreements with the West European labour. The second phase was ushered in as the firms shifted their strategies in the late 1990s, in response to persistent cost pressures and changes within i...

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