Reverse Outsourcing

An old saying – what goes around comes around – applies to anything global, and that includes outsourcing. France and other developed nations with high labor costs have long and bitterly complained about jobs shifting to low-wage nations like China. But Europe’s rising unemployment, combined with rising wages in China, contribute to an agreement that brings up to 50 Chinese electronics and light-manufacturing plants – along with 4000 jobs – to France. The companies will set up shop in the Chateauroux region, relying on facilities left behind by US forces and NATO. The Chinese plan, relocating assembly and distribution operations, borrows from a 1980s Japanese business model. The manufacturers can use a “made in Europe” label on their products, and critics will keep an eye on quality. Yet as Yalelobal Editor Nayan Chanda explains, the industrial park could prevent some French criticism and protectionism and allow Chinese firms to secure a long-term client base. – YaleGlobal

Reverse Outsourcing

For France, globalization might no longer be a dark cloud on the horizon – instead, it could be a silver lining
Nayan Chanda
Tuesday, July 6, 2010

For France, known for both its strong anti-globalisation sentiments and regular protests against outsourcing, the shoe may be on the other foot. China — the famous factory to the world that has been accused of siphoning away French jobs — is set to outsource work to, well, France. Globalisation is coming to the rescue of a country singing the blues with its rapidly rising unemployment. And to add to the historical irony, Chinese workers arriving to jump-start the project will be occupying the villas and barracks built for the US forces during the heyday of French cooperation with Nato.

In 1967, when US forces withdrew from Chateauroux Air Station, where its huge 3,500-metre runway allowed giant military transport planes to operate, the graffiti sprayed on the wall urged “US go home”. There is no “Welcome China” bunting in the small town south of Paris yet, but French negotiators will be arriving in Beijing this month to formalise plans for the Chateauroux Business District. (Abandoning resistance to foreign languages, the special economic zone has been christened in English.)

Under an accord signed last year, 30-50 Chinese electronic- and light-manufacturing companies will set up assembly plants, creating 4,000 jobs — 80 per cent of which will be for French workers. The Chateauroux region, once a centre for apparel manufacturing, lost it all to China. The planned departure of the 1,100-strong French army unit at the airbase would have dealt a further blow to an area reeling from unemployment. Against this backdrop, the Chinese government’s proposal to set up an industrial park next to the former American airbase was received warmly by grateful town officials.

The Chinese plan to locate final assembly operations of many of its export products to France follows the tradition established by Japanese firms in the 1970s and 1980s. Facing rising protectionism from Europe and the US, and to benefit from the low-cost and efficient supply-chain production, Japanese automakers moved much of their operations abroad. Criticism of Japan soon melted, as rising Japanese investment created jobs in countries their cars were sold in.

Unlike Japan, though, Chinese would not be shifting entire factories to France. Chinese factories would still be producing the parts for the final assembly in France and slap a ‘made in Europe’ or ‘made in France’ label. With parts flown in to the Chateauroux airfield or shipped to the nearby port of Havre, the Chinese could employ French labour to finish the products, which could then be sold freely inside the EU or exported as European merchandise. French commentators have noted that the most important value addition for the Chinese would be the ‘made in Europe’ cachet for goods often sneered at as poor quality.

Moving the assembly and distribution of products closer to where customers are is likely to help Chinese companies secure a long-term client base. Offering after-sale services that their France-based operations would allow could be valuable for penetrating the continent. It is perhaps with this long-term perspective in mind that China’s telecom giant Huawei has recently set up a research centre in the Paris region. The Chinese move could also yield a public relations dividend. Although scepticism prevails over the actual number of jobs the Chinese would create, the mere act of establishing a Chinese industrial park could help dampen charges that the mainland is stealing European jobs.

French reaction to the news of this reverse outsourcing has been cautious. Conservative commentaries warn about a “Chinese Trojan horse” in the heart of Europe. They claim these French-made goods will harm domestic production. Officials struggling with rising unemployment, on the other hand, hope the Chinese would help reverse the trend.

Allowing Chinese companies a beachhead in France would also benefit French aviation and shipping. (Chinese state-owned shipping company Cosco already holds a 35- year lease on the container terminals at the port of Athens, giving China another foothold on EU shores.) Some French analysts worry that poor-quality Chinese products, some of which provoked recalls in recent years, could damage the continent’s reputation through its use of the ‘made in Europe’ label. But such worries pale before the immediate gains that China’s Chateauroux deal offers. French workers, who have largely seen globalisation as a dark cloud on the horizon, might at last note the silver lining.


The author is director of publications at the Yale Center for the Study of Globalisation, and editor of YaleGlobal Online.

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