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IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 1 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY ALBERTO LISA FERRER 24/08/2010 KAPFENBERG (AUSTRIA) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 2 Diploma thesis carried between February and August of 2010 for ALBERTO LISA FERRER at the University FH JOANNEUM in KAPFENBERG (AUSTRIA). Diploma under supervision of the coordinators: FRANCISCO JAVIER MARTÍNEZ GÓMEZ from University of Zaragoza and AZUCENA PEREZALONSO from University FH Joanneum. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 3 INDEX PICTURE INDEX ........................................................................................................................ 5 TABLE INDEX ............................................................................................................................ 6 INTRODUCTION ....................................................................................................................... 7 INITIAL SITUATION .................................................................................................................... 7 OBJECTIVES .............................................................................................................................. 10 TECHNIQUES AND FACTORS THAT INFLUENCE THE LOCATION OF THE INDUSTRY ................................................................................................................................ 11 INTRODUCTION TO LOCATION ................................................................................................ 11 FACTORS AFFECTING LOCATION ............................................................................................. 12 Direct factors ....................................................................................................................... 12 Indirect factors .................................................................................................................... 15 MODEL OF LOCATIONS ............................................................................................................ 17 Theory of minimum cost ..................................................................................................... 17 Theory of market areas ....................................................................................................... 18 Integrated theories ............................................................................................................. 19 HISTORICAL EVOLUTION ................................................................................................... 21 CHANGES IN THE THEORY ....................................................................................................... 23 Behavioral theories ............................................................................................................. 23 Structuralist theories ........................................................................................................... 23 SOCIAL AND CULTURAL FACTORS AND ITS INFLUENCE IN LOCATION ........... 24 LOCAL GOVERNMENT ............................................................................................................. 25 BARRIERS ............................................................................................................................. 25 GOVERNMENT FACILITIES ................................................................................................... 26 STABILITY ............................................................................................................................. 28 FRAMEWORK LABOR LAW AND LEGISLATION ........................................................................ 28 SOCIAL ATTITUDES TOWARDS ENTERPRISE ............................................................................ 29 INDIVIDUALISM vs COLECTIVISM ............................................................................................ 29 QUALITY OF LIFE ...................................................................................................................... 30 SOCIAL OR ETHNIC CONFLICTS ................................................................................................ 30 INTERNATIONAL REPUTATION ................................................................................................ 33 SINDICALIZATION .................................................................................................................... 33 PERSONAL FACTORS ................................................................................................................ 34 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 4 A REAL EXAMPLE: THE IMPACT OF SOME FACTORS ON THE DESLOCALIZATION ................... 34 ANALYSIS OF THE AUSTRIAN AND SPANISH SOCIETY ............................................ 36 AUSTRIA ................................................................................................................................... 36 SPAIN ....................................................................................................................................... 37 UNEMPLOYMENT .................................................................................................................... 38 IMPLEMENTATION OF AUSTRIAN MODEL OF EMPLOYMENT IN SPAIN ................................. 39 What fees should apply? ..................................................................................................... 41 ANALYSIS OF SPANISH AND AUSTRIAN INDUSTRY ................................................. 43 SPANISH INDUSTRY ................................................................................................................. 43 AUSTRIA INDUSTRY ................................................................................................................. 46 COMPARISON .......................................................................................................................... 47 SOCIAL AND CULTURAL FACTORS IN AUSTRIA AND SPAIN ................................ 54 LOCAL GOVERNMENT ............................................................................................................. 54 LABOUR LEGISLATION AND LEGAL FRAMEWORK ................................................................... 55 SOCIAL ATTITUDES TOWARDS ENTERPRISE ............................................................................ 56 QUALITY OF LIVE ..................................................................................................................... 56 SOCIAL OR ETHNIC CONFLICTS ................................................................................................ 57 UNIONIZATION ........................................................................................................................ 58 REPUTATION OF THE AREA ..................................................................................................... 58 PERSONAL FACTORS ................................................................................................................ 59 CONCLUSIONS ....................................................................................................................... 60 BIBLIOGRAPHY ...................................................................................................................... 62 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 5 PICTURE INDEX Illustration 1 Map of more important industrial areas of the world. ............................................ 8 Illustration 2 Map of newly industrialized countries ..................................................................... 9 Illustration 3 Weber locational triangle ...................................................................................... 18 Illustration 4 Rhombus market area of Christaller ...................................................................... 19 Illustration 5 Map of the condition of industries in Europe between 1870 and 1914 ................. 21 Illustration 6 Europe map of the major industrial centers .......................................................... 22 Illustration 7 Conflicts in 2009 ..................................................................................................... 31 Illustration 8 Global peace index ................................................................................................. 33 Illustration 9 Export volume index ............................................................................................... 47 Illustration 10 Import volume index ............................................................................................ 48 Illustration 11 Spanish exports .................................................................................................... 51 Illustration 12 Austrian exports ................................................................................................... 52 Illustration 13 Spanish imports/exports relation ........................................................................ 52 Illustration 14 Austrian imports/exports relation ....................................................................... 53 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 6 TABLE INDEX Table 1 Workforce reductions planned for 2009 in OPEL ............................................................ 27 Table 2 Table of conflicts ............................................................................................................. 32 Table 3 Human development ...................................................................................................... 38 Table 4 Unemployment June 2010 ............................................................................................. 39 Table 5 Spanish imports and exports .......................................................................................... 48 Table 6 Austrian imports and exports ......................................................................................... 49 Table 7 Trade export relations Spain->Austria ............................................................................ 49 Table 8 Trade export relations Austria->Spain ............................................................................ 50 Table 9 Products more exported Spain->Austria ......................................................................... 51 Table 10 Products more exported Austria->Spain ....................................................................... 51 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 7 INTRODUCTION INITIAL SITUATION Since the dawn of mankind, evolution has always been linked to humans, since the introduction of the first societies, the men have been transforming the way they live and interact with the environment around them. These changes are reflected in technology, the first rudimentary tools were used primarily to obtain food, to this discoveries many tools as the wheel, pulley, mill etc. were proceeded. One of the best exponents in this evolution was the introduction of machinery; it helped the Industrial Revolution that began in the eighteenth century, although some machines had been already invented like the steamboat. Great Britain was the cradle of industrialization, followed by countries such as Belgium (Walloon), Germany(Saxony and Berlin) and France (north of France and Alsace), and later on, other European countries like Spain (Catalonia) and the Austrian Empire (Bohemia and Moravia) became important. Moreover, countries out of Europe like the U.S. and Japan took part in this revolution. Most of them were primarily textile and steel industries. 1 The First Industrial Revolution meant the transition from a traditional agrarian economy to the one based on industry and mechanized production. The only industry until then consisted of small workshops with minimum production geared towards consumption. The population, mostly peasants, was concentrated in rural areas; there were few cities poorly developed. Since the developments in the industry imposed by cities, rural people began to migrate en masse to the cities; as a result, they created the industrial societies and big cities Several changes have helped to the expansion of industrialization, these changes were: the agricultural revolution produced by the rise of production, the use of fertilizers and the application of new farming techniques. Furthermore, the variation of demography (less mortality and high birth rates), the new technical innovations, the improved communication, the advances in transportation, the discovery of new sources of energy etc. Besides the increase of long-distance trade stimulated the production and the accumulation of capital was invested in the industry. In the nineteenth century the 2nd Industrial Revolution began, it was produced by many social and political changes which were taking place in the international context. This stage was characterized by the use of new energy sources (electricity and petrol), changes in work organization (line work (Ford)), the development of new sectors of production (chemical, food), new forms of finance (banks, Limited Corporation) and the formation of an extended market. 1 <<Universal history>> Gomez Navarro and others (1973) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 8 In the early twentieth century, the globalization of the economy has already begun as a result of the need to obtain raw materials and control new markets to sell surplus industrial production. The major powers embarked on the conquest, started to control territories in Africa and Asia forcing the integration of different economies, this type of imperialism would constitute a cause of the outbreak of the First World War. After the end of The World War, the world witnessed a technical scientific revolution that led to the 3rd Industrial Revolution and it was confirmed in the 60s with the deep crisis that hit the capitalism. In this period the industry, remained like the engine of the countries, but it reduced its participation in the economy as a whole (instead of services). Companies have developed a clear strategy of transnationalization, from the economic point of view; they have produced the opening of borders. Innovations have been multiplied, the consumption of natural products has been decreased and new sectors, such as microelectronics, biotechnology, robotics, etc have emerged. The direct manufacturing labor has also been reduced and the management has been increased, with a best of control R & D, providing flexibility in various stages of production, as a consequence, it decentralized the productivity and increases the SMEs. These advances have always been aimed at the optimization of processes, labor forces and materials. The new advances makes possible the use of new techniques and new studies, all of them are designed to get the most out of the industry, resulting in better performance and benefits. Illustration 1 Map of more important industrial areas of the world. In illustration 1 we can see the most industrialized areas (yellow) in the world; we can see that the highest concentration is placed in Europe where the industrial revolution began. It can be seen the great industrialization in the countries that followed Europe in the early nineteenth century such as U.S.A and Japan. The purple color highlights other industrial areas which did not participate in the First Industrial Revolution but they became to acquire importance as industrial centers many decades later, when they made their way towards industrialization. The green areas underline IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 9 the places which are currently rising: Eastern Europe, center of Asia, Mexico, South America with Buenos Aires, Sao Paulo, Venezuela and other smaller areas in Africa (South Africa) and southeastern Australia. Illustration 2 Map of newly industrialized countries In Illustration 2 we can see the new industrialized regions, these areas have emerging economies and a very high growth potential and they are conducive to the establishment of new industries that consider a very good opportunity to get benefits. Big multinationals get in these countries considerable advantages over the already industrialized countries. Furthermore, there are many brands that are closing their factories in developed countries in order to settle on those regions. These areas are especially Mexico, Brazil, South Africa, Turkey and the countries of Central Asia. 2 The main goal of an industry is the transformation of inputs into outputs, in other words, raw materials or products made by a specific process; thereby the company makes a profit. For getting the maximum benefit, the leaders have to optimize all variables and agents acting and affecting their company. One of these variables is the location, broadly speaking; the term makes reference to the choice of the place where the industry will be placed in order to achieve the optimal development of its activities. The factor of location has been taken into account from the beginning of industrialization, but at the beginning, few factors were considered and most of fabrics were placed near the raw materials. However, it was a time when the importance was given to other factors, and this has been reflected in the recent decades, since the availability, cost and skills of the workforce to the reputation and land policy , communications, outreach to the raw materials, competition etc. Moreover, it is necessary to think of further studies about changes concerning the long-term market. It is very important and necessary to study all the possibilities of location, since they will affect the success of the company. 2 <<Globalization and the transformation of foreign economic policy>> Paweł Bożyk (2006). IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 16 - <2% in this group there are most industries and for example the car industry is the freest one Market Competition The location of the main competitors may also be a factor in the location of the facilities for a firm. In some cases, the existence of a competitor in an area may be inadequate to the presence of the company. Nevertheless, the opposite case is also quite common: once a firm decides to produce in a market, it is usual that other competitors tend to follow as quickly as possible as the advantages and barriers of entry allow. These barriers have been collected by firms due to their status pioneer. This type of decision is not so much based on the benefits that can be achieved with that location, as in the heavy losses that may result in a failure in the attempt of following the competitor. We have to keep in mind that the competence makes prices decrease but if there is cooperation (oligopoly) prices go up and earn higher profits than if there was competition. Sometimes an industry have not any competence, usually by the entry of new entry barriers due to large investment costs or limited licenses available for some types of activity to draw back the potential competitors, this is called a monopoly. Government, union and legal frameworks Generally, any company that decides to locate its plant at some point, has to study the actions of local governments since they control many of the mechanisms that may influence the success or failure of investments in that territory: rate decisions exchange and interest rates, fiscal measures, tariff barriers, limits on imports or foreign investment policy and any other economic or social. As the law of a particular country may facilitate the development of the operations of a firm, we can become a real obstacle for them. In addition, most of this legislation often has a more or less directly influence in the costs of the company. Therefore, we can say that the legal framework for an external location can provide an edge over the competitors of the company. This is compounded by the social legislation which affects aspects such as labor costs, the ease of recruitment or association and it will be of great interest to those firms in intensive labor. Similarly, environmental laws can be of considerable importance, especially in those sectors characterized by more polluting production processes, such as chemical industries. 4 Cultural and social factors This topic will be more deeply discussed in the following part of the study, but we can say that these factors have started to be relevant in recent. However, with the increasing need to obtain the maximum benefit possible, it is currently being studied all the details that may affect our industry in the location and running. Therefore, those factors such as the regional 4 << Location, layout and maintenance>> Vallhonrat and Corominas (1991) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 17 quality of life, the social or ethnic conflict and national and international reputation of the area among many others are coming nowadays in order to play as relevant factors in the final decision of location. MODEL OF LOCATIONS JH von Thünen 5 (1783-1850) is considered by many the author who started the classical location theory, making extraordinary models to discuss the effect of different variables on the balanced studied. Though his models, he tried to explain the location of activities agricultural. A large number of authors have created theoretical models using many factors involved in the location of an industry, models that attempt to simplify the complexity of the real world factors by taking factors as constants and other as variables. The principles of these theories are related to the overall economy considering the entrepreneur as an economic agent which sole purpose is to maximize profits. These models generally fall into 3 or 4 different groups. - Theory of minimum cost - Theory of market areas - Integrated theories. Theory of minimum cost His maximum precursor was Alfred Weber in 1919; Weber states that factors concerning location were forces that acted as economic causes of the location, as a result of acting on the locational unit, the savings were obtained. He divided these factors in 4 types: - General: applicable to all types of industry, labor, and transportation costs - Special: own types of industry, therefore it is excluded from the general theory - Regional - Local After listing some assumptions - Raw materials, consumer and labor adopt a given point distribution. - Wages in each location are fixed, but vary from place to place - The supply of labor is limited and the transport costs are uniform, varying in direct proportion to the distance in a "mathematically flat plane." On accordance to Weber, the main factor in location was transport costs; hence the proposed view about the place of production in order to minimize the total transport costs, including raw material supply and product distribution market. With all his premises established, he realized a geometric solution, the locational triangle Weber for finding the ideal place to locate the company. 5 <<Der Isolierte Staat>> JH Von Thünen (1826) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 18 Illustration 3 Weber locational triangle The Optimal Location Triangle tried to explain that industrial location decisions take place within the point in space(P) This point had the most favorable combination of transportation costs with the three basic factors (raw materials (S1), labor (S2) and market (M)). 6 Theory of market areas The precursor of this theory was Walter Cristallo in the thirties. Subsequently August Losch applied for the specific case of industrial location (Losch, 1954). Walter Christaller considered a unified territory, neutral and isotropic, made a deductive model of how systems are organized cities. The basic assumptions that were introduced to the former theory are: - That the single market is a particular case - The buyers are dispersed in a market area The market area contains two elements: - Market range (distance the consumer is willing to walk). - Economic threshold of purchasing power or income necessary to support the activity (minimum amount required to pay) Christaller takes a city where there are many activities and levels of activities classified in different fields of influence. That place is called the center of the territory which has a field of 6 << Theory of the Location of Industries>>Alfred Weber (1909) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 19 influence. It creates a market that makes the place grow to be the superior radio activity. Christaller says that there is a competition and long-term space tends to be effectively organized in a balanced way without creating a loss of production or increment of the needs of the city as a result of growth itself. He notes that taking activities and spheres of influence, the land tends not to make holes and it closes at the end creating a hexagon. Illustration 4 Rhombus market area of Christaller As we can see in illustration 4, the area that the company reaches, will have a hexagonal form in order to ensure that the service is delivered to all isotropic space. The price of the product will determine the threshold required by the company. The higher the price, the higher the threshold, but also there is a rise of the scope. This enables to establish a hierarchy of the central place. The first-order central places are smaller and more numerous, and the highest order is less. There is only one highest order. The higher central order place has all the amenities of the lower orders. The central places of higher order have the services of the lower central locations. The higher the place is, the larger the population. Regardless, taking the theory too rigidly, it is true that in reality it happens with much greater frequency than we would expect from the irregularity of real space. However, the historical evolution often is misled. The biggest problem which does not solve the theory is the influence that the population density has on the scope and size’s threshold. The differences in population density, which supports the theory itself by concentrating the population in central places, can make the scope of a company be always higher than the threshold. 7 Integrated theories These models add new factors influencing the location and behavior and the environmental relations in a context of increasingly complex interdependencies. In these theories, the authors are introducing new factors, variables, constants and mathematical formulas, giving importance to some things and assuming others. For example, 7 <<Central Place Theory>> Walter Christaller (1933) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 20 Israd (1956) adds the inputs of transport, Greenhut (1957) makes two interesting contributions which introduce the role of decision-making and economic variables to be further adjusted to reality. Or the model of Smith (1979) which states that the production serves human needs and desires, even adding stolen securities, creating negative variants. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 21 HISTORICAL EVOLUTION At first the industries did not have many patterns of location, and the vast majority of the early industries were textiles industries or steel industries. For example in the textile industry, the companies were located mainly in rural areas because the existent factors in those moments led to this location. Some of these factors were: • Emergence of this activity in rural areas by the existing tradition,. • Existence of abundant labor, low-skilled and most women seeking alternatives to rural livelihoods. • The family nature of many companies that began as small workshops and that evolved in successive generations. Unlike the steel industry, at first, they were located in cities, which caused a great migration from rural areas to large cities. The steel industries were in the urban areas because they needed labor, and they were in the cities where there was economic activity. These changes were reflected in the evolutions taking place in location theories, theories that have evolved because of changing demands and new needs arose. Illustration 5 Map of the condition of industries in Europe between 1870 and 1914 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 22 These conditions have been changed over time depending on the new needs and factors that forced the company to be placed in another appropriate location: • Need of spacious areas, well equipped with good transport services and that arise the need industrial sites, usually located on the outskirts of cities. • The existence of national and international companies’ recognition has made these industries arise from other companies to outsource or develop the production of a large company. • Need to consider all possible factors that affect our company for finding an optimal location. • Political changes with new laws, changes in social awareness, unions, new systems in the global economy etc. Illustration 6 Europe map of the major industrial centers In Illustration 6 we can observe the situation of European industries in the late nineteenth and early twentieth century. It can be seen that the main industrial centers are still in the regions where it started before the industrial revolution in the eighteenth century and early nineteenth centuries, throughout England, Belgium, Holland, Germany, and parts of France (Lyon, Paris). In cities of Italy near the center of Europe like Milan and Verona, and Eastern Europe like Moscow, Krakow and St. Petersburg, in Austro-Hungarian empire: Innsbruck, Graz IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 23 and Vienna main nuclei, and in Spain: northern regions such as Catalonia, Asturias and the Basque country. This situation refers to a centralization of the industry because it is found only in central Europe and that in areas outside of Europe, there is hardly any industry. Today as we see in Illustration 6 the situation has changed, the industry has become global and almost all regions of Europe have exploited their resources. It can be seen that in the early twentieth century, there were places appropriate for the development of industries in those areas but there was not any developed industry. However, nowadays, there are major centers such as Eastern Europe, Scandinavia or Southern Europe. CHANGES IN THE THEORY Traditional theories of localization, especially that of Alfred Weber (1929), were very mechanical, they considered the homogeneous space and consisted of models that were suitable for the location of a company economically speaking since they reduced costs and gave great importance to the transport costs. However, due to the technological advances and good communications, the transport costs are losing relevance and they have ceased to be a determining factor in location. Since later, they become relevant factors such as agglomeration economies or market conditions, emerging schools of thought that could encompass the several theories like the behavioral and the structural. Behavioral theories It focuses on demonstrating that the capacity of the employer is limited by the election. It is concerned with the existence of sub optimal location´s analyze and human behavior, it takes into account the existence of large and small businesses, and the changing factors of location. These theories have the continuing detrimental; they tried to create theoretical models and to treat companies like passive agents. Structural theories This aspect indicates that the location’s decision cannot be outside the political, economic and social development. Moreover, the organizational changes and the decentralization of production provide benefits such as cheaper labor and avoid the "agglomeration diseconomies” 8 . 8 An excessive concentration of economic and urban functions in an area often produces undesirable effects on our business. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 24 SOCIAL AND CULTURAL FACTORS AND ITS INFLUENCE IN LOCATION As it has been mentioned above, the ideal location of a plant, factory or industry will be one which achieves minimal costs in production and distribution whereas prices and sales volumes lead to profit maximization. For making this possible, the final decision of location should take into account the criteria of efficiency and competition, trying to get advantage over the competitors and knowing that the future location should never affect the normal development of business activities. In order to have a competitive edge, industries must consider all those variables that can potentially affect the future location of our company. A major source of variables that can influence our choice of location will be the social, legal and cultural policy in a particular region or area. These types of factors can ultimately affect directly or indirectly the work of our industry. The social and cultural agents can become very complex and their study may be very cumbersome. However, it is a great need to do detailed studies because reports on these factors will give us an insight of the strength and weakness about the potential locations and this will give us competitive advantages over industries from the same sector. The companies are entities of population characterized by a link between individuals and environment that do activities together and a result, they give a specific identity. Society is also a set of knowledge among various economic, political, legal, cultural or sports. Within the structure of a society, there can be several cultures that have been created by man. In the same culture, it can be developed interactions among individuals because of their same customs, beliefs, religions, behaviors, language or ideologies. The situations of these societies and their values affect directly to the smooth operation of our factory, so we have to see which one will be the ideal region in order to install the factory. But it is not only necessary to study the current situation, we must also take into account that societies evolve and undergo changes. The changes in social structures and their consequences sometimes change the rules and values of that society. The causes that can actually change a society are very different, sometimes social changes can come from success or failure of a political system, or phenomena as a particular revolution, democratization, economical growth or a specific crisis in some countries. One of these phenomena that in recent decades have affected most of the societies and cultures has been globalization. In the recent decades, the increasing globalization is an economic, technological, social and cultural process that consists of communication and the growth of interdependence between IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 25 countries around the world by unifying its markets, cultures, and societies through social, economic and political changes, that situation gives a global character. It is clear that globalization has its benefits such as a major efficiency of the market by reducing monopolies or improvements in communication and international cooperation that makes a better use of resources. But there are not only benefits in the globalization but also negative effects such as increased economic imbalances, social and territorial also exists. As these societies, companies, cultures and traditions are subjected to changes, it must be taken that into account when we choose location. It has to be seen the stability of an area, the possibility of change in the social context or any contingency that may alter the scene of an area or region. In the following pages, we will include socio-political factors and cultural influential when choosing location, doing a detailed explanation of each one using some examples for a better understanding of the real situation. LOCAL GOVERNMENT Usually, any company that chooses to locate their foreign operations, they consider in a greater or lesser extent, the actions of local governments, because they control many of the mechanisms that may influence the success or failure of foreign investment in the territory. These are important decisions on exchange rates and interest rates, fiscal measures, barriers, limits on imports and foreign investment or any other economic or social. BARRIERS Non-tariff barriers Non-tariff barriers are "laws, regulations, policies or practices of a country that restricts the access of imported products to market”. Therefore, they include legal rules like administrative rules that are not based on explicit measures Exchanges rates Exchange rates are important for companies that compete in the international market. They change the value of worldwide currencies and have a direct effect on the final price of the product we manufacture. Companies that place their factories in low cost countries are at risk to fluctuations in the exchange rate, as these costs can significantly be increased. At the beginning, the fluctuation of change can contribute to the Industry but it can have negative long term end consequences: the devaluation of the dollar against the yen in the eighties placed U.S.A companies in a more competitive position against the Japanese. However, the relative valuation of the yen allowed the last ones to have more opportunities in order to improve their competitive capacity later on. 9 9 <<Total Global Strategy: Managing for Worldwide Competitive Advantage>> George S. Yip (1993) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 32 SEVERE CRISES 12 COLOMBIA (FARC) IDEOLOGY,REGIONAL PREDOMINANCE 13 MEXICO (DRUG CARTELS) REGIONAL PREDOMINANCE, RESOURCES 14 PERU (SHINING PATH) IDEOLOGY,REGIONAL PREDOMINANCE ASIA AND OCENIA COUNTRY NAME CONFLICT ITEMS SEVERE CRISES 15 INDIA (NAXALITES) SYSTEM/IDEOLOGY 16 MYANMAR (KNU,KNLA/KAREN STATE) SECCESION 17 PAKISTAN SUNNITES-SHIITES IDEOLOGY,REGIONAL PREDOMINANCE 18 PHILIPPINES (ABU SAYYAF/MINDANAO) SECCESION,SYSTEM/IDEOLOGY 19 PHILIPPINES (MILF/MINDANAO) AUTONOMY,IDEOLOGY,RESOURCES 20 THAILAND (MUSLIM SEPARATISTS) SECCESION, SYSTEM/IDEOLOGY WARS 21 PAKISTAN (TALIBAN-VARIOUS TRIBES) IDEOLOGY, REGIONAL PREDOMINANCE 22 PAKISTAN (VARIOUS ISLAMIST MILITANTS) IDEOLOGY, NATIONAL POWER 23 SRI LANKA (LTTE/NORTHERN AND EASTERN) SECESSION THE MIDDLE EAST AND MAGHREB COUNTRY NAME CONFLICT ITEMS SEVERE CRISES 24 IRAN (PJAK/KURDISH AREAS) AUTONOMY 25 IRAQ (AQI) SYSTEM/IDEOLOGY, NATIONAL POWER 26 IRAQ (INSURGENTS) SYSTEM/IDEOLOGY, NATIONAL POWER 27 SAUDI ARABIA (AL-HOUTHI REBELS) IDEOLOGY,REGIONAL PREDOMINANCE 28 TURKEY (PKK/KONGRA-KURDISH AREAS) AUTONOMY WARS 29 AFGHANISTAN (TALIBAN) SYSTEM/IDEOLOGY, NATIONAL POWER 30 ISRAEL (HAMAS/PALESTINE) SECESSION, SYSTEM IDEOLOGY 31 YEMEN (AL-HOUTHI REBELS) IDEOLOGY, REGIONAL PREDOMINANCE Table 2 Table of conflicts In addition to the existing conflicts in various countries, there are also other important facts that may give us a reference for the status of a country. The Peace Foundation is NGOs that year after year produces an index which arises from the intersection of several variables; as a result, they emphasize the political, economic, personal security, murder, terrorism, the quality of law enforcement, legal system security, etc. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 33 Illustration 8 Global peace index 14 As we can see in the picture, countries like Europe, Canada, Australia and Japan are the most stable areas and with the greatest index peace of the world, on the contrary a great part of Africa, Central America and Southeast Asia are more dangerous areas to life. INTERNATIONAL REPUTATION The image of a product may depend on the country in which it has been produced. For economic reasons, many times, the executives plan to relocate their industries since a country can have a workforce much cheaper. However, sometimes this country can have a bad international reputation. This bad reputation may be due to several factors, related to the poor quality of products coming from a particular country, or for example the possibility that the children working in industries from they are very small, it can even be for reasons unrelated to production like can be just as bad outside view of the country in international context. One such example was the Mercedes car company, which finally rejected Mexico, much more favorable economically, in favor of Alabama (USA) for the location of its first major plant outside Europe. 15 SINDICALIZATION It is not good an aggressive unionization for businesses, as it can bring problems like the danger of a strike or an avalanche of complaints. Therefore, it is better for an industry, countries with weak labor laws where the weight of workers is small. 14 data according NGOs <<the foundation for peace>> 15 <<Principles of management operations >> Jay H. Renzer and Barry Render (1997) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 34 A union is formed by a group of workers to defend their social, economic and professional interests. They are involved with their work activity on the production site or against the businessman. In developed countries, social progress led to the unionization, and it was a great step forward in adopting the rights and duties of the worker. But this fact does not occur in all countries, and many countries have no trade unions or have very little power, this is an element to be considered by employers because in these countries will have less conflict since their workers have fewer rights. The employer also study the history of work in the area, looking at whether there are problems in the past in other industries, such as riots, numerous strikes, demands of workers, labor disputes, efficiency, etc. PERSONAL FACTORS The location of many industries, especially those with a personal or familiar origin, also depends on the entrepreneur’s preferences. However, the personal criteria usually are taken into account the general factors. The feeling of employers over their land and their need for economic and advertising boost, or the need for giving work to their countrymen may be some of the reasons to opt for this type of locations. An example of this factor for a big company is Ferrari, located in Maranello, a family business founded in 1929 by Enzo Ferrari in his hometown, Modena. A company that started to manufacture racing cars and now is the first company of luxury car, having a great reputation for its dedication to quality of their production; where in many steps it is still working with handmade. A REAL EXAMPLE: THE IMPACT OF SOME FACTORS ON THE DESLOCALIZATION The following lines are going to deal with an example in which there were factors we have discussed above. Barbastro is a small town of the Aragonese Pyrenees with just 16,000 inhabitants, in 2004 it suffered a deep crisis after the announcement that its main industry was about to close after nearly 30 years working. It was the French Moulinex factory, one of the major manufacturers of appliance that dominated the European market in the 80s and 90s. Moulinex was established as a company in 1937 and soon began to have success; the company received many benefits that favored its expansion, creating industries in other countries outside France. It was in the mid 70's when they decided to settle on Spain, because the recent democracy gave many opportunities for foreign investment in Spain and they saw a great opportunity to make a profit due to its emerging economy. Thus they created two companies in two small villages; one was established in Barbastro (Aragon) and another in Urnieta (Country Basque). IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 35 The 80s and 90s were years of a great benefit to the company, in addition, towns where Moulinex was found, grew up and became to be established industries, many times, they depended on Moulinex or on other industries attracted by the new opportunities of settling in a fairly new and well connected industrial area. But in the new century all changed, it was in 2001 when the Moulinex company abruptly name itself in bankruptcy, many jobs were lost in France, but a buyer appeared, the SEB Group which seized the company. When it seemed to be a glimmer of hope for the workers, it was the opposite; SEB had other plans for the French firm, and in later years they made many redundancies. For years, in the Spanish company, it was running in the air the rumor of the closure of the factory, and it was in 2004 when its closure was announced definitely, although the industry was still kept in the Basque Country. The plan of the new owners of the electrical appliance’s company was to transpose the company to China because of the emerging market where labor costs were cheaper than in Spanish industries. The negotiations among unions, employers and government were tough. Many months passed without the agreement of the parties, the unions alleged that the company was profitable even more than its Basque namesake, businessmen wanted to relocate at all costs, so they were based on the very labor costs in China. In this case, many factors more complex than it appeared at first took action. It is assumed that the main factor was the need to decentralize industry and to move it to China, where the cost of living is cheaper, and eventually get more benefits. But if the company was more profitable Aragonese Why do not close the other Spanish subsidiary. As an answer, the company said that it was more expensive to fire employees from Basque Country because the average age of workers was greater than the one of Barbastro . But after six years, there are still many doubts about its closure, and many assumptions that were handled and they involve many more complex social factors. These assumptions emerged because they could not understand that a more profitable company was closed before than another less profitable. The negotiations of the Aragonese government were protested in the conflict. It was ineffective against those of his comrades in the Basque government, as there were numerous meetings with business’ leaders while Basques and Aragonese rulers’ meetings were pretty limited. In the history of Spain, the Basque Country has always been one of the major industrial powers along with Catalonia, in addition, their political weight in Madrid was much greater than in Aragon. The importance of trade unions in the negotiations was also crucial since they did not reach a deal too favorable for workers, as the company closed, the negotiations were numerous. This is one of main unofficial reasons that were supposed to drive toward the close of Moulinex in Barbastro. Another reason, but not credible, was the potential and social impact that would have happened in the Basque factory if it had close. Due to the fact that years ago, one of their executive was assassinated by the terrorist group ETA, who refused to pay the revolutionary tax demanded by the ETA for all industries placed in the Basque community, and in that way avoiding another blow to the town as was this. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 36 ANALYSIS OF THE AUSTRIAN AND SPANISH SOCIETY For to know current realities between Austria and Spain we have to have a preview of their situations, societies, lifestyles, traditions and other information that will give us a best visualization of these two European countries and so can observe their differences and common points and thus to make a clear comparative analysis. AUSTRIA Austria is a country in Central Europe, organized as a federal parliamentary republic, a member of the European Union since 1995. Country with no maritime boundary, Austria shares borders with Germany, Czech Republic, Slovakia, Hungary, Slovenia, Italy, Switzerland and Liechtenstein. The Alps dominate the west and south of Austria, while the eastern regions (where Vienna is located) are in the Danube basin. For centuries, until the end of the First World War, Austria was the center of a vast empire that stretched across much of central Europe. Today is a federal republic composed of nine provinces. Austria is one of the 10 richest countries in the world in terms of GDP per capita and ranks third in countries with higher GDP of the European Union since 2009. It has a social market economy and a well-developed very high standard of living. Until the 1980s, many companies were nationalized. In the past few years, however, privatization has reduced state holdings to a level comparable to other European economies. Together with a highly developed industry, international tourism is the most important part of the national economy. 16 Germany has historically been the main trading partner of Austria, making it vulnerable to rapid changes in the German economy. But since Austria became a member of the European Union, have established closer links with other European Union economies and reduced their economic dependence on Germany. In addition, the number of EU members has prepared an influx of foreign investors attracted by access to the single European market and proximity to the EU. Austria is an industrially developed country with an important component in services. Services account for 67.5% of the economy, however, the remaining 30.3% includes major industrial sectors such as machinery manufacture, steel industry and the chemical industry and automotive. Austria also is internationally known for the sophistication of the electronics industry, especially electronic products tailored. While some industries, such as iron and steel and chemical plants are large companies that employ thousands of people, firms in Austria are relatively small on an international scale. In general, it dominated by SMEs. Only 167 companies have more than 1,000 employees. 16 http://www.imf.org/ IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 37 SPAIN Spain is a member nation of the European Union, established in social and democratic state of law and whose form of government is a parliamentary monarchy. The country, with its capital in Madrid, took the greater part of the Iberian Peninsula, to which is added the archipelagos of the Balearic Islands (in the Western Mediterranean Sea) and the Canary Islands (in the northeast Atlantic Ocean), as well as the North African cities of Ceuta and Melilla. Spain has land borders with France and the Principality of Andorra to the north, Portugal in west, and the British territory of Gibraltar to the south. In its African territories, shares land and sea borders with Morocco. Spain is currently the ninth world economic power. 17 Spain has traditionally been an agricultural country and is still one of the largest producers of Western Europe, but since the mid-1950s industrial growth was rapid and soon reached a greater weight than agriculture in the economy. A series of development plans, which began in 1964, helped expand the economy, but in the late 1970s began a period of economic recession due to rising oil prices and increased imports with the arrival of democracy and open borders. Subsequently, it increased development of the industries of steel, shipbuilding, textiles and mining. Currently, the influence of services in economy and the Spanish society is clear both in the gross domestic product (contribution in 2005: 67%) and in the employment rate by sector (65%). Income from tourism allows improve the balance of payments. Spain is the second country in the world that receives more foreign tourists, using data from the World Tourism Organization, just behind France, enjoying a share of 7% of world tourism. 18 Spain produces, amongst others, textiles, iron and steel, motor vehicles, chemicals, clothing, footwear, ships, refined petroleum and cement, standing out for its value industrial sectors of food, beverages and transport equipment, including most notably the automotive and aerospace industry. Spain is one of the world's leading producers of wine production in 2003 reached 30 million hectoliters. The steel industry, before his conversion of the 1990s, was concentrated on Bilbao, Santander, Oviedo and Aviles. The energy sector in Spain is approximately five percent of the country's gross domestic product, its importance goes beyond its share in total output, constituting a strategic sector of needed by all branches of economic activity, deemed necessary energy for any kind of production of goods and services. Industry, sector where bet much in his time because the problems of scarcity of energy resources in national territory. Also noteworthy the mining that has lost much weight but during the last decades of the twentieth century was a highly exploited. 17 http://www.imf.org/ 18 According World Tourism Organization IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 38 There are differences from one country to another, but analyzing some data we can see that also they have some data in common. The Central European country has a population of about 8'4 million while Spain has nearly 47 million, plus its surface is six times more than the country of Austria. In contrast, the population density is 91 inhabitants per km in Spain similar to Austria with the 97. One of the strangest coincidences are in the human development index (HDI) than in its last schedule, in 2009, established a single index for both countries with an HDI 0'955 exactly in the position 14 of the most developed countries world, also tied with Denmark. 1 NORWAY 0'971 11 LUXEMBURG 0'960 2 AUSTRIALIA 0'970 12 FINLAND 0'959 3 ICELAND 0'969 13 USA 0'956 4 CANADA 0'966 14 AUSTRIA 0'955 5 IRELAND 0'965 15 SPAIN 0'955 6 NETHERLANDS 0'964 16 DENMARK 0'955 7 SWEDEN 0'963 17 BELGIUM 0'953 8 FRANCE 0'961 18 ITALY 0'951 9 SWITZERLAND 0'960 19 LIECHTENSTEIN 0'951 10 JAPAN 0'960 20 NEW ZEALAND 0'950 Table 3 Human development 19 This is a list of countries by Human Development Index included in the Human Development Report of the United Nations Program on Development, based on data compiled in 2007 and published on December 18, 2008. This list covers 179 Member States of the United Nations (out of 192), in Table 3 we can see the 20 countries that top the list. The HDI (Human Development Index) is a comparative measure of life expectancy, literacy, education and living standards for countries around the world. It is a standard unit for measuring the quality of life and especially the protection of children. It is used to distinguish whether a country is developed, is developing or is underdeveloped, and also to measure the impact of economic policies on quality of life. UNEMPLOYMENT Austria and Spain are two countries that are part of the European Union, Spain entered in EU in 1986 and Austria nine years later, in 1995, it was then that trade relations between Austria 19 Last statistics of the Human Developmen 2009- Report (according ONU) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 39 and Spain showed a very dynamic development, with significant increase in many aspects for both, but unbalanced with a strong surplus in favor of Austria. 20 One of the major problems of the current situation is unemployment in Europe that has produced the global crisis we are suffering; the latest data for June are as follows. MALES FEMALES TOTAL EURO AREA (15) 9'8 10'1 9'9 EURO AREA (27) 9'7 9'5 9'6 AUSTRIA 3'8 4'1 3'9 SPAIN 19'8 20'2 20'0 Table 4 Unemployment June 2010 21 The data in Table 4 show us a huge difference between one country and another, we can say that Spain has always been characterized by a high unemployment rate, but after the crisis the data that Spanish unemployment has reached has been scandalous, arriving at 20%, which is 5 times the existing rate in the central European country with an unemployment rate of only 4 percent. This data can tell us that the crisis has hurt more to Spain, but there are other problems as the Spanish labor system has proved weak, so the crisis has affected Spanish society but also the recovery is slower than in other euro zone countries. After the crisis, the Spanish government has implemented a series of measures to alleviate the bad economic data of recent years and present a cleaned and committed image to the other countries in the European area, many of these measures have been totally antisocial and very protested by the population and have been among others: to increase the retirement age, the increase in VAT, cuts in public works, reducing salaries to civil servants etc. Other measures being studied has a lot about Austria and is the implementation of the Austrian labor system, which in the following lines will explain the root of the measure. IMPLEMENTATION OF AUSTRIAN MODEL OF EMPLOYMENT IN SPAIN As mentioned above, after the serious crisis which has suffered in recent years Spain, the Spanish government has decided to implement the Austrian model of work. But not one 20 Economic Newsletter ICE ( Fernando Die Ortega) 21 According to data from Eurostat 2010M06 IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 40 hundred percent implemented, only a few aspects of this model. The Austrian model, work waiver severance pay in exchange for opening an individual savings account in which firms enter an amount proportional to the salary account, to which you can access in case unemployed for a dismissal, or at the end of our working life as a complement to our pension. The theoretical advantages of this model are several, including: 1. This is a single contract; legal duality disappears between permanent and temporary workers. 2. Compensation for dismissal has been paying during the employment relationship with the company, so the cost of firing a worker is the same, namely zero. 3. The compensation accumulated by employees is incorporated in their specific human capital, in the increasing wages with seniority in the company. In any case, this human capital could be the key element in the dismissals that companies have to deal because of falls in demand. 4. The adaptation to technological change and the need for adjustment in the management of human resources would also be facilitated by reducing the cost of replacing workers with more generic human capital (the younger) compared to those of age advanced. In short, the latter should updated, invest in themselves and require a better management and efficiency of training systems. 5. The accumulation of compensations for dismissal not discourage the voluntary mobility of worker, because exist the portability of the account from one company to another. Again, the most senior workers have greater incentives to invest in themselves compared to a traditional dismissal regulation. This we could come well in these times of sectoral adjustment. 6. We can only access the account, if we have been working a minimum time in the company (three years in Austria), which limits the possible layoff agreements between workers and firms. 7. Companies no longer need to have provision of funds to pay for these dismissals. 8. There is no retroactivity, and the move to the new system is voluntary. The transition from the current dual model may be faster than it would generate another single contract: at the margin, a significant proportion of workers (those with little antiquity in the company or who consider that their probability of dismissal is low) would rather go to the new system (in Austria, 40% of labor relations was governed under the new system, after three years of the implantation). 9. Revitalize the capital market, by creating a new fund with more substantial amounts. 10. A new pillar for the pension system, which is really necessary at this time. The advantages of the Austrian model make sense only in the pure model, the mixed model is to be implemented in Spain, could lose some of its effectiveness. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 41 It would not be a single contract, they still remain differences between temporary and indefinite contracts, and would set up somewhat lower compensation (for example, the current contracts for promote the employment (33 days per year of service)). In any case, the application of the Austrian model assumes a reduction of severance pay for those who actually experience it and additional compensation for those that not experience it in your life. Thus, in principle, the model change is detrimental to those groups traditionally more vulnerable to dismissal and those companies that currently make greater use of internal flexibility. Interestingly, the Austrians were departed on a model of increased compensation to seniority, and hence the evidence on this change of model could, in principle, give an idea of the advantages of a model against another. With the new model, we also must be assuming new problems of moral hazard. Problems that, maybe, are not as important in work culture Germanic, but in Spain could have more to be feared. But in addition, the profile of productivity in many jobs over time in the company is not growing (Spain is the country with more than pawns in Europe, after Malta) and yet have to bear cost increases supplements work by seniority. For this, many companies, before assuming the risk of having to lay off workers before retirement and that the dismissal is more expensive with increasing seniority in the company (being that increase the moral hazard with learning or the probability of a shock with time for employee) prefer to hire temporarily, hence the why in Spain there is a high rate of temporary employment. What fees should apply? These fees are probably the crux of the problem facing today social partners. In Austria, set a fixed fee of 1.53 on wages, it appears that this share was revealed as insufficient to meet such objectives as that the new system became a pillar of the pensions system. In Spain case, the starting point is very different from the Austrian. (A) The Spanish allowances are much higher than those that the Austrians had in 2003 (time of system implementation). (B) The scene for the profitability on capital and real wage growth in 2003 is very different from today, which means again assume a greater share if Spain passes to the pure model and if had a similar job market like in Austria. (C) Since the application of this model, likely, would carry a reduction of Social Security contributions, should be cut some kind of public funding, which is never a very action popular. (D) Exist long distances between Austria and Spain in data, although Austria is also a tourist country, indeed in 2007, before the crisis, the weight of employment (population 15 to 64 years old) in the hotel and catering business was similar to Spanish. It was also the country of EU15 with the trade with more weight on employment, but that if he had fewer jobs in construction. Still, its temporary rate was between 7 and 9% and their unemployment rate was 4-5% when they decided to carry IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 48 As we can see from the map 1.1 where we see the indices of export volume, where the countries of Central Europe are those that export have higher rates, while the peripheral states as the Iberians, Ireland and Greece have a smaller volume of export. The specific volumes of Austria and Spain are 120.6 and 108.1 respectively. Illustration 10 Import volume index It is also curious that the countries of central Europe that have more volume of imports and countries like France, Greece, Ireland and Britain have lower import volume, the specifics of Austria and Spain are 111.7 and 102.5 respectively. A clear comparative data is of imports and exports of both countries during the year 2009. Spain Country by origin groups Percentage Imports Exports Total 100,0 100,0 Europe 60,2 72,7 Africa 9,4 5,4 America 9,6 8,9 Asia 19,9 8,2 Australia/Oceania 0,9 1,1 Table 5 Spanish imports and exports IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 49 Austria Country by origin groups Percentage Imports Exports Total 100,0 100,0 Europe 83,6 82,6 Africa 1,2 1,5 America 4,0 6,5 Asia 11,1 8,6 Australia/Oceania 0,1 0,7 Table 6 Austrian imports and exports We can see that there is a clear difference between the two countries, and it is the percentage of imports and exports in Europe that Austria makes are much higher than those of Spain, because Spain has a lot of involvement in the continents of America and Africa, as of the close relation with Latin America and the proximity to Africa, especially in its trade relations with Morocco. 27 Trade Relations In the following lines we see the trade relations between the two countries in the last year; in the first two tables (Table 1.3 and Table 1.4) it is the list of the 10 communities with greater economic relationship in both imports and export. In the following two (Table 1.4 and 1.5) it can see the products that generate more money in trade between the two countries. AUTONOMOUS SPAIN - > AUSTRIA NUMBER OF COMMUNITY VALUE OPERATIONS 1 CATALONIA 536 32667 2 BASQUE COUNTRY 124 6956 3 ARAGON 111 1518 4 MADRID 101 7092 5 C.VALENCIANA 100 8673 6 NAVARRA 79 835 7 CASTILLA LEON 75 1097 8 ANDALUCIA 62 2481 9 GALICIA 52 5141 10 MURCIA 47 1668 Table 7 Trade export relations Spain->Austria 27 www.eurostat.com IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 50 In what follows in trade export relations between one country and another were numerous, exactly Spain made 71.171 exports with a value of 1.340 billion Euros, with motor vehicles and organic chemicals as products more exported. Catalonia is the region with more exports with a total value of 535 billion Euros, followed by the Basque Country and Aragon with 124 and 111 billion respectively. AUTONOMOUS AUSTRIA - > SPAIN NUMBER OF COMMUNITY VALUE 28 OPERATIONS 1 MADRID 478 36178 2 CATALONIA 477 29814 3 ARAGON 265 4338 4 C.VALENCIANA 115 7339 5 BASQUE COUNTRY 111 5917 6 GALICIA 58 2828 7 CASTILLA LEON 40 3062 8 ANDALUCIA 34 4353 9 CASTILLA MANCHA 33 4493 10 ASTURIAS 25 1498 Table 8 Trade export relations Austria->Spain In regard to imports, Austria performs with Spain 112 562 operations with a sum of just over 1.725 billion Euros, being the most imported product, the mechanical and electrical appliances, being Madrid, Catalonia and Aragon in that order for regions receiving more products from Austria. PRODUCT SPAIN-> AUSTRIA VALUE Nº OPERATIONS 1 MOTOR VEHICLES, TRACTORS, VELOCIPEDE 417 2935 AND OTHER LAND VEHICLES, PARTS AND ACCESSORIES 2 ORGANIC CHEMICALS 132 362 3 NUCLEAR REACTORS, BOILERS, MACHINERY 82 7017 AND MECHANICAL APPLIANCES; PARTS OF THESE MACHINES 28 Value in billion € IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 51 4 PHARMACEUTICALS 77 1166 5 EDIBLE FRUIT AND NUTS, PEEL OF 69 1386 AGRIOS O SANDÍASCITRUS FRUIT OR WATERMELONS Table 9 Products more exported Spain->Austria The product most exported by Spain in Austria is the vehicles with a big difference from the rest, being almost 32 per cent of total Spanish exports in the Austrian country. PRODUCT AUSTRIA-> SPAIN VALUE Nº OPERATIONS 1 NUCLEAR REACTORS, BOILERS, MACHINERY 433 15425 AND MECHANICAL APPLIANCES; PARTS OF THESE MACHINES 2 MACHINES, EQUIPMENT AND ELECTRICAL EQUIPMENT AND 171 10666 SOUND AND IMAGE APPLIANCES AND THEIR PARTS 3 MOTOR VEHICLES, TRACTORS, VELOCIPEDE 143 5958 AND OTHER LAND VEHICLES, PARTS AND ACCESSORIES 4 PLASTIC AND ITS PRODUCTS 124 15138 5 PHARMACEUTICALS 65 1088 Table 10Products more exported Austria->Spain Moreover, the most exported Austrian product in Spain is the mechanical devices and its applications, at a rate of 25 percent of total Austrian exports in Spain. 29 Illustration 11 Spanish exports 29 DATABASE OF FOREIGN TRADE (agencia tributaria) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 52 Exports to Spain in Austria are the 0.9 percent of total exports to Spain carried out worldwide. Illustration 12 Austrian exports By contrast Austrian exports in Spain are the 1'84 per cent of total exports, due to increased commercial relations of Austria with the European countries, Spain has a lower percentage because their trade relations with countries of American or Africa are higher. 30 Illustration 13 Spanish imports/exports relation Spain is able to export 78 euro cents for each euro imported. 30 national institute of statistics (www.ine.es) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 53 Illustration 14 Austrian imports/exports relation On the other hand Austria is able to export 1'28 Euros for euro imported, despite that Austria is a smaller country and have a lower total volume of exports and imports. The export growth has driven the recovery in Austria. But the recovery remains fragile. It is expected to improve this parameter in the second quarter of 2010. However, the recovery of industrial production remains weak, partly because corporate loans have fallen significantly. According to the National Bank of Austria, new business loans granted by banks fell 1.7% in 2009, a trend that has continued in 2010. 31 The Spanish data are not as optimistic as the Austrians and the recovery appears to be slower. Strong social measures and cuts the Spanish government (especially labor reform) expects to be a salutary lesson and to attract new business investment and help the country's growth. 31 According credit and caution (Atradius Group) IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 54 SOCIAL AND CULTURAL FACTORS IN AUSTRIA AND SPAIN LOCAL GOVERNMENT Since joining in the EU, Austria and Spain have taken all import regulations and customs regime of the European Community. In the European internal market there are no tariffs. The EU has a common external customs. The two countries are governed by similar customs laws. Customs taxes and tariffs outside Europe Import tariffs are about 4%, but nearly 60% of all goods can be imported into the EU free of customs duties. The tariff of the two countries is based on the EU integrated tariff (TARIC). The EU may also suspend tariffs, provided that the imported products are not manufactured in the EU. The Generalized System of Preferences (GSP) determines the conditions for preferential tariffs on imports from developing countries. Additionally there are several special agreements between member countries of the European Union and developing countries. To be eligible for these preferential tariffs need a certificate of origin. The import regulations of the EU, in principle, are liberal. However, there are some exceptions and restrictions: import quotas, antidumping duties, UN embargoes There are special rules for certain products, such as: textiles, iron and steel (Eastern Europe), agricultural products, weapons, dual-use goods or to trade with China. It is also worth noting that in Austria and Spain are in force the rules on packaging, import regulations and customs regime of the European Union. The EU regulation is, in principle, liberal, also include the CE Certificate, that we can observe in many products The EC certificate confirming compliance with basic safety standards set by the EU of products such as machinery, construction materials, equipment telecommunications, medical devices, sporting goods, toys and explosives. Products with this certificate can be marketed and sold freely in all countries of the EEA (European Economic Area) without further testing of the product in the country of destination. AUSTRIAN GOVERNMENT AID The State and the Federated States Austrians invest million Euros in research and development. In addition, there are investments in R & D from companies. IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 55 The R & D commitment of the international industry in Austria is also changing dynamically: 65% of expenditure on R & D of heavy industry is run by Austrian multinationals. 32 Other measures taken by the Austrian government incentive schemes are, the research exempt amount of 25% or 8% premium to research are structural measures such as the creation of the Austrian agency for promoting research. These measures speak very well on the bet that makes the Austrian country about research and development, which makes being in the forefront of global technology. SPANISH GOVERNMENT AID The Spanish government invests a significant portion of their budgets on aid and subsidies to industry. Much of this aid has gone to the restructuring of certain types of industries such as manufacturing or shipyard. Also they offered subsidies to industries that promote clean and renewable energies, and green industries that are environmentally friendly. Local governments also receive grants from the government for improvements in local industrial sites to upgrade and accommodate current needs. Also includes commissions and funds for the revival of the economy, funds that often they are destined for industry, an example can be the ICO Line. The ICO is working for growth and improving the distribution of national wealth and promote economic activities that by their social, cultural, innovative or ecological that deserving priority attention. 33 In final accounts, the Spanish government in recent times is designed aids to the reindustrialization of the industry and to encourage new forms of clean energy. LABOUR LEGISLATION AND LEGAL FRAMEWORK In Austria, the working environment is fairly traditional, with few complaints from workers. Working conditions depend on the type of contract you have. Austria has some very strict laws for protecting employees, some of which date back to the 50s. Although changes are being made to adapt to an increasingly competitive environment, working conditions are still good. The normal working day is 8 hours a day, five days a week. Extra hours are paid. You are entitled to 25 days paid holiday a year, although you can catch more days paid on certain occasions (if your child is sick, moving house, etc.). If you get sick, the company is paying you and you can usually stay home on the first day without any obligation. From the second day you have to get a medical certificate. In case of prolonged illness, you will receive money from social security. In Austria, social security is 32 Advantageaustria.org 33 Ministry of Industry ICO Line IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 56 compulsory and is usually automatically deducted from wages. Self-employed are also obliged to pay social security. In Spain, working conditions are defined for the Spanish Constitution of 1978, the Workers' Statute, the Law on Prevention of Occupational Hazards and the royal decrees, laws and other legal rules that implement them. Besides it establishes collective agreements that apply in the sectors of production or particular enterprises. Collective agreements are essentially agreements freely adopted between employers and employees to set standards (normative aspect) that will govern the working conditions in a given workplace (company or sector) and the rights and obligations of the parties (appearance bonds), always marking the minimum required by law. 34 SOCIAL ATTITUDES TOWARDS ENTERPRISE Austria and Spain are countries where are all kind of industries, but sometimes are social actions against some of them that hinder the possibility of establishing industries in these countries. In Austria for example there is no nuclear industry so there is no nuclear power plant in its territory. Regarding the food industry, Austria maintains the ban on growing GM maize despite attempts by the European Commission lift the ban on genetically organisms modified. Spain has 8 nuclear reactors in six different plants of the peninsula, which raised many objections for be eradicated by high danger of contamination. Other industries that pollute the environment like petrochemical industries also raise protests by environmental groups. The fur industry for the potential treatment given to animals also it has a negative social attitude. A curious case is that produce few years ago in Spain, where it came from a stream of movement that intended to carry out a boycott of products produced in Catalonia and it raised at people buy another brand of a non-Catalan product. QUALITY OF LIVE Many industries often choose less developed countries where wages are low and local laws are flexible, but the quality of life of these countries is low. This can be useful for industries where there is little management and what is really needed is cheap labor. But there are industries that need a lot of managers and technicians engaged in business and might need to move where it is to locate the industry. Austria and Spain are two European countries where the quality of life in general is very good. 34 Ministry of Labor and Social Security, Royal Legislative Decree 1 / 1995, 24 of March IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 57 The quality of life in Austria is exceptional and has high quality in social services, in health provision as compatibility between work and family. The social security system in Austria is comprehensive, mandatory and funded through taxes. Includes social security benefits for all employees and their relatives in case of medical care, unemployment, maternity and retirement, and public welfare for citizens in need. It should also say that Vienna has been named the second consecutive year the city with the best quality of live in the world 35 . To determine the quality of life index, is analyzed in total 39 key factors, including political, economic, socio cultural, medical, educational, transportation and utilities, recreation, consumer, housing, climate, natural hazards, pollution environmental and personal safety. Political stability, security, health care, leisure and entertainment, restaurants, colleges, training, culture, traffic, environment and living costs have been instrumental in the election of Vienna. Spain contributes two cities in this ranking but in positions 44 and 48. The combination of economic prosperity and family stability has placed Spain in the tenth position of the index of quality of life 36 . The report combines objective data, the average income of countries or their life expectancy, with more intangible factors such as quality of family relationships and the strength of their social life. Thanks to these data, Spain is in top positions, if only they had taken account of purely economic factors, our country would have been stuck in 24th place. SOCIAL OR ETHNIC CONFLICTS Social conflicts in a territory are not beneficial to anyone, and neither for companies that want to lead their industries in those territories. In Austria there are hardly any major conflicts that may affect location decisions. By contrast in Spain if there is a social conflict that may affect this issue, and is the terrorist group ETA (Euskadi Ta Askatasuna, Euskera expression translatable into Castilian like Euskadi Fatherland and Liberty, is a terrorist organization, self-declared independence , Basque nationalist and Marxist-Leninist, which invokes the armed struggle as a method to obtain its fundamental objectives in which a priority is the independence of Basque Country which called Euskal Herria, that take part in state of Spain and France. Their methods have ranged from murder and kidnapping to economic extortion, requesting on Basque businessmen called "revolutionary tax", threatening letters in which they are required to pay a certain amount of money in exchange that its assets and even their physical integrity is not threatened. Although many have denounced these practices mafia, it is difficult to determine how many people carry this notice in silence on their backs, to the psychological terror imposed by a terrorist. 35 According Mercer Human Resource Consulting 2010 36 According “the economist” IMPACT OF THE CULTURAL AND SOCIAL FACTORS IN THE LOCATION OF INDUSTRY 64