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Globalization and local industrial development in the European periphery: Enterprise strategies in Eastern Macedonia and Thrace Lois Labrianidis a; Christos Kalantaridis b a University of Macedonia, Thessaloniki, Greece b Luton Business School, Luton, Bedfordshire, UK Online Publication Date: 01 August 1997 To cite this Article: Labrianidis, Lois and Kalantaridis, Christos (1997) 'Globalization and local industrial development in the European periphery: Enterprise strategies in Eastern Macedonia and Thrace', European Planning Studies, 5:4, 477 — 494 To link to this article: DOI: 10.1080/09654319708720413 URL: http://dx.doi.org/10.1080/09654319708720413

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European Planning Studies, Vol. 5, No. 4, 1997

Ml

Globalization and Local Industrial Development in the European Periphery: Enterprise Strategies in Eastern Macedonia and Thrace

LOIS LABRIANIDIS AND CHRISTOS KALANTARIDIS [Paper first received, November 1996; in final form, January 1997]

ABSTRACT Over the past quarter of a century or so parts of the countryside of southern Europe have undergone a process of socio-economic change. More specifically, clusters of small towns and villages in Spain, Portugal and Greece, following on the acclaimed development path of the Third Italy, experienced a mushrooming of new manufacturing enterprises. Industrial growth in these areas was closely associated with the renaissance of industrial districts and a trend towards increased globalization of production. Within this context we set out to explore how enterprises located in peripheral areas are integrated in international production networks. Our paramount aim is to identify the effects of increased globalization upon the depth and characteristics of the embeddedness of new manufacturing enterprises and upon the local socio-economic milieu. Drawing upon the experience of Eastern Macedonia and Thrace, one of the poorest regions of the EU, we argue that industrial growth was initiated by the decision of large-scale enterprises to move into the area. This relocation was induced by the incentives involved in the regional development policy and the availability of a small army of underemployed males and house-boundedfemales. The deepening and widening of the processes of globalization during the late 1980s and early 1990s offered a number of new threats and opportunities to local manufacturers. The 19 enterprises included in the panel not only survived in the face of intensified competition, but were also able to achieve a modest increase in the employment that they provided.

1. Introduction During the early post-war period southern European economies existed in a grey area between the advanced industrialized countries lying to the north and the Less Developed Countries (LDCs) to the south - indeed just a few kilometres away on the opposite coast of the Mediterranean. Large parts of the countryside were regarded as backward in the sense of being characterized by peasant agrarian households employing traditional farming techniques that led to relatively lower returns from agriculture and the perpetuation of widespread underemployment in the sector (Seers & Vaitsos, 1982). However, during the 1970s and 1980s small towns and rural areas located in Italy, Spain, Portugal and Greece have undergone a process of socio-economic change. These formerly peripheral areas experienced a mushrooming of new manufacturing enterprises (for reviews see Hadjimichalis & Papamichos, 1990; Belussi, 1996; Garofoli, 1992; for a case study on Greece, see Labrianidis, 1988). Unlike the Lois Labrianidis, University of Macedonia, 156 Egnatia St., 54006 Thessaloniki, Greece; and Christos Kalantaridis, Luton Business School, Park Square, Luton, Bedfordshire LU1 3JU, UK. 0965-4313/97/040477-18

© 1997 Carfax Publishing Ltd


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Lois Labrianidis and Christos Kalantaridis

pattern of industrial growth in the more favoured, urban parts of southern Europe, which had occurred in the 1950s and 1960s—a modified version of the Fordist-Taylor paradigm, the element common to these regions was the emergence of small and even micro-scale enterprises that were characterized by a considerable degree of adaptability with respect to both factor and product markets (Philimore, 1989). Reliant upon family members and female workers, and frequently characterized by an informal nature, these enterprises were in a strong position to escape—or at least minimize—the host of fiscal and regulatory constraints (Mingione, 1990). However, generalizations about the existence of what might be called a 'new model firm' must be hedged with qualifications. The very qualities that account for success, such as the high degree of product specialization, adaptability with respect to shifts in market demand, and the deployment of flexible work practices, preclude uniform categorization (Simmons & Kalantaridis, 1994). The growth of these firms was closely associated with the advance of two contradictory phenomena that attracted widespread attention. The first phenomenon concerned a trend towards an increased globalization/internationalization of production (Amin & Thrift, 1994). This was identified with an expansion of trade and intensification of competition on a world scale—instigated by advances in communications and information processing, combined with the pervasive influence of large corporations (Amid & Thrift, 1992). This lent support to the ideas put forward by the fabrica difiissa school of thought, that industrial development in hitherto peripheral regions of southern Europe was determined largely exogenously (Hudson & Lewis, 1984; Murray, 1987). They pointed to a regime of lower unit costs as a result of long hours, poor remuneration, and modest capital and running cost of premises (Amin, 1989). Therefore, they suggested that the future of these new industrial enterprises was uncertain. The second phenomenon involved the renaissance of geographically defined areas of industrial production (dei Ottatti, 1996). Within this context the dynamism experienced by several regional economies was attributed primarily to the advantages involved in agglomeration—such as the build-up of a local pool of expertise and know-how, lower transactions and transportation costs, and the growth of a local infrastructure of specialized services and supply, structures (originally advocated by Marshall, 1966; reviewed by Courlet & Saulage, 1995). The clustering of enterprises in industrial districts afforded a measure of support to those who advocated that characteristics of the local milieu—such as convenient location and accessibility efficient infrastructure, the establishment of a democratic system of local government responsive to the requirements of new firms, a low degree of social differentiation and a tradition of cooperation, and finally the tradition of artisanal self-employment, were crucial in enabling local entrepreneurship to flourish (Garofoli, 1992). Social embeddedness was widely perceived as a major reason for the ability of small and micro-scale firms to innovate (Granovetter, 1985; Harrison, 1992). However, there was far less agreement among academics about the ability of enterprises located in industrial districts to cope with change in general, and the increased globalization of production in particular. On the one side, the high degree of cohesion within the milieu can preclude competing perceptions and interpretation of information regarding changes in the external environment, that diminishes responsiveness (Grabher, 1993). The development of obstinancy or inertia in embedded regional networks places serious doubts over the long-term viability of this pattern of industrial growth. On the other side, the deepening and widening of globalization processes may undermine social cohesion within industrial districts (Amin & Thrift, 1992). More specifically, the strategy of large corporations to decentralize their production to quasi-autonomous departments or subcontractors can dilute the set of collective values, institutions and practices that are responsible for the emergence and grow of geographically defined areas of industrial production. Changes in the institutional framework governing the global economy, that accommodated the growth of new manufacturing enterprises, provide further grounds for scepticism.


Enterprise Strategies in Eastern Macedonia and Thrace 479 Increasing market integration associated with the completion of the Single Market and the establishment of a customs union between the EU and other Mediterranean countries, the successful completion of the Uruguay Round and the gradual abolition of multi-lateral trade restrictions, combined with the effects of the transition that has been taking place in the former Socialist bloc expanded the scope for greater cooperation and/or intensification of competition. Within this context we set out to explore the changing position of enterprises located in peripheral areas, in global production networks. Our paramount aims was to examine the enterprise strategies implemented during the 1990s and evaluate their prospects for the long-term survival and growth of localized production systems in southern Europe. With this in view we carried out extensive fieldwork investigation in the northern Greek region of Eastern Macedonia and Thrace during the summer of 1995 and 1996.1 The selection of this region was based upon two main criteria. Firstly, this region enjoyed rapid industrial growth during the 1970s and 1980s, led primarily by the clothing industry. Secondly, as a result of globalization this region is set to experience a particular intense period of transformation. Geographical proximity to Bulgaria means that Eastern Macedonia and Thrace is at the forefront of threats and opportunities emanating from the formerly planned economies, whereas the liberalization of world trade—in response to the completion of the Uruguay Round, has considerable effects upon an economy that relies on agriculture and traditional manufacturing industries. We argue that industrial growth in Eastern Macedonia and Thrace was initiated by commercial and manufacturing enterprises in the Federal Republic of Germany, who had begun to see the advantages of diffusing production to lower wage cost areas outside that country. Following on from this was a mosaic of subcontracting arrangements and relationships of ownership and control between local manufacturers and buyers abroad. In order to move beyond the all-embracing and over-simplified concept of dependency a typology is developed in order to examine the nature of inter-firm linkages and its implications upon the long-term survival of this pattern of growth. We conclude that close integration in the global economy has enabled local manufacturers to adjust with a considerable degree of success to the threats and opportunities that emanate from the deepening and widening of globalization during the late 1980s and early 1990s. Our paper is organized as follows. In Section 2 we introduce the study area and examine the pattern of manufacturing growth. In Section 3 we devise a typology of the modes of internationalization and the enterprise strategies deployed in the clothing industry during the 1990s, and in Section 4 we examine their effectiveness in enhancing competitiveness. Finally, we offer some conclusions about the viability of this pattern of growth. 2. The Area and the Industry Given the competition between 'peripheral' regions to supply firms and industries in core countries, the role of local physical and socio-economic factors which may induce investment is believed to be of considerable importance. However, the region of Eastern Macedonia and Thrace appears to be relatively disadvantaged in comparison to other parts of the mainland. It occupies an area of some 14155 km2—approximately a tenth of the total for Greece, and its population was 570261 inhabitants as of 1991—just over 5% of that for the country as a whole (NSSG (National Statistical Service of Greece), 1991). Another significant feature of the population in the region is the existence of a sizable Muslim minority—the single largest religious group of non-ethnic Greek origin in the country. Overall, there are some 105000 Muslims in Eastern Macedonia and Thrace—approximately a fifth of the population (NSSG, 1991). The existence of a large non-ethnically Greek


480


population has significant implications upon the development prospects in the region (Papayannakis et al., 1994). Specifically, the alienation of the minority from the public sector (the single largest employer of graduates in the country) combined with limited employment opportunities elsewhere led to the formation of a pool of underemployed workers in agriculture (Tsoukalas, 1987). This exerted downward pressures in the level of labour costs in the region. Indeed, hourly wages in manufacturing in the region are among the lowest in the country—at 88% of the national average and only three-quarters of those prevailing in Greater Athens (NSSG, 1993). Moreover, the availability of a reservoir of female labour enclosed within the confines of the family house for reasons of custom and tradition, offers opportunities for the spread of homeworking practices. Prior to the recent changes in the former Socialist economies of central and eastern Europe the area was not well placed, in location and accessibility, to take advantage of market opportunities. It is located between Bulgaria to the north and Turkey to the east, economies that (for different reasons) offered very few opportunities for trade and cooperation until the early 1990s. The Aegean Sea lies relatively unexploited to the south—due to the lack of a major port, and only to the west is there the relatively prosperous Greek region of Central Macedonia. Eastern Macedonia and Thrace lack not only an urban area that could potentially stimulate economic growth and structural transformation—the largest town had fewer than 60000 inhabitants in 1991—but also are relatively distant from main urban conurbations. The closest urban areas comprise the city of Thessaloniki to the west, Istanbul to the east, and Sofia to the north—all some 200 kilometres or more from the boundaries of the region. Geographical remoteness from the main markets and administrative centres is exacerbated by inadequate road infrastructure and a somewhat antiquated rail network (Papayiannakis et al, 1994). However, during the past 5 years or so the availability of opportunities for trade and cooperation with neighbouring economies has increased, because of the introduction of market reforms in Bulgaria. These changes had significant implications upon enterprise strategies in all Greek industries (Labrianidis, 1996) and more so in specific industries such as textiles and clothing (Labrianidis, 1997); however, they failed to alter the position of the region as one of the poorest in the EU. Indeed, as late as in 1991 Eastern Macedonia and Thrace displayed one of the lowest per capita incomes: it stood at only 43.3% of the average for the EU as a whole. This was the twelfth lowest among all regions—and if the transition economy of the former Eastern Germany was excluded the study area dropped to the bottom six. The relatively underdeveloped and 'backward' structures of the region are also apparent in the survival of a sizeable agricultural sector, characterized by peasant agrarian households practising traditional farming methods, and periodic bouts of out-migration. Agriculture was—and still is—the most important source of employment and income generation in the region. Indeed, the contribution of the sector in total employment has changed only modesdy during the past 30 years or so. It dropped from 40% of the economically active population in 1961 to more than a third (34%) in 1991—the third highest figure for all the regions of the EU (NSSG, 1961, 1971, 1981, 1991). At the same time, the contribution of the sector to the GDP of the region fell from 38.2% to 29.2% (NSSG, 1963—1993). Agriculture in the region is dominated by small family holdings. Thus, in 1991 the average size per agricultural holding was five hectares, a figure almost identical to that for Greece as a whole but only a third of the average for the EU. The prevalence of peasant proprietorships has significant implications for the supply of labour for manufacturing in the region. This is because this type of agrarian structure precluded the emergence of a class of big landlords on the one hand, and of significant numbers of landless agricultural labourers on the other. Thus, the peasant family household remained the basic unit of production and social reproduction, which provided the majority of new workers for manufacturing.

Enterprise Strategies in Eastern Macedonia and Thrace 481


Table 1. Comparison of change in the employment provided by Manufacturing in Eastern Macedonia and Thrace and Greece as a whole, 1969-1988 Eastern Macedonia and Thrace*

1969 1973 1978 1984 1988

Greece*

N

%

N

%

17 697 16 679 25 451 32 549 37 462

10.4 9.3 12.5 16.2 17.2

501 522 604 127 671 496 698 650 706 500

15.9 18.7 19.6 20.2 19.3

•Manufacturing as a percentage of the economically active population. Source: NSSG (1969, 1973, 1978, 1984, 1988).

The small size of the agricultural proprietorships and the low incomes prevailing in farming, combined with the limited employment opportunities in the secondary and tertiary sectors during the 1950s and 1960s, instigated a rural exodus from the region. Out-migration to both urban destinations within Greece and overseas caused a substantial reduction of the total population (by more than 12%) between 1961 and 1971 (NSSG, 1961, 1971). When the opportunities for emigration and internal migration dried-up in the mid-1970s, the need to secure an alternative source of employment and income generation became acute. This combined with the problems associated with rapid economic growth in the major urban concentrations of Greece (Athens and more recently Thessaloniki) prompted the Greek state to encourage industrial development in rural areas and small towns, through the intensification in 1976 and again in 1978 of the regional development policy. The regional development policy attempted with some degree of success to alter the spatial distribution of industrial production. Thus, during the late 1970s and early 1980s Eastern Macedonia and Thrace were defined either as 'non-industrial areas' or 'border zones' and enjoyed a generous package of taxation and financial incentives (Argiris, 1986). These included reduction of turnover tax for new enterprises or units that have relocated of between 50% and 75%; elimination of import duties for machinery components and spare parts; 40—50% deduction of social security contributions; grants covering 20-40% of the expenses for the erection of buildings, and interest free loans up to 50% of the cost of relocating away from old industrial centres (Labrianidis & Papamichos, 1990). In 1982 the percentage of grants covering the cost of any productive investment in the region increased to 55% (Clout, 1987). More recently (in 1994) manufacturers located in Thrace secured a 20% subsidy of total labour costs, whereas their counterparts in parts of Eastern Macedonia enjoyed a subsidy of 10%. The present structure of manufacturing in Eastern Macedonia and Thrace is the result of a process of rapid growth and structural change that occurred during the post-1970 period. Up until that time the sector employed 17697 persons, a mere 10% of the total economically active population—a figure well below the average for Greece as a whole (see Table 1). Moreover, the sector was comprised predominantly of micro-scale units involved in traditional pursuits. Indeed, 55% of the total manufacturing employment was provided by enterprises that employed up to five workers (see Table 2). In contrast, large-scale units—defined as those that employ more than 100 persons, were only of marginal importance. In the region as a whole, they accounted for less than a tenth of manufacturing employment. By 1988, the employment provided by manufacturing enterprises in Eastern Macedonia and Thrace had increased to 37462—or at an annual rate of 6% (see Table 1). Thus, the contribution of the sector in the total economically active population had grown significantly

482



Table 2. Change in the size composition of manufacturing in Eastern Macedonia and Thrace, 1969, 1978, 1988 1969

1-5 Employees 6-50 Employees 51-100 Employees > 100 Employees

1978

1988

N

%

JV

%

N

%

9 765 5 523 660 1 640

55.2 31.3 3.7 9.3

9 248 7 373 2 828 6 002

36.3 29.0 11.1 23.6

9 468 9 564 3 660 14 770

25.3 25.5 9.8 39.4

Source: NSSG (1969, 1978, 1988).

to 17.2%—a figure marginally above the national average. During these 19 years the contribution of micro-enterprises dropped to just over a quarter of the total, although the absolute number of workers engaged in this type of unit remained virtually unchanged (see Table 2). Thus, industrial growth in the region was associated with the decision taken by several medium and large-scale manufacturers to relocate away from urban conurbations in order to take advantage of the incentives provided within the context of the regional development policy. As a result, large-scale enterprises were responsible for two-thirds of manufacturing growth in the region, and by 1988 they accounted for more than two-fifths of the total employment provided in the sector. In Eastern Macedonia and Thrace the rapid growth in the employment provided by manufacturing was associated with significant changes in its sectoral composition. More specifically, back in 1969 food processing constituted the largest component of manufacturing in the region, accounting for one-fifth of the total employment (see Table 3). By 1988 the employment provided by enterprises in this industry nearly doubled. However, its share of the workforce in the sector as a whole dropped to 18%. During the same period, wood processings—the second most important component of the sector in 1969—experienced a decline both in absolute and relative terms. The growth of manufacturing was due primarily to the rise of the clothing industry, which alone accounted for half of the overall absolute raise. Indeed, between 1969 and 1988 the employment provided in this industry rose five-fold, from just over 2000 persons to 11500. Thus, its contribution in the employment provided by the sector increased from just over a tenth to nearly a third. During the 1970s and 1980s, clothing manufacturers were among the major beneficiaries of the incentives provided within the context of the regional development policy. As a result, Table 3. Change in the sectoral composition of manufacturing in Eastern Macedonia and Thrace, 1969, 1988 1988

1969

Food Wood processing Clothing Non-metallic minerals Transport Textiles Other Source: NSSG (1969, 1988).

N

%

N

%

3 502 2 179 2 169 1369 1 264 686 6 528

19.8 12.3 12.2 7.6 7.1 3.9 36.9

6 725 2 001 11523 2 188 2 155 1451 13 574

18.0 5.3 30.8 5.8 5.8 3.9 36.2



Table 4. Changes in the size composition of the clothing industry in Eastern Macedonia and Thrace, 1969, 1988 1988

1969

1-5 Employees 6-50 Employees 51-100 Employees > 100 Employees

Units

Workers

% of total employment

Units

Workers

% of total Employment

1343 24 2 0

1807 220 135 0

83.6 10.1 6.2 0.0

639 115 30 34

905 2 069 2 102 6 447

7.9 17.9 18.2 55.9

Source: NSSG percentage (1969, 1988).

the industry in Eastern Macedonia and Thrace had experienced a dramatic change of its size composition—in terms of employment. In 1969 1343 micro-enterprises employed 1800 persons—some 84% of the total number of workers in clothing manufacture (see Table 4). At that time there was no large-scale enterprise and factory production was confined in two medium-scale units—i.e. those employing between 50—99 persons, and that engaged 135 persons. By 1988 the structure of the industry had been totally transformed. The number of micro-enterprises had been halved and their contribution, in terms of employment, had dropped to less than a tenth (8%). In contrast, at that time there were 34 large-scale units in the area, employing more than half (56%) of the total workforce (see Table 4). The success of the enterprises involved in clothing manufacture—and particularly of those units that employ more than 100 workers, during the 1970s and 1980s—could be attributed to their ability to benefit from international subcontracting linkages emanating from advanced industrialized countries in general and the Federal Republic of Germany in particular (Simmons & Kalantaridis, 1994). Indeed, more than eight out of 10 of the enterprises in the panel derived at least half of their sales turnover through this arrangement (see Table 5). In contrast, only one of the enterprises surveyed—that employed less than five workers—directed less than a quarter of its sales turnover to the international markets. As far as large-scale enterprises are concerned, eight out of the 10 units obtained more than three-quarters of their sales turnover through international subcontracting (see Table 5).

3. Embeddedness, Globalization and Enterprise Strategies During the 1990s The significance of international markets in the growth of the clothing industry, and subsequently of manufacturing as a whole, combined with the changes that took place in the institutional framework governing trade, during the 1990s, prompted us to explore the extent

Table 5. Export orientation of the enterprises included in the panel, by group size, 1995

1-5 Employees 6-50 Employees 51-100 Employees > 100 Employees Total Source: Questionnaires.

76% of sales

1 — — —

— — 1 1

— 1 2 1

— 1 2 9

1

2

4

12

484



Table 6. Modes of internationalization in the clothing industry of Eastern Macedonia and Thrace Independent exporters Features

Local initiatives

Fashion

Massproduced

Companies under foreign Quasiownership independent

Significance of local markets

Supply of Supply of labour labour Supply of some raw material Absorb 10-65% of final products

Supply of labour Supply of some raw material

Supply of labour

Supply of labour

Long-term contractual relationships

None

Informal, 2-3 years long

None

Formal, up to 17 years

Formal

Source of capital

Greek

Greek

Greek

Greek

Foreign

Owners 'born and bred' locally

Better educated

Return migrants

Return migrants

Massproduced differentiated products

Both

Differentiated

Massproduced

Massproduced

Differentiated

Quality of finishing

High

High

Low

High

High

of embeddedness of industrial enterprises in the socio-economic milieu, and their response to increased globalization. In doing so, we developed a typology based upon three main criteria (see Table 6). Firstly, the significance of the local market as a supplier labour and to some extent of materials,2 as well as a destination for the final product. Secondly, the existence of long-term, formal or informal, contractual relationships between local manufacturers and buyers overseas. The third criterion revolved around the importance of Greek industrialists in the supply of capital investment. Moreover, the importance of market segmentation in the restructuring of the clothing trade the world over (Dickerson, 1992; Moody & Wheeler, 1987; Phizacklea, 1990), compelled us to consider the characteristics of the final product as another set of criteria for the categorization of the enterprises surveyed. For this purpose we deployed the 'mass-produced/differentiated' divide and evaluated the significance of 'finishing' in the competitiveness of the business. As a result, we were able to classify 18 out of the 19 enterprises in the panel in four categories (Table 6). The remaining enterprise constitutes an exemplifier of a unit embedded upon the traditional socio-economic structure. It was founded by a person who was 'born and bred' in the area and studied design in a private school in Thessaloniki. He returned to his home town in order to set-up an enterprise. In doing so, he used his own savings and capital borrowed from family and kin, employing local workers and subcontractors, and directing his final products to the domestic market. However, this enterprise could not be identified as a separate category: this is because it employed only four persons—less than 0.5% of the total employ-



ment provided in the sample. Moreover, firms of this kind were not common on the ground and did not appear to account for a significant part of the total workforce in the clothing industry of the region. 3.1 Local Initiatives

Enterprises of this kind were defined by the considerable extent of their integration in the local socio-economic milieu. They were set up and owned by persons who were born and lived the best part of their lives in the region. However, they were among the main beneficiaries of the financial and taxational incentives provided by the Regional Development Policy. They were not involved in long-term contractual agreements with foreign buyers, and they directed only part of their turnover to the international markets: exports varied from 90% to 35% of their total sales. This meant that the domestic market was a significant source of revenue for local initiatives. Five of the enterprises in the panel could be included in this category; they were a very important source of employment for the local economy. More specifically, they employed 1020 workers—some 39% of the total. These were invariably large-scale enterprises that were established during the early or mid-1970s—therefore they were among the oldest enterprises in the local industry. Enterprises of this kind were involved in the manufacture of both mass-produced and differentiated items. They manufacture, on the basis of subcontracting, for renowned fashion houses such as Artisti Italiani, Mondi and Crisca as well as through their own collection, marketed under their own trade-brand—an attempt to move into 'own labelled products'. On average they produced on the basis of more than 1000 different designs per year. Partly as a result of their size and their long presence in the industry, local initiatives were able to develop design and marketing and vertically integrate the entire manufacturing process. As far as design is concerned, local initiatives invariably employed (directly) graduates from colleges in Greece or abroad. They deployed a wide range of marketing practices, partly because of the contrasting degree of concentration in the distribution channels between the domestic and the international markets (for a detailed discussion see Kalantaridis, 1995) and partly because of the considerable degree of market segmentation in the clothing trade (Phizacklea, 1990). The Greek market—characterized by the predominance of small independent retailers and the limited influence of wholesalers, was accessed through representatives of the company who sold direct to retail outlets. However, one of the enterprises of this kind recently decided to venture into retailing by setting-up its own outlet in the town of Xanthi. Sales in the international markets—and particularly the German one, where multiple chains and department stores were responsible for 40% of total sales—took place mainly through intermediating agents. Other means of expanding exports include visits to international trade fairs and very recently the establishment of sales offices abroad. Local initiatives had been successful in internalizing not only the cutting—sewing-finishing parts of the production process but also auxiliary services such as knitting and dyeing. This degree of concentration had significant implications upon the resources at hand and subsequently the enterprise strategies implemented by enterprises of this kind. They were at the forefront of technological change in the region after the acquisition of Computer Aided Design and Computer Aided Manufacture (hereafter CAD/CAM) and automated, laboursaving, packing equipment. All of the local initiatives in the study area have developed Quick Response Systems (hereafter QRS), while one of them was linked to a German department store through Electronic Data Interchange (EDI) system. This accommodated the transmission of information collected by individual stores to the head office of the department store, and the exchange of information and trading documents between the retailer and the manufacturer on a day-to-day basis; and this of course increased the emphasis placed upon


486


short production runs and quick delivery. As a result, lead times for mass-produced items were reduced to eight weeks, and for differentiated items to three weeks. Investment in new technology and changes in the organization of the production was associated with significant improvement on the human capital employed. Enterprises of this kind, however, did not invest heavily on 'off-the job' training. Rather unexpectedly, they opted for the recruitment of already trained workers from advanced industrialized countries, particularly from Germany. In return, they offered relatively high salaries and a clutch of benefits including medical insurance, housing and a company car. The product mix of these enterprises, and particularly their involvement in mass-produced items, enabled them to decentralize production to secondary subcontractors to a considerable extent. As a result, at the time of the survey local initiatives employed 320 external workers—approximately a third as many as those directly employed on the shop floor. A significant but rapidly declining number were employed in 25 secondary subcontractors located within Greece. However, approximately 40% of the outworkers were employed by subcontractors or rented factories in Bulgaria. This practice of putting out work to lower wage economies was initiated in 1992 and adversely affected the number of outworkers and factory workers within Greece. 3.2 Independent Exporters

Enterprises included in this category were integrated to the local economy to some extent. Independent exporters were of various sizes, and were set-up and owned by Greek industrialists with very different backgrounds. They were defined by the fact that they directed 100% of their total production to international markets in general, and the German one in particular. However, there were neither long-term contractual arrangements nor relationships of ownership between export orientated units and the buyer. Overall, there were five independent exporters in the panel, that employed 360 persons—nearly a sixth of the total. More importantly, however, there was considerable differentiation in the segments of the market that they catered for. Therefore, they could be further subdivided into two further groupings: those aiming at the fashion segment of the market, and those producing exclusively price competitive items. Two surveyed enterprises included in the former sub-category were concerned (hereafter 'fashion exporters'). They were founded by younger and relatively better educated local inhabitants (in some cases even university graduates). They were new enterprises that were established after 1985, and they produced differentiated items. Specifically, they manufactured on the basis of some 500 designs per year and the average size per order was 400 pieces—although in some cases this could be as low as 100. They maintained a relatively stable, though not formal, relationship with a small core of buyers for 2 to 3 years, and established new subcontracting linkages with others through visits to international trade fairs. On average they received orders from five or six companies per year, although this number was susceptible to some variation. One consequence of the lack of long-term agreements was that these enterprises were very well informed about developments in the international markets and changing fashion trends. In fact, they produced a small collection of their own either through internal design departments or through the employment of professional designers in Germany. As a result of the availability of information and their position in the fashion market exporters were very active in adjusting their strategies during the 1990s. They had invested in the purchase of CAD and were very quick to implement QRS. Indeed, their average delivery time was around 4 weeks, although in some cases they could deliver within a week from the date they received an order. Because fashion exporters did not have the financial muscle to


Enterprise Strategies in Eastern Macedonia and Thrace 487 undertake large-scale investment in human capital, the poaching of workers, already trained by other manufacturers locally, and on-the-job training were the preferred practices of obtaining new skills. Another element of their enterprise strategy was the intensified use of subcontracting out arrangements. Especially during peak seasons (3 to 6 months) they put out work to four secondary subcontractors that were located within a 20 miles radius from the factory. Fashion exporters subcontracted out only the sewing part of the production process of items that did not require immediate delivery. Together the secondary subcontractors employed 170 workers, a figure that represents 110% as many dependent workers as those directly employed by fashion exporters. However, the need to maintain rigorous quality control over the final product, combined with the urgency to turn around orders very quickly, prevented enterprises of this kind from establishing subcontracting linkages with lower cost producers elsewhere in the Balkans. The strategies implemented by fashion exporters differed distinctively from those of the enterprises that cater mainly for the price competitive segment of the market. The latter were usually medium-scale enterprises that were founded by return migrants from Germany. Overall, three of the enterprises surveyed could be included in this category. Together they employed 200 persons—nearly 8% of the workforce in the panel. They made items that catered for the mass-markets, although—at the time of the survey—large-scale orders were gained almost exclusively from manufacturers in South-East Asia. 'Exporters of massproduced items' in Eastern Macedonia and Thrace received only small-scale orders with shorter delivery dates than those offered to manufacturers in LDCs. More specifically, enterprises of this kind usually had a 6-month time lead, although the buyer finalized the colours and sizes 4 weeks before the consignment of the final product. The small size of their orders forced them to produce on the basis of a relatively large number of designs, on average approximately 100 per year. Another characteristic of their products was that they did not require meticulousfinishings—thereforequality control was only of secondary importance. Their involvement in the manufacture of mass-produced items meant that they did not have any interest in the deployment of QRS, and they did not invest in CAD/CAM systems. Their strategy during the 1990s revolved around the increased decentralization of production to lower wage areas in the Balkans. As a result, by 1995 putting out to secondary subcontractors within Greece had been marginalized, involving only 28 outworkers—a mere 14% of those directly employed by exporters of mass-produced items. In contrast, an increased part of their production was manufactured in Bulgaria: enterprises of this kind employed 120 persons in secondary subcontractors or rented factories in that country. This figure represented 60% as many dependent workers as those directly employed in the factory in Greece, and is the highest among all four categories.

3.3 Quasi-independent Enterprises

This category included enterprises whose integration in international production networks was based upon a stable, long-term relationship with a single buyer abroad. Their founders were drawn from among' the ranks of local inhabitants who migrated to the Federal Republic during the 1960s. They were able, through contacts acquired during their migration, to establish subcontracting relationships with German distributors. These relationships took the form of written, 5 year-long, contracts that were invariably renewed more than once. In fact one of the enterprises surveyed has been producing exclusively for a German wholesaler for the past 17 years. However, these units were formally independent, in the sense that there were no linkages of ownership and control with the parent enterprise. Two enterprises of the panel fell within this category: in 1995, they employed 133 persons, a mere 5% of the workforce of


488


all the companies surveyed. Both quasi-independent enterprises were medium-scale units that were established during the late 1970s. Quasi-independent enterprises were involved in the manufacture of mass-produced items, where competition occurs primarily on a cost basis. Thus, their production was typically based on 12 designs per year. Long production runs combined with longer time leads (when compared to those in the first category) meant that quality control at the point of manufacture was not a major consideration that would prompt foreign ownership and control. Nevertheless, the quality of finishing was very important: this was because their products were aiming at middle-aged, relatively affluent, consumers in industrialized countries. Contractual obligations to their buyers had significant implications upon the structure and the strategies implemented by these enterprises during the 1990s. Quasi-independent manufacturers did not have access to the marketplace directly or through intermediating agents and they had no design departments. Moreover, these enterprises were not vertically integrated and depended heavily upon the single buyer for the supply of the cut cloth and all the auxiliary material (buttons, zips and, in some cases, even the thread) for the manufacturing process. Thus, these enterprises did not have sourcing departments and their only direct link with the market revolved around the supply of labour. Their dependence upon a single buyer for the supply of designs and raw material, as well as for the marketing of the final product posed questions about the ability of quasi-independent enterprises to survive an abrupt termination of the contractual agreements. Past evidence suggests that enterprises of this kind were unable to adapt to changes in their trading conditions.3 Quasi-independent enterprises found themselves in a rather unfavourable position during the 1990s. The specificity of the long-term contracts, combined with the fact that the buyer did not have a vested interest in the survival of the manufacturer, meant that enterprises of this kind had very little room for manoeuvre. Involvement in production for mass-markets meant that QRS were of no interest for these enterprises, while the fact that the cloth was received cut from the buyer inhibited them from investing in CAD/CAM systems. Moreover, the significance of quality finishing prevented these enterprises from decentralizing the labour-intensive part of manufacturing to homeworkers within Greece or to subcontractors elsewhere in the Balkans. Indeed, subcontracting-out was an unknown practice among quasi-independent enterprises. Therefore, at least in the short term, survival relied exclusively upon the expertise that they acquired in the manufacture of standardized items. This afforded them a 'premium' over manufacturers in lower-wage countries, such as those located in central and eastern Europe and South-East Asia. However, their owners recognized that— eventually—they would have to go through a transition towards spontaneous contracting with more than one buyer. No concrete plans existed about this transition at the time of the follow-up interviews in March 1996. 3.4 Companies under Foreign Ownership

Enterprises included in this category were integrated in international production networks through close relationships of ownership and control, and long-term contractual obligations. They were originally set up and owned by return migrants from Germany. Their knowledge of the language and contacts acquired during their period of work abroad enabled them to establish relatively stable subcontracting relationships with a single parent enterprise. Close, long-term, links between Greek manufacturers and German distributors—and specifically wholesalers or department stores—however, was only one of the reasons that prompted the latter to acquire a controlling interest upon the former. Another incentive for the take-over revolved around the characteristics of the final product. All manufacturers included in this category produce differentiated items that cater for the fashion segment of the market. Indeed,


Enterprise Strategies in Eastern Macedonia and Thrace 489 these units manufacture on average approximately 1000 designs per year. Within this context, competitiveness depends heavily upon the development of rigorous quality control systems at the point of manufacture. Therefore, by 1995, parent enterprises had acquired at least 50% (and in some cases up to 100%) of the capital of their former subcontractors in Eastern Macedonia and Thrace. This afforded them effective control upon their dependants, which was exercised through the former management team. Indeed, in none of the foreign-owned companies was changed in ownership accompanied by replacement of the previous owner/manager. Relationships of ownership were complemented by contractual arrangements that obliged the manufacturer to produce almost exclusively for the parent enterprise. These agreements were formal, legally binding contracts (though enforcement was not always easy) and which usually spanned a 5-year period. Therefore, 100% of their sales turnover was destined for one buyer in the Federal Republic. Five of the enterprises surveyed in 1995, employing 1092 persons, were under foreign ownership. They were a very significant source of employment for the local economy as they accounted for 42% of the total workforce in the panel. Most of these companies were large-scale units—their average size being 218 persons per unit. Their close attachment to a parent enterprise abroad had significant implications upon their structure and the strategies implemented by this kind of firm during the 1990s. Also, their long-term relationship with a single distributor prevented them from acquiring direct access to the marketplace. Thus, these enterprises did not possess marketing departments, and did not have links with intermediating agents4 that could provide them with information about changes in the clothing trade. The two main channels of information flows included formal communications with the parent enterprise, and informal, personalized contacts of the managers in the locality. More importantly though, these enterprises did not have design departments or contacts with independent designers that would provide them information about the rapidly changing tastes in the fashion segment of the market that they service. These limitations prevented companies under foreign ownership from changing their subsumed position in the subcontracting networks. However, close links of ownership with a parent enterprise abroad afforded the Greek firms the financial support and technological know-how for the internalization of the entire manufacturing process. The latter was at the heart of the enterprise strategies implemented by companies under foreign ownership during the 1990s. They were at the forefront of technological and organizational change in the region, as they were able to combine investment in CAD/CAM with the implementation of QRS. Capital expenditure in this kind of enterprise during the 1990s was accompanied by heavy investment in the improvement of the human capital. Companies under foreign ownership used both 'off-the-job' training—by sending workers abroad for long periods of time (up to 2 years) in order to familiarize themselves with the use of the new machinery, and 'on-the-job' training through the employment of international consultancy agencies (namely the renowned Werner International). As a result, those companies were able to reduce drastically their lead times from 6 months to 4 weeks and avoid direct competition from lower-wage countries in the Far East or central and eastern Europe. In fact, it has been argued during the interviews that in exceptional cases these enterprises can guarantee delivery even within 3 weeks from the date of placing the order. However, because of the emphasis placed upon quality control, enterprises of this kind were unable to decentralize to any considerable extent parts of the manufacturing process, and particularly the labour-intensive assembly operations, to secondary subcontractors. Indeed, at the time of the survey all of the companies included in this category subcontracted out work to 15 enterprises. Together the secondary subcontractors employed 235 persons, a number susceptible to seasonal variation; this represented approximately 20% dependent workers as those who were employed directly by the foreign owned companies at the time of the survey—one of the lowest figures among the four categories. Moreover, most of the

490



Table 7. Index of employment change in the clothing industry of Eastern Macedonia and Thrace, 1988-1995 (1988 = 100) 1981

1989

1990

1991

1992

1993

1994

1995

3.1 3.2 3.3 3.4

100 100 — 100

100 114 90 103

99 123 84 113

120 120 88 117

173 109 94 119

187 102 93 99

183 99 106 100

180 94 107 108

Total

100

101

105

113

130

124

126

129

3.1 = Companies under foreign ownership; 3.2 = Quasi-independent 3.2 = Independent exporters; 3.4 = Local initiatives. Source: Questionnaires.

enterprise;

of the secondary subcontractors were located near the main factory so as to accommodate regular monitoring of the production process. The need to maintain rigorous quality control prevented these companies from putting-out parts of the production process to lower wage areas elsewhere in the Balkans. Indeed, only one company manufactured specific items in one subsidiary in Bulgaria that employed 25 workers—a mere 2% of the total employment in this kind of enterprise. 4. The Performance of the Clothing Industry During the 1988-1995 Period The suspension of the Census of Industry created considerable difficulties in monitoring the performance of the clothing industry, and undertaking comparisons of the levels of success of the enterprise strategies implemented during the 1990s. In order to be able to gauge changes in the employment, sales turnover and profitability, we used material from the face-to-face interviews, and the ICAP Annual Business Directory. As far as changes in the employment provided by the clothing industry are concerned, there is evidence from the companies included in the sample that there has been only modest growth in the number of workers employed on the shopfloor during the 1988-1995 period. However, due to the great extent of subcontracting out either to smaller firms within Greece (Chronaki et al, 1993), or, more recently, to Greek-owned enterprises in the Balkans (Labrianidis, 1996, 1997), it is hard to derive conclusive figures concerning the number of employees in the clothing industry. Overall, internal employment in the panel, excluding all those working from home or on the basis of subcontracting, had increased by nearly 30%, or at an annual rate of 4.3%. This growth in employment, however, was by no means continuous: the year 1992 appears to be a decisive turning point. We may see from Table 7 that between 1988 and 1992 there was a 30% increase in the absolute numbers of those working in the industry. In marked contrast, after 1992—and after 23 consecutive years of growth—there was very little change in the employment provided by clothing manufacturers. However, evidence regarding sales turnover indicates that even after the peak of internal employment growth clothing enterprises continued to expand. More specifically, sales, in constant prices, increased rapidly during 1993 and remained virtually unchanged during the following year. Profitability figures are much less reliable than both employment and sales turnover and must be treated with great caution. This is because they are susceptible to meticulous manipulation from professional accountants. With this in mind, we can draw two very broad conclusions about the profitability of the enterprises in the panel. No company had occurred losses during the 1988-1994 period. Moreover, there seems to be no remarkable change in the level of net profits. Nevertheless, not all companies included in the panel were able to adjust to changes in the international markets with the same degree of success. A comparison of employment change


Enterprise Strategies in Eastern Macedonia and Thrace 491 between the four categories included in the typology indicates that companies under foreign ownership were undoubtedly the most successful. Overall, the size of their workforce increased by some 80% or at an annual rate of 11%. As a result, their contribution in the employment provided by the enterprises surveyed increased from 30% to well over 40%. No other category was able to achieve both an absolute and relative increase during the 1988—1995 period. At the same time, this internal growth had no adverse effects upon their profitability—which remained virtually unchanged. However, local initiatives and independent exporters (both of fashion and mass-produced items) were able to achieve a modest increase in the number of their employees. More specifically, the former were able to increase their workforce at an average annual rate of just over 1%, but their contribution in the employment provided by the enterprises of the panel dropped from 46% to less than 40%. The failure of these enterprises to maintain their position as the single largest element in the local clothing industry could be attributed primarily to the decentralization of parts of the manufacturing process to Bulgaria. Indeed, between 1992 and 1993 (when international subcontracting-out to the former Socialist economies of the Balkans was initiated) the employment provided by enterprises of this kind dropped by approximately a fifth, whereas the value of their sales turnover increased by nearly a third (32%) in constant prices. Exporters of both fashion and mass-produced items also recorded a modest increase in the employment that they provided— an average growth of just 1% per annum. As a result, their contribution in the employment provided by the industry fell from 17% to 14%. Quasi-independent enterprises were undoubtedly the worst performers in Eastern Macedonia and Thrace. They reported a decline in the size of the workforce of some 6% during the 1988—1995 period, and their significance, in terms of employment, for the local clothing industry declined from 7% to 5%. 5. Conclusions The relatively small number of companies involved in our survey prevents us from developing new, brave arguments about the evolution of industrial districts. However, it seems safe to argue that the recent experience of industrial growth which occurred after 1969 in Eastern Macedonia and Thrace illustrates the diversity in the causes and processes of industrial growth in the southern European periphery. The rapidity of growth and the structural change that it brought in its wake are certainly comparable to what several case studies have reported has happened in Italy and Iberia. Moreover, the ability of firms to respond to changes in the volatile product markets of advanced industrialized countries, as a result of flexible working arrangements, is reminiscent of the attributes of their counterparts in Third Italy. However, the case of Eastern Macedonia and Thrace presents also a number of contrasts with that of other peripheral areas. As far as causation is concerned, we have shown that the decentralization of production in metropolitan districts provided the stimulus for the establishment of new firms—a feature also evident in Italy, Spain and Portugal. Nevertheless, whereas in those instances the initiative came primarily from large companies based in urban metropolis within the countries themselves (the Genoa-Milan-Turin triangle, Madrid and Barcelona, Lisbon and Oporto); in the Greek case this was originated by buyers located in a core EU country—the FRG. Moreover, success in this region, unlike elsewhere in southern Europe, was not built upon a conducive socio-economic milieu. The area did not enjoy the advantage of location and convenient access, and did not exhibit any modern infrastructure, while the existence of competing cultural and religious traditions could act as a deterrent to inward investment. Economic policies implemented at the national level, rather than local policy initiatives that have been identified in much of the literature (Fua, 1986), were instrumental in initiating growth. As a result, structural change in this region was led by large-scale enterprises, some of which were effectively parts of international corporations. This stands in sharp contrast to


492


the evidence emanating from Italy, Spain, Portugal and other parts of Greece, where industrial growth was led by small and even micro-scale enterprises (Garofoli, 1992; Hadjimichalis & Papamichos, 1990). The role of larger enterprises in the industrial advance recorded in Eastern Macedonia and Thrace affords support to those arguing that this form of business organization is able to adapt to change and compete successfully with flexible, small and medium-scale enterprises (Holly, 1996). Overall, it appears that there have been not one but very many models of industrialization in the southern European countryside during the 1970s and 1980s—an argument originally expressed by Amin in the case of the Third Italy. Therefore, it appears inappropriate to extend indiscriminately any model to other rural areas. This paper also points at the variety of spontaneous or long-term subcontracting arrangements, and the direct linkages of ownership and control that exist between local manufacturers and buyers in advanced industrialized countries. It is now increasingly clear that such practices are widespread in manufacturing industries. Dependence characterizes the relationship between local producers and parent enterprises which certainly shows similarities with conditions elsewhere (Mitter, 1986; Phizacklea, 1990). However, there is significant differentiation in the nature of dependency relationships: they vary from direct control (in the case of companies under foreign ownership) to a mere reliance upon a relatively small number of buyers (local initiatives). This diversity is reflected upon the degree of embeddedness of manufacturing enterprises in the local socio-economic milieu. Enterprises included in the former category maintained only weak links with their immediate environment, revolving primarily around the supply of labour. Indeed, the vast majority of their workers, alongside a large number of managers, came from local family household units. Foreign owned companies did not rely upon local sources of capital; they used predominantly imported raw materials, and maintained no interest in the regional and national market. In contrast, the linkages between local inititatives and their immediate environment were stronger, covering, apart from the supply of labour, the provision of capital, raw materials, product markets, as well as the supply of entrepreneurial talent. Despite the dependent nature of this pattern of growth and the varying extent of embeddedness in the local milieu, enterprises located in Eastern Macedonia and Thrace were able to adjust to recent changes in the institutional framework governing world trade with a considerable degree of success. To our surprise, the firms included in the panel did not only survive in the face of intensified competition during the 1988-1995 period, but were also able to achieve modest increases in the size of their workforce, although at a much lower rate than during the 1969—1988 period. Employment growth was combined with increased sales turnover and sustained profitability. The resilience of the enterprises surveyed, at a time when the clothing markets were opening-up to competition from producers in LDCs and the newly independent countries (NICs), lends support to those arguing that this pattern of industrial growth augers well for long-term viability and growth. In fact, 'dependence' upon parent enterprises in core countries appeared to be a strength, rather than a weakness, in the development and the implementation of strategies for the 1990s. This was particularly the case among companies under foreign ownership. As a result of the inflow of capital investment and technological know-how from the parent enterprise, these companies became major contributors to the local economy. This was partly because of the significant increase in the number of their employees, and partly due to their considerable investment in the enhancement of the human capital in the locality. This stands in sharp contrast to the strategies implemented by the largest companies under Greek ownership. Local initiatives achieved growth in terms of sales turnover and profitability through the increased use of subcontracting-out arrangements and decreasing employment locally. Moreover, new skills were acquired through the recruitment of workers from the Federal Republic. This paradox, whereby companies under foreign ownership seem to deepen the links with the local


Enterprise Strategies in Eastern Macedonia and Thrace 493 milieu while local initiatives reduce them—in response to an intensification of competition, has implications for future scholarly research. It indicates that the discussion around the ability of the embedded firm to cope with change should not only take into account changes in the cohesion of the local milieu and the global marketplace, but it should also address the evolving and essentially 'dialectic' relationship between the firm (actor) and the local socio-economic structure. Notes 1. Our survey was part of a wider project on the 'Future of Greek Manufacturing' that was commissioned by the Department of Industry and financed through the European Structural Funds. The research was carried out in four stages. The first stage involved desk-top analysis of official statistics in order to identify the main economic trends during the 1969-1988 period. Data from the Census of Industry pointed at the significance of the clothing industry as the single largest component of manufacturing. Subsequently, the owners and managing directors of large, medium, and small-scale enterprises were invited to participate in three seminars organized in the towns of Drama, Kavala and Xanthi in June 1995. There was an open, round the table discussion of the aims of the project and the problems confronting the owners/managers. As a result, a programme of 19 face-to-face interviews was drawn up for June-July. The main criteria for inclusion in the study were size and position in the subcontracting chain. More specifically, there was a bias in favour of the larger employers in the region--the aim being to select those responsible for a large part of the total employment provided in the industry locally. Thus, the enterprises included in the panel were responsible for approximately a quarter of the total employment provided in the industry in 1988. Moreover, the survey excluded the mass of secondary subcontractors who did not maintain any direct linkages with the product markets. The fourth stage of the research involved follow-up interviews in March 1996. 2. The supply of material is only of secondary consideration because of the relatively traditional character of the Greek textile industry. It is concentrated in the manufacture of cotton fibres that are used mainly in the manufacture of mass-produced items, and is virtually non-existent in the production of man-made fibres. 3. Indeed, there is evidence from enterprises of this kind that a sudden end to long-term subcontracts led to bankruptcy within a relatively short period of time. 4. The agents act as representatives of department stores, manufacturers, groups of retailers, and wholesalers in the FRG, Scandinavia, Holland, UK, France and several other advanced industrialized countries. Their role revolves around negotiating prices and delivery times, and also undertaking quality control. In return they receive a commission of 8% from the domestic manufacture--even though they act as the buyer's representatives (for more details on the role of the agents see Simmons & Kalantaridis, 1995).

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