1. Discussion paper by: Dalia Marin Presented by: Eva-Maria Sonnleitner
A international Division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe
Discussion paper by: Dalia Marin
Presented by: Eva-Maria Sonnleitner

2. Introduction – Motivation for research
Economic changes in the last decades
Motivation for the research
Firms geographically separating different production stages across the world economy
Reason: exploit differences in production costs
Eastern enlargement  reorganizing the international value chain
 Offshoring
 Outsourcing
Eastern Europe is an important production location for European firms
new division of labor has emerged
in the world economy
Three main research questions in the paper
Why do firms organize in an international value chain?
Extent of offshoring and outsourcing to new member states to countries of the next enlargement round or former Soviet Union
What determines empirically the level of offshoring and outsourcing to Eastern Europe
Research: 660 Austrian and German firms with 2200 investment projects to Eastern Europe from 1990 till 2001  100% of Austrian and 80% of German direct investments
Friday, December 07, 2018

3. Why do firms organize in an international value chain?
In general: Firms chooses location with lowest production costs (transport costs, wages costs of contracting)
Headquarter services > incentives of input supplier
Reduced initiative of skilled worker is less critical than the hold up problem
Offshoring
Relocation of activity which remains inside the firm
More control
Stronger incentives to provide headquarter services
Loss of middle management incentives
Costs of hierarchies
Outsourcing
Relocation of activity outside the firm
Input supplier in New Europe
Promotes incentives of input supplier
Risk of hold up  incomplete contacting
How much control over firm activities?
Where locate production , at home or abroad?
Headquarter services < incentives of input supplier
Reduced initiative of skilled worker is more critical than the hold up problem
Friday, December 07, 2018

4. How important is Offshoring ? – Empirical Facts
Offshoring to EE
Austria
Germany
CEE
Baltic States
Czech Republic
Hungary
Poland
Slovak Republic
Slovenia
17.12
3.11
11.73
10.19
41.54
9.94
15.49
46.68
28.43
75.95
27.18
14.50
68.71
12.44
SEE
Bulgaria
Romania
Other SEE
12.06
2.99
24.20
8.46
55.68
71.94
63.68
14.29
CIS
Russia
Ukraine
Other CIS
42.11
67.90
16.14
3.72
29.15
26.59
17.11
49.36
Total Eastern Europe
17.27
45.44
Firms` Offshoring activities as percentage of all direct investments in respective Eastern Europe countries
Intra-firm trade with Eastern Europe; exporting input goods to affiliates in EE; importing this goods back
Intra-firm export and import
In Germany Offshoring much more important than in Austria
Friday, December 07, 2018

5. Intra-firm trade as percentage of total trade with EE
Share of intra-firm
exports in total
exports to EE
Share of intra-firm imports in total imports from EE
CEE
Baltic States
Czech Republic
Hungary
Poland
Slovak Republic
Slovenia
13.95
19.67
20.03
41.08
26.11
18.70 na
42.17
136,47
64.91
54.71
48.36
5.19
6.83
11.95
17.77
34.01
3.32
14.41
15.64
40.46
15.34
64.98
9.38
SEE
Bulgaria
Romania
Other SEE
3.36
16.08
22.72
11.32
40.40
57.46
2.30
1.95
3.86
4.20
7.17
CIS
Russia
Ukraine
26.70
21.52
4.94
4.51
1.67
2.44
Total Eastern Europe
22.40
68.52
11.67
21.56
Friday, December 07, 2018