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Production Relocation

Production Relocation

Productive relocation is a economic phenomenon bound to the system of productive activities. With the term “relocation” we mean the choice of moving an economical activity from its original place to another one, with the target of reducing costs of production. 

The choice of a new location may be motivated in various ways. 

In the following list we nominate some: 

or getting closer to the market of sales. Being closer to the market where the products are being shipped and sold to, this will remarkably reduce the costs of transportation. 

or lower working costs. Lowering work costs in the new location of the productive unit. For example, the tendencies of relocating productive activities in asian countries, since the cost of labour is lower. 

or lower tax burden. A firm can decide to relocate its productive activities in other countries to avoid high tax burdens, or/and the countries may be characterized by subsidizing production (e.g., Developing Economies). 

Whichever the particular motivation might be, the main target for a firm relocating is to increase profit and minimize costs. Both these elements are determining factors for a firm’s competitiveness in a free market, therefore, fundamental for its survival. 

Relocation and occupation

Relocation isn't a topic only of economic nature, but it also has a strong value socially and politically. If relocation, on one side, increases competitiveness of the production unit, on the other, it creates unemployment in its original country. This happens often, if the workers that lost their job, do not find another one in the local economy. 

Ciò accade, in particolar modo, se i lavoratori fuoriusciti dalle attività produttive non sono reimpiegati in altre attività lavorative nell'economia locale. L'aumento della disoccupazione equivale ad un costo sociale a carico della collettività. Increased unemployment equals a social cost to the community. 

Relocation and Exploitation

Relocation does not have to be confused with exploitation. Exploitation is the case when then relocation happens in countries where fundamental human rights are denied (e.g., child labor, unsafe work environment, etc.). The boundary between the right to minimize costs and exploitation is primarily a subjective topic. From this point of view, relocation is above all a topic belonging to the universe of politics and law.  

Italian firms often follow the path to internationalization: it is revealed by an investigation made by Istat; the research, which considered Italian industrial and service companies with more than 50 employees, sought to identify internationalized companies, those companies that have undertaken, in whole or in part, economic activities abroad during the period under consideration, either through the start-up of new functions or through the transfer of those previously carried out in Italy. 

More internationalization for industrial companies 

According to the ISTAT study, in the period 2001-2006, approximately 3,000 companies, equal to 13.4% of large and medium-sized industrial and service companies, initiated processes of this type. In particular, 9.9% of those with at least 50 employees have transferred activities or functions previously carried out in Italy abroad, 7.3% have developed new activities abroad, while 3.8% have carried out both transfer and development. 

Internationalization was of greater interest to industrial companies (17.9%) than to those operating in the service sector (6.8%). Company size was also an important factor in outsourcing decisions: in the industrial sector, 45.4% of large companies chose to do so, while only 14.2% of medium-sized companies did so. 

More Transfers for new Economic activities

For the development of new activities abroad, the companies surveyed declared that they mainly produce for new markets (67.6%). On the other hand, as regards the transfer of existing activities abroad, this was more accentuated for economic activities (5.9% of companies with at least 50 employees) than for business functions (4.4%). In particular, the business functions that present more significant incidences of relocation are marketing, sales and after-sales services, including service centers and call centers, distribution and logistics and administrative, accounting and management services. 

India and Africa as destinations for the near future 

In the period 2001-06, the greatest attraction for Italian companies was Europe, to which 55% of internationalized companies turned. In particular, 24.1% transferred operations to the old 15-member Union, 20.6% to the new member states and 10% to European countries that are not members of the Community. In the rest of the world, China (16.8%) and the USA and Canada (a total of 9.7%) stand out, followed by Central-Southern Africa (5%) and India (3.7%). On the other hand, forecasts for 2007-09 point to a drop in the share of transfers to the EU-15 (14.8%) and North America (7%), a slight slowdown in the share of China, and strong growth in investment in India, Africa and European countries outside the EU.

“This document is a simple translation into English of the original document in Italian, the official language of Cantone Ticino, which can be found on the website Therefore, in the event of inaccuracies, errors, imprecisions, or difficulties in interpreting this document, the original document in Italian shall prevail; this also applies if there is a contrast between what is reported in this document and what is reported in the original document in Italian. - Il presente documento è la traduzione semplice in lingua inglese del documento originario in lingua italiana, lingua ufficiale del Cantone Ticino, presente sul sito; pertanto in caso di inesattezze, errori, imprecisioni, difficoltà interpretative del presente documento, prevale il documento originario in lingua Italiana; questo anche nel caso in cui vi fosse un contrasto fra quanto riportato nel presente documento e quanto riportato sul documento originario in lingua Italiana.”