Avoiding plant closures and creating new perspectives – an insight into the French model


The relocation (offshoring) of medium-sized and large production facilities, typically to eastern European countries, often forms part of long-term strategic decision making. Not only the opportunities resulting from the new location require to be considered, but also the chances of systematically developing a concept for re-using the old location, ideally also securing all the jobs concerned. In France, a company is required to prove that it invests in alternative solutions such as a strategic search for investors, whereas in Germany this is not necessarily the case. Should that be changed?

What are the reasons for relocating businesses?
The reasons for relocating a business overseas are complex. In addition to cost pressures and capacity constraints, proximity to existing customers and know-how, as well as expansion measures and the acquisition of new customers or markets can be key factors in making such a strategic decision. In addition to economic and technical/logistical motives, tax aspects may also be a criterion influencing relocation measures.

Opening up a new location overseas is always a highly complex matter and the long-term success of a relocation depends on numerous internal and external factors. Before deciding on a systematic approach for the new location, there should also be a roadmap for the right exit strategy.

Why is the right exit strategy important?
While the decision to relocate may be appropriate in the medium and long term on a business level, management also has a responsibility towards its employees. Apart from spreading anxiety among the the workforce, relocations also present the respective local communities and regions with new challenges. The resulting opposition from various stakeholders can have far-reaching negative consequences for a company.

A pro-active approach on the part of the management to "revitalize" the old site not only benefits the internal and external corporate image, but also constitutes a clear offer to the works council and local politics to tackle the upcoming task together. Above all, a strategic search for investors, which will ideally result in the takeover of all employees as well as plant and inventory, can reduce the company's high costs of closure. Simultaneously, this will open up new perspectives for employees and the local community.

Should it be mandatory to develop exit strategies?
Due to reforms such as the abolition of wealth tax and the reduction of capital gains and corporate tax, France is becoming an attractive FDI market. Nonetheless there will always be regions and employees affected by imminent plant relocations. In France, relocating companies are obliged to make every possible effort to arrange for subsequent usage of the sites concerned.

French companies have recognized the benefits of "revitalising" old sites and do not see this merely as an obligation. For relocations outside of France, French companies often authorize revitalization concepts on a "voluntary" basis. The cost-cutting benefits and the desire to protect the corporate image and the corporate brand play a major role here. This also benefits the local community and above all the employees.

The advantages of a revitalization concept for the company, the employees and the local community are obvious. While there is no guarantee of success in retaining all employees, especially when conducting a strategic search for investors, managers can send a strong message to all interest groups by adopting a proactive, voluntary approach.

Lisa Niebler-Sparwasser

Senior Consultant