At the end of April 2000, a group of local officials left Brno for a trip to the Hungarian towns of Zalaegerszeg and S?rv?r. The group was led by the mayor of Brno, Petr Duchoň, who was accompanied by representatives of the Czech Ministry of Industry and Trade. The aim of the trip was to visit the industrial zones of the U.S.-based trans-national corporation Flex- tronics, the second largest electronics manufacturer in the world.
In search for a promising solution
The Brno officials had a thorny question on their mind when leaving the city: how could their locality efficiently thrive, or at least survive, in the unfamiliar environment of global capitalism? The distinguished excursionists wanted to learn the art of alluring choosy foreign investors to their region. Three years after the trip, this awkward question has became much more touchy for the people of Brno.
However, in 2000, despite the rising unemployment and the unsuccessful restructuring of traditional local enterprises, the prospects of the Brno region did not appear all that bad. On the contrary, the area expected quite a sweet deal in the new global environment. Renowned consulting agencies ranked Brno as the best investment site in the Czech Republic. It had a skilled, but relatively cheap workforce, a multitude of post-secondary educational institutions, the promise of European Union membership, and it was a location that provided a gateway to the East.
A first big fish lured by Brno?s baits: Flextronics
Hence, city officials decided that something needed to be done quickly and efficiently in order to realise the potential of the region. Attracting foreign direct investment (FDI) was their solution. Therefore, at the beginning of 2000, the City Council unanimously approved the proposal of the industrial zone ?ernovick? Terrace, citing the rising unemployment rate as reason enough for immediate action.
The prospective investors were lured by high subsidies: the city with the help of the Czech government promised to pay for the infrastructure of the zone, offered attractive land for free, tax and duty relieves, and paid for employee training. Brno did not have to wait long till the fish went after the bait. In April 2000 a big applicant had already announced its interest in building a huge factory in the ?ernovick? Terrace: it was Flextronics.
If you want to learn whether the Flextronics story actually came up to its expectations….
Celebrating the promising beginnings
In September 2000, while the world was apprehensively watching the anti-globalization protests in Prague turn violent, the Brno region was celebrating the first benefit of the globalized economy in the ?ernovick? Terrace ? Flextronics was setting the foundation stone of its giant plant there, receiving substantial subsidies from both Brno and the state. Each donor set out its own conditions for providing help to the investor. Brno required the creation of thousands of workplaces. The state was more interested in investment itself and in new information technology for the Czech Republic.
Already by November the dream was coming true. ?About fifty people are coming every day, others ring and are interested in a job, and we make a contract on the spot with others. We can offer them employment in the flourishing company with the prospect of further development,? said Zdenĕk Petrĕk of Flextronics about the newly open factory in ?ernovick? Terrace. The number of people employed there was increasing steeply. It reached the peak of 2,200 employees in 2001. Almost everybody was sharing the optimism about the future of the ?ernovick? Terrace and the Brno region with Pavl?na Bolfov? of CzechInvest, the government agency that helps foreign investors to find suitable sites, ?I think it [?ernovick? Terrace] will be one of the best industrial zones in the Czech Republic?.
Struggling for the political merit
The share of the success became a matter of political struggle in Brno. Who was responsible for the accomplishment? Was it the Social Democrats who were in the opposition in Brno City Council, but the governing party at the national level? Or was it the Civic Democrats, who were governing Brno, but were opposing the governmental FDI incentives at the national level? Understandably, each party was convinced that its merits were crucial. After all, it was election time.
Thus, Social Democrat Rudolf Posp??il claimed that it had been his party?s policies which brought the city, among others, big projects like Flextronics. ?First and foremost, it is the outcome of long-term work by the whole city, which prepared favourable conditions to the investors,? countered the leader of the Civic Democrats in Brno, Franti?ek Pol?ch. Naturally, both parties? representatives took part in the new-plant opening ceremony.
First clouds on the bright sky of Flextronics
Nevertheless, the first clouds appeared on the bright sky of the Flextronics success as early as November 2001. Flextronics was accused of violating and/or circumventing labour law. For instance, it allegedly prevented the unions from operation and underpaid Slovak workers. ?Even though no one from management has said anything, I wouldn?t join the unions. I would be afraid of it,? a Flextronics worker said to the local daily.
Moreover, in April 2002, Flextronics laid off more than five hundred workers. ?Our obligation to create three thousand new workplaces will be fulfilled,? Irena Tř?skov? of Flextronics announced. ?We have no reason to believe that Flextronics will not fulfill its obligations for the time being,? replied Vice-Mayor Pavel Kuba. But the substantial lay-offs continued also in May 2002. The Brno governing officials remained calm, but the Social Democrat opposition started to boil, trying, unsuccessfully, to withdraw Kuba..
Did these ?first clouds? really indicate an overall failure? here the last part of the story.
Flextronics shifts to Hungary
The shock for the Brno governing officials and the region came in July 2002. ?We are sorry, but the global recession in our industry continues and its end is not foreseeable,? said the manager of Flextronics Hugh Kelly. The company announced that it would close down and shift the production to its Hungarian factories in Zalaegerszeg and S?rv?r ? precisely to the towns that were so very well known to the Brno local officials, who participated in the trip in April 2000. A catty observer remarked that the councilors hadn?t been very good students of their efficient Hungarian colleagues. So thousands of former employees of Flextronics started to knock on the door of the Brno employment agency.
Contention about irresponsibility
The case of Flextronics became a matter of political dispute again. Furthermore, the event caused a panic in the area and a political turmoil. This time the contention was about the responsibility for the failure. Or better, the contention was about the irresponsibility. ?I do not think that this is an anomalous event; on the contrary, it is a malfunction of the city officials,? stated an opposition councilor. Vice-mayor Petr Zbytek replied that it was the Social Democrat government who recommended the untrustworthy company.
Ambivalent evaluations of the Flextronics affair
The perception of the whole event differs strikingly at the regional and national levels. The government, union leaders and most analysts remain confident, however, that the closure of the electronics plant was an isolated event. Industry and Trade Minister Jiř? Rusnok, for instance, remains bullish about the prospects for further foreign investment. ?One factory shut down, but there are another ten coming,? he said. The government does not require the refund of Flextronics investment incentives. The investment fulfilled governmental demands. It brought money, technology, and know-how. Moreover, it has been calculated by CzechInvest that the investment was a profit for the Czech Republic in terms of its costs and benefits.
In contrast, the people of the Brno region are dismayed by their powerlessness. Peculiar costs/benefits profit does not help them to find jobs for the unemployed, nor does it stimulate the sustainable socioeconomic development of the locality. It appears that the only social policy in the globalized world is to adjust oneself willingly to the caprices of the global market. Is this social policy also an efficient one? This question is quite stinging in the Brno region. However, Brno officials are waiting for a new ?strategic partner? for the region. They would be grateful for one of Rusnok?s ten.
Concerning the investment incentives refund, the situation on the regional level is much more complicated. Despite the fact that Flextronics did not fulfill its obligations to the city of Brno ? such as the promise to create thousands of workplaces in the region – it does not want to give back to Brno what it received from it. Thus, it is the court that will decide whether the city of Brno will get back the land that it gave to Flextronics.
In search for a new old solution?
In January 2003, the American company Honeywell announced its desire to build a global development center in Brno. It is asking for incentives. CzechInvest expressed great enthusiasm. Is this the new global strategic partner for the locality? A more faithful one? A global uncertainty has settled down in the Brno region.