EN Official Journal of the European Union C 170/32

Opinion of the European Economic and Social Committee on The challenges of the European engineering industry (mechanical, electrical, electronic and ‘metalworking’) in a changing global economy (own initiative opinion)

2014/C 170/05

Rapporteur: Ms STUDNIČNÁ

Co-rapporteur: Mr ATANASOV

On 14 February 2013 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of Procedure, decided to draw up an own-initiative opinion on

The challenges of the European engineering industry (mechanical, electrical, electronic and metalworking) in a changing global economy

(own-initiative opinion).

The Consultative Commission on Industrial Change (CCMI), which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 21 November 2013.

At its 494th plenary session, held on 10 and 11 December 2013 (meeting of 11 December 2013), the European Economic and Social Committee adopted the following opinion by 167 votes to 1 with 4 abstentions.

1. Conclusions and recommendations

1.1. The European engineering industry (1) (EI) plays a vital role in the economic recovery of Europe and the ambitious goal to increase the industrial output by 2020 to more than 20 % of the GDP. However, more investment of companies is necessary to generate such growth, to reverse the current trend and to get people out of unemployment.

1.2. To reach this, Europe must develop a clear vision and target for industry. This must lead to a coordinated policy with a clear focus on the competitiveness of the European industry that includes the other policy fields and makes Europe a more attractive place to set up business.

1.3. Europe must develop a more positive approach towards change in industry, especially with regard to the successful transition of the CEECs.

1.4. Europe should become more aware of its assets, develop and strengthen them — well-skilled and motivated workers, a diverse education landscape, enormous scientific knowledge, many globally leading regional clusters, well-integrated chains of suppliers and services, well-developed transport infrastructure and a huge internal market with more than 500 million consumers and solid cooperation of social partners.

1.5. In order to generate new investments Europe must follow a strategy that keeps its industry at the forefront of technological innovation and at the same time, in order to reach the necessary volume of output and employment as a main tool of strengthening competitiveness, be more attractive for companies manufacturing mass production goods, both in the high and in the low and medium-tech ranges. The EESC calls upon the European Commission to launch a strategy on how Europe can attract more investments in high tech companies — including modern factories resulting from the 4th industrial revolution — and highly skilled competences fostering innovation throughout the value chain.

1.6. European research funding should be linked more to the industrial needs, involving companies at an early stage of the innovative process and supporting the creative engineering in SMEs in order to bring easier and faster new ideas to new products. Clusters joining manufacturing companies and research structures should be promoted and supported.

1.7. The EC should increase its efforts to make the life of European companies easier, especially for SMEs. New technical and administrative legislation should only be considered if its targets cannot be achieved otherwise. The EC should put a stronger focus on a coherent application of existing rules among all Member States, harmonising and strengthening the Market Surveillance. EC should also promote balanced application of such approach globally towards other world’s regions.

1.8. Disadvantages, such as difficult access to finance, high energy costs or costs resulting from administrative burdens and legislation should be reduced by adopting a more consistent and predictable legislation.

1.9. High employment in Europe can only be maintained if workers are better educated and trained than in competing economies. Measures should be taken to attract the youth — both males and females — in technological professions with increasingly sophisticated machinery and services. Cooperation of companies with universities and schools, training and lifelong learning has to be encouraged.

2. Introduction

2.1. The EI in Europe is a very wide and diverse sector, covering NACE codes 25, 26, 27, 28, 29.3, 32.11 and 33 with the exemption of 33.15 to 33.17. The EI traditionally is presented by: Mechanical and Electrical engineering and machinery; Electronics; Metal articles and metalwork.

2.2. The entire EI in Europe consists of some 130 000 companies, employing > 10,3 m people with high qualification and skill level, generating an annual output of some EUR 1 840 bn and about 1/3 of all exports of the EU.

2.3. Producing a variety of final products and delivering to other sectors components, parts, tools, machinery, installations, systems, technologies, etc., this industry plays a key role for the technology level of a large number of other sectors and defines the development of the society on energy efficiency, health, mobility, communications and security.

2.4. Due to its enormous volume, high employment and strong export orientation, the EI plays a vital role in the economic recovery of Europe and the ambitious goal outlined in the Communication of the EC ‘A Stronger European Industry for Growth and Economic Recovery’ to reverse the current trend and to increase the industrial output by 2020 to more than 20 % of the GDP.

2.5. The European engineering industries must be seen and analysed in the context of the EU economic development, and these industries are integral and essential links of the respective value chains. Seen from this point of view, they suffer from essentially the same problems as their chain counterparts (steel industry, power sector ...).

3. Challenges of the European EI

3.1. International competition

3.1.1. The European EIs export a considerable part of their output. In recent years investments have lagged behind other regions in the world. This entails a dangerous de-localisation of value chains away from Europe and European EIs are facing increasing global competition.

3.1.2. North America has adopted a strategy that aims at re-industrialisation, based in particular on low energy costs and lower labour costs in the NAFTA. China and several countries in South East Asia have attracted considerable investment, especially in the electric and electronic sectors, recently also in machinery. With state-backed development plans, these industries not only compete with lower wages but will soon produce goods with higher added value. Japan is gaining competitiveness due to the recent devaluation of the Yen by around 30 %. Finally, Africa and the Middle East have succeeded in recent years to attract manufacturing investments.

3.1.3. The target of 20 % share of industry in GDP, necessitates the creation of at least 400 000 new jobs/year. Only if Europe can attract more investments, enough jobs and wealth will be created so that the high social standards in Europe can be maintained and the Europe 2020 goals can be reached. And investments will only be made in Europe if it is competitive.

3.1.4. It is evident that such a high number (> 10m) of predominantly well-paid jobs cannot be maintained if Europe concentrates only on the upper market end of engineering. While high tech companies play a decisive role in the technological lead and foster innovation throughout the value chain, it is crucial Europe to remain a production place for all kinds of engineering products and commodities, also in the low- and medium-tech sector. Besides creating employment, this is decisive for the integrated network of suppliers, which is one of the biggest assets for producers in Europe, and allows fast exchange of knowledge, quick adoption of production and benefits from regional clusters.

3.2. Technological challenges

3.2.1. It is in particular the engineering sector that is at the forefront of the transformation to a green and low carbon economy through the products, systems and technologies its companies are producing. The industry is moving very fast towards the fourth industrial revolution (2) which will provide the jump to mass customisation, enabling industry to answer societal challenges with tailor made solutions.

3.2.2. Europe has the necessary scientific knowledge and research competence for the change to a greener economy, but the path to innovative products requires more than that. Europe has in many technologies a clear scientific advantage, but the industries profiting from this research settled abroad, i.e. Europe is not attractive enough as a production place to bring such innovations to the market and the outflow of knowledge to rival economies becomes a real menace.

4. What can Europe do?

4.1. Strategic aspects

4.1.1. Assessing the chances of the EU in pursuing the really needed industrial policy one arrives in grave inherent problems that would affect the required transition. First of all, unfortunately, the EU lacks vision and leadership, which lead towards too many incoherent initiatives and acute incoherence of the regulatory framework. Second, sustainability concept, which could be such an integration strategy, should give the same importance to all 3 pillars (environmental, social and economic).

4.1.2. The current decline of investor’s confidence (3) in the EU economy is alarming; it is crucial to win it back. Real implementation of the EU 2020 Strategy and stimulating and motivating business environment could be the way out of current decline.

4.1.3. Much more investments and growth is needed to reverse the continued decline of industry in Europe. The 20 % target and creation of new jobs won’t happen unless Europe develops a clear vision and agenda for industry. This should lead to a coordinated policy with a clear focus on the competitiveness of the European industry that includes the other policy fields and makes Europe an attractive place to set up business.

4.1.4. Engineering companies suffer from too much regulation, at times inappropriate, and many national laws overlapping the EU law. Especially SMEs are not able to cope with them. The main task for engineering companies should be to find technical solutions and not to spend a considerable part of their resources to deal with the latest regulations. The direct approach to get relief from this problem is to reduce the amount of new legislation.

4.1.5. As an example for unnecessary new legislation, it has become a habit that most proposed recasts of existing regulations and directives are followed by amendments. Often better application of existing rules would solve a problem better than creating new provisions. New rules should therefore be the ultima ratio.

4.1.6. The European legislator often tries to regulate a certain area in a too detailed manner. While this makes sense in certain technical regulations, it might be inappropriate in other areas, for example, rules on electromagnetic fields are too difficult to comply with for SMEs. The ECs 2013-2020 health and safety strategy must secure an adequate level of protection at the workplaces but should at the same time be consistent, short and easy to apply.

4.1.7. European legislation must become more predictable. This entails — with regard to the investment cycles of companies — that methodologies shall not be altered once established and targets shall be heightened predictably and in a long-term perspective. One example, where the originally holistic approach of the Commission is getting lost, is the Eco Design Directive. The initial focus has been on energy and the robust methodology used (MEErP) should be maintained. Particular problem results from frequent recasts. For some products the changes in legislation happen roughly in 5 year interval, which is particularly devastating for the engineering sector, where the investment horizon stretches from 10 to 30 years.

4.1.8. Unfortunately, impact assessments of the EC do not include sufficiently the costs of new legislation for companies, especially for SMEs. The biggest cost of additional legislation actually not taken into consideration is in the investments and new companies that Europe loses and that are instead established outside EU.

4.1.9. In a similar way, rules for public tenders should be easy to understand. Otherwise, SMEs are no longer capable to make bids, competition gets less, the decisions in the procurement process get more difficult to be verified and public procurement becomes more vulnerable to fraud. Therefore, the focus should be laid on simplification and transparency.

4.1.10. Energy costs in Europe are much higher than in competing economies. The most urgent measure to make energy more affordable is the creation of a real European energy market. Additionally, it is important to abstain from introducing legislation that results in additional price increases. Decarbonisation must be affordable, technology-neutral and based on market laws.

4.2. Internal market and market surveillance

4.2.1. Protection against non-conforming dangerous products and counterfeiting is a precondition for fair competition. Currently, less than 1 % of all manufactured goods imported via the big European harbours are checked on their arrival on conformity with EU provisions and many dangerous or counterfeit products, especially electrical, enter the internal market.

4.2.2. Control and surveillance bodies in individual EU Member States differ largely. In some Member States, the system provides mechanism for necessary protection of businesses, in other countries these bodies are rare, not complete and insufficient or legislation is applied differently. The EU should improve and enhance coordination between these bodies with the aim to come to an appropriate and uniform European system.

4.3. Standards

4.3.1. Standardisation in Europe has become a decisive part for the success of the single market. Standardisation helps making products exchangeable and thus tradable all over the world and along long value chains. However, in recent years many SMEs complain about the amount of standardisation mandates by the EC and the fact that standardisation has gone beyond technical requirements. SMEs should be encouraged and supported to participate in the standardisation process.

4.3.2. As SMEs are increasingly involved in value chains, they should be given the possibility to adequately contribute to the making of standards. Practical measures have to be taken in order to establish equality between stakeholders i.e. better support on national level for the participation of SMEs with less financial resources.

4.4. Technology and research

4.4.1. The companies of the engineering industry are key drivers at the forefront of innovation when it comes to manufacturing the equipment necessary to make the green revolution happen. Energy effectiveness, CO2 reduction and climate-friendliness are positively influencing the sustainable development of the sector. Besides creating new products, the innovations of engineering companies often lead to new ways of production, even more environmentally progressive goods and systems, at the same time more productive and affordable for customers.

4.4.2. Europe has reached a high level of research and research results. In 2012, there were more than 250 000 patent filings in Europe. However, the pathway from research to innovative products requires more than knowledge and research competence. Europe possessed for a long time a clear scientific advantage in many technologies, but in the end the industries profiting from this research often settled outside Europe. Such weak industrial exploitation of existing knowledge in Europe can only be overcome by industry participation in research programmes at an early stage and an appropriate framework that allows them to exploit the gained knowledge timely. New structures joining industry and research — clusters, technology parks, technological exchange centres — should be promoted through public funds.

4.4.3. To improve the industrial uptake of new scientific findings, research and innovation funding should be better targeted towards industrial needs and be carried out as a Public Private Partnership, such as the ‘Factories of the Future’ programme. In order to boost participation of companies, especially SMEs, the guidelines and provisions for participation and approval of projects should become simpler. Measures should be taken to promote establishing of modern factories resulting from the 4th industrial revolution.

4.5. Labour market instruments

4.5.1. The sheer number of jobs in this industry shows that it plays a key role in overcoming the currently high unemployment in the EU and has big potential for new jobs, if Europe can generate the investments for the next economic upswing. Creating these jobs the unacceptable high youth unemployment could be overcome. The current endeavouring by the EU to create a ‘youth guarantee’ seems a good measure during the current crisis. However, on the long run, sustainable employment can only come from sound companies which invest here.

4.5.2. Many manufacturing sectors face shortage of young professionals. Education and vocational systems shall be much more oriented on the needs and future needs of companies. Measures should be taken by both the administrations and industry itself to attract young people into this sector and improve at the same time the image of the sector. Especially the lack of professionals in science, technology, engineering and mathematics in some regions of Europe must be solved, e.g. by supporting the mobility of these professionals throughout Europe.

4.5.3. Still too few young women aim at a career in engineering. In many European countries the EI has already started campaigns focused on attracting young women for apprenticeships and the European Social Fund has supported projects aiming at lowering the emotional barrier of young women towards engineering careers. Still, more has to be done. At schools, technics and engineering should be taught in a more inspiring way.

4.5.4. One of the decisive strengths why many European companies passed well through the current crisis was their excellent workforce. Due to the apprenticeship system, their workers have a comprehensive knowledge of the theoretical basis and the actual production process. They have capabilities to integrate innovation quickly at different stages of the value chain. The European Employment Policy should encourage countries to adopt such apprenticeship systems at company level. Cooperation of companies with schools and universities, start-job exchanges and traineeships should be encouraged.

4.5.5. Industry associations and trade unions can take initiatives supported by their Governments to evaluate industry education and improve pathways that can help to fill a gap in labour qualification for an industry that provides increasingly sophisticated machinery and technical service, requiring new skills.

4.5.6. Lifelong learning should be a common duty of employers and employees. Workers who lose their jobs must have sufficient access to quickly updating their qualifications. Active labour market policies should be intensified and the exchange of good practices, such as those co-funded by the ESF and EFRD, accelerated.

4.5.7. Industrial sectors are subjects to a permanent change. There is a continuous creation of jobs and products, while others get redundant. Necessary restructuring must be organised in an anticipatory process. All social partners — trade unions and employers — as well as governments and EU institutions must be integrated in a dialogue to develop a more flexible and positive approach towards change in industry. As a priority redundancies have to be avoided to keep skilled and qualified workforce in the companies. Unavoidable job losses should be organised and cushioned in a social acceptable way. In some CEECs we can find examples of modernising the economy that is more productive, cleaner and creates new well-paid jobs.

4.5.8. Government, industry associations and trade unions must find solutions to comply with cyclical fluctuations of business activity. Speedy and efficient deployment of qualified staff is vital if European manufacturing companies are to respond to the increasing pressures of global competition. Employment legislation must admit work arrangements, both externally and internally, which consider the need of efficiency in the production process, as well as health and safety issues and work-life balance. Instruments of necessary flexibilisation must not be used to lower existing social standards in Europe.

4.5.9. National social partners have a high responsibility in collective bargaining. Competing successfully with present levels of labour cost is challenging and wage earners purchasing power must be maintained. European companies must not strengthen their competitiveness by lowering wages. Efforts must be focused on non-price competitiveness and controlling production costs to preserve and improve employment. Productivity gains should be shared between increased wages, investment and rewarding shareholders.

4.6. Internationalisation of SMEs

4.6.1. In recent years, the EC has recognised that helping SMEs to export is a key to a more powerful economy. For many SMEs, the first step is to export to another EU country. That is why the competition of the internal market is so important, as experiences gained there might motivate companies to export overseas. As the latter is difficult for SMEs, it is important that they are not left alone on those markets. Additionally, the access to export financing instruments should be improved for SMEs.

4.7. Energy policy and future investments

4.7.1. Even though public budgets remain constrained, the necessary investments in energy infrastructure should not be delayed, as this would hamper the competiveness of Europe.

4.7.2. Most investments in energy and resource efficiency are made today only if the break-even is reached in less than 3 years, which leaves a lot of possible gains missed. Many private investments are not conducted even though they would be useful because their break-even would be usually reached in 3 to 5 years. This dilemma could be overcome if the future gains from such investments would create a cash flow already at the time when the investment must be made. Therefore, funds could be established at the EIB or national funding banks that provide credits to companies and households for such investments in exchange for the profits generated by the resultant saving until the credit is paid back. This model makes such investments possible without any public subsidies.

4.8. Access to raw materials

4.8.1. European manufacturers have profited from endeavours made previously to better recycle waste during the current phase of high raw material prices. Most metals, the base for most goods, are recycled today. Still, the access to raw materials that must be imported remains crucial for the competiveness of the engineering industries. Therefore, the EU must insist that raw-material trade is not hindered by WTO-incompatible restrictions, especially rare earth. Thereby has to be taken into account, that ethic, social and ecologic standards have to be respected.

4.9. Using potential of new/accessing EU Member States

4.9.1. European companies should explore and use much better the potential of the new EU Member States. This approach could transform the problems with the excessive economic differences between the European regions in a European advantage.

4.9.2. EESC urges the EC to monitor the situation in international trade of critical raw materials. EESC recommends preparing several plausible scenarios, with the worst case one, to describe the threats and potential solutions. Cooperation with other countries in the similar situation (US, Japan, South Korea) should be enhanced.

Brussels, 11 December 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) See 2. Introduction.

(2) 1st (end of 18th c) Mechanical manufacturing systems; 2nd (beginning of 20th c) Mass production, labour division; 3rd (since the mid-1970s) Automation, electronics and IT; 4th internet into production processes, networking those processes.

(3) See attached Eurostat document.