TSpace Research Repository tspace.library.utoronto.ca Regional Deindustrialization and Re- bundling: Evidence from the Merger of the former German Hoechst and French Rhône- Poulenc Groups Harald Bathelt & Katrin Kappes Version Post-print/accepted manuscript Citation Bathelt, H.,&Kappes,K.(2008).Regional deindustrialization and re- (published version) bundling: Evidence from the merger of the former German Hoechst and French Rhône-Poulenc groups. European Planning Studies, 16(10), 1329-1352. Copyright / License Publisher’s Statement This is an Accepted Manuscript of an article published by Taylor & Francis in European Planning Studies on Dec 2008, available online: https://www.tandfonline.com/doi/abs/10.1080/09654310802420045 How to cite TSpace items Always cite the published version, so the author(s) will receive recognition through services that track citation counts, e.g. Scopus. If you need to cite the page number of the TSpace version (original manuscript or accepted manuscript) because you cannot access the published version, then cite the TSpace version in addition to the published version using the permanent URI (handle) found on the record page. April 4, 2007 ca. 11,000 words (main text and references) Regional deindustrialization and re-bundling: evidence from the merger of the former German Hoechst and French Rhône-Poulenc groups Harald Bathelt University of Toronto, Department of Political Science, Sidney Smith Hall, 100 St. George Street, Toronto Ontario, Canada M5S 3G3, E-mail: [email protected], URL: http://www.harald-bathelt.com and Katrin Kappes Faculty of Geography, University of Marburg, Deutschhausstraße 10, 35032 Marburg, Germany, E-mail: [email protected] Paper submitted to European Planning Studies i Regional deindustrialization and re-bundling: evidence from the merger of the former German Hoechst and French Rhône-Poulenc groups Abstract. A large part of the work in economic geography and other social sciences has focused on new growth prospects due to the establishment of global production chains and the rise of new clusters of industrial activity. Much less attention has been paid to former growth industries and regions that have recently experienced shrinking processes due to internationalization. This paper will explore the cases of two chemical regions, i.e. southern Hessen, Germany and Rhône-Alpes, France. These two areas have both undergone drastic restructuring since the mid 1990s, due to the merger of the prominent chemical groups Hoechst and Rhône-Poulenc into Aventis. Instead of investigating the development of the core activities at Aventis, we will focus on the operations that were considered less important and consequently split off. In addition to the negative consequences produced by these activities, in our analysis we also emphasize regional opportunities which arise from competence building, reorientation and new firm formation. These processes can be viewed as re-bundling existing and new knowledge bases with other resources to help overcome economic crises and develop a new competitive edge. As such, the paper aims to contribute to a relational understanding of economic globalization and regional restructuring. Keywords. International mergers, regional deindustrialization, re-bundling, chemical industry, Aventis JEL Classifications. F23, G34, L22, L65, R10 1 1. Introduction A large part of the work in economic geography and other social sciences has focused on new growth prospects due to international market reach, the establishment of global production chains and the rise of new clusters of industrial activity, as a consequence of international direct investments, acquisitions and mergers. While these are important aspects of the changing international division of labor, much less attention has been paid to those industries and regions that once formed the basis of economic growth and well-being, and have recently been forced to undergo various shrinking processes. This paper will explore the cases of two chemical regions, i.e. southern Hessen around Frankfurt/Main in Germany and the Rhône-Alpes region around Lyon and Grenoble in France. These two areas have both experienced drastic restructuring since the mid 1990s due to the merger of the German Hoechst and the French Rhône-Poulenc groups into Aventis. As opposed to earlier periods of restructuring, which were limited in terms of their extent and time span, it seems that capitalist economies have now entered a new regime of permanent restructuring (Greco 2004a; 2004b). This paper aims to contribute to a relational understanding of economic deindustrialization associated with international mergers by focusing on those agents who are negatively affected by such processes. Its goal is to investigate the effects of globalization in the context of industrial restructuring and deindustrialization, and the associated impact on the social division of labor from a micro-scale spatial perspective. The paper analyzes the regional effects, threats and prospects that arise from such processes in the chemical industry, focusing on the Aventis merger which took place in the late 1990s. Instead of investigating the development of what was to become the core of activities at Aventis, as other studies of international mergers have done, we will focus on the operations which were considered less important and consequently split off. These activities were either sold to other companies, or 2 more or less left alone to survive outside the formerly established, integrated corporate environment. In addition to the negative consequences, we will also focus on regional opportunities which may arise from competence building and new firm formation. This can be viewed as a process of re-bundling existing and new knowledge bases with other resources to overcome economic crises and develop a new competitive edge. The analysis will proceed in three stages. (1.) Changes in the corporate structure and institutional environment of southern Hessen and Rhône-Alpes will be analyzed, and the regional consequences in terms of employment, the social division of labor and public response discussed. (2.) The paper will investigate how regional suppliers and service providers have had to restructure their activities to remain in business, or find new markets. The degree to which these firms have been able to develop a specialized knowledge base from their former relations with chemical firms, enabling them to find new customers inside or outside the chemical industry, will be explored. (3.) The question as to whether this has spawned firm formation processes by former managers and employees who lost their jobs, or by those who were not pleased with post-merger work conditions, will be addressed using the case of the Frankfurt/Main region. The analysis presented in this paper is based on in-depth empirical work concentrated on the restructuring activities of the former Hoechst and Rhône-Poulenc groups in southern Hessen and Rhône-Alpes. This involved explorative research, fax surveys and structured interviews with chemical firms and their regional suppliers, as well as interviews with industry experts and regional observers of the chemical industry. In southern Hessen, this research began in the mid 1990s (Bathelt 1997) and has continued until today (Bathelt and Griebel 2002; Kobiela 2003; Kappes 2006). This paper is primarily based on the following 3 research: in August 2000, 106 chemical suppliers in southern Hessen participated in a fax survey on producer–user relations within the chemical industry. In addition, a total of 30 interviews with chemical firms and suppliers, and an additional 15 interviews with industry experts, were conducted between January 2001 and May 2006. The empirical work in Rhône- Alpes was undertaken between June 2004 and November 2005 (Kappes and Trucchi 2005a; 2005b; Kappes 2006). A total of 65 chemical firms, suppliers and experts in the Lyon and Grenoble regions took part in interviews and filled out standardized questionnaires. Only those suppliers and service providers were included in the study which already had a supplier relationship with the former Hoechst or Rhône-Poulenc groups prior to their merger. The overall response rate for all surveys was above 40%. The goal of this research is to explore the structure of producer–user relations in the chemical industry and the changes that took place as a consequence of the Aventis merger and global restructuring. This includes questioning the precise type and intensity of interaction, the potential for knowledge transfers and interactive learning, and the structure of purchasing decisions made before and after the Aventis merger. In addition, this paper builds upon interviews with 15 new firms in the Frankfurt/Main region which were spun off from Hoechst during the course of the restructuring process (Kobiela 2003). The paper is structured as follows: section 2 discusses the regional effects of international mergers and acquisitions on industrial core regions. In applying theory to understand regional development that is based on evolutionary economics, it will be argued that the concept of lock-in processes in older industrialized regions only partially fits the incidence of regional restructuring investigated in this paper. Rather than viewing lock-in as a negative process per se, we develop a framework of re-bundling in section 3 which discusses possibilities for new developments that may also be associated with a crisis. This includes a discussion of ways in which restructuring