Francesco Scalera, Int. J. Eco. Res., 2011 2(4), 153-161 ISSN: 2229-6158 MANAGERIAL STRATEGIES TO COMBAT THE AUTOMOTIVE INDUSTRY CRISIS: THE CONTEXT OF FIAT AUTOMOBILES SRBIJA Prof. Francesco Scalera (corresponding author) University of Bari “Aldo Moro” II Faculty of Economics - Taranto (Italy), Department of Business and Law Studies, V. B. Grimaldi 15/B - 70123 - Bari (Italy) E-mail: [email protected] Abstract In recent years, in the most industrialized countries, the leading companies in the field have safeguarded their competitiveness, looking for greater production efficiency, in order to better the price-quality ratio of products and services to the customer. The only way to achieve this goal was the transfer of either a part or the whole production process in those geographical areas where the cost of certain inputs (e.g. labour) is definitely lower than the manpower available in the local market. Thus, at the end of 2009, the Fiat Group made a joint venture with the Serbian government for the creation of Fiat Automobiles Srbija (FAS), which provides for a majority stake of 67% for the Group, while the remaining 33% is controlled by the Balkan State. So, in the light of what described above, the present paper, starting from the financial, production, social and economic data collected, aims at analyzing the terms of this important international managerial operation, and then investigating the possible advantages and disadvantages ensuing from both for the Turin firm and the Serbian government. Afterwards, the model of the organizational structure adopted to ensure competitiveness in the new Italian- Serbian company will be examined; the work will then consider the strategic aspects as well as the future expectations that the Turin company is willing to achieve thanks to this important managerial transaction. Key Words: Management, Enterprise, Fiat Automobiles, Production, Serbia. JEL Classification: L62, L26, M11, L22 1. Introduction designed for the American market (Lilli Owing to the current phase of 2010). globalization, the most developed The same strategic trend has concerned the countries have been increasingly led to main world motor companies, not least the start a process of relocation of their Fiat Motor Company that has relocated its companies to developing countries, mostly own activity to other countries such as in labour intensive sectors, in order to Turkey, Poland, Brazil and so on, in order preserve their competitiveness by cutting to knock down production costs. production costs. The Italian-Serbian joint venture made in This trend also involves the motor sector 2009 was the result of such a corporate where, in recent years, a lot of global policy aiming at achieving the very companies have made joint ventures ambitious goal of moving the production abroad aimed at improving the return on of the “LO” space wagon from the Italian investment. factory in Mirafiori to the Serbian plant Among the latter, the relocation of based in Kragujevac (Moretti 2010). Volkswagen to Mexico is particularly Anyway, before analysing thoroughly such worth mentioning; in fact, through an important managerial operation at an investing one billion dollars over three international level, it is probably useful to years, the company has set up a new take a step backward in order to identify branch based in Puebla; this firm, that the origins of this remarkable Serbian already records an output of 525,000 factory as well as the reasons for the items, is going to assemble the Jetta model collaboration that Fiat had previously (70% of its components are Mexican) developed with it. IJER | JUL - AUG 2011 153 Available [email protected] Francesco Scalera, Int. J. Eco. Res., 2011 2(4), 153-161 ISSN: 2229-6158 2. The Origins of the Collaboration and was actually created only in 2009, on the Terms of the Managerial Operation December 23rd, leading to the starting up The Zavodi Crvena Zastava plant, a of Fiat Automobiles Srbija (FAS) of which factory originally producing weapons, was two thirds are owned by the Fiat Group changed over to a car producing company and one third by the Serbian Government, in 1953, after the Second World War. thus bringing the glorious Zastava Based in Kragujevac, one of the main Automobiles to an end. towns in the country, it started a profitable The agreement provides that the Fiat collaboration with Fiat that sold a licence, Group shall make the most important to produce the Fiat “Campagnola”, to the foreign investment in Serbia (reaching 700 then Yugoslavia ruled by General Titus, million Euros over three years) aimed at leading to the Zastava Yugo 45 in 1981, producing about 200,000 “LO” space the most successful model manufactured in wagon models in the former Zastava the factory, equipped with the Fiat 127 factory, thus replacing well-known models engine and exported both to Italy and to such as the Fiat Multipla, the Fiat Idea and the USA as Koral under the Innocenti the Lancia Musa. brand. Thus, at the end of the eighties, the 3. Fiat Auto and the Two Sides of the development of the factory together with Transaction the contribution made by the induced At this point, it is convenient to analyse economic activity had allowed over 35,000 the reasons for this transaction, about people to be employed and about 223,000 which there has been a lot of debate among motor vehicles to be produced. the social parties involved in Italy, so as to In 1999, after Titus’ death, the factory was identify the prospective advantages leading destroyed during the Kosovo War by the the Turin motor company to stipulate this Nato aircrafts (including the Italian ones). memorable agreement. It was then rebuilt and it started to First of all, the opportunity of producing produce, as from 2005, the Zastava 10, cars at a competitive cost, due to the low exactly the same as the former Fiat Punto cost skilled labour force whose wages are Classic, marketed under the Serbian about 400 Euros per year, turning out to be company brand, thanks to the acquisition well below both the Italian and Polish ones of a licence by the Fiat Company that reaching about 1,200 Euros and 600 Euros spent 3 million Euros on it, in addition to respectively (Di Napoli 2010). 14 million needed to move the aged Besides, the State bears the total cost of Mirafiori models to the Balkans (De the factory decontamination (to dispose of Pascale 2009). about 370 tons of dioxins resulting from In 2008, on April 30th, the two motor the Nato air raids in 1999, during the war companies signed a memorandum of that split the former Yugoslavia), handing understanding in Belgrade, that over its ownership to the Fiat Group. strengthened the above collaboration. It Another advantage which is not negligible provides for the factory shake-up aiming at concerns the number of employees that, at producing and exporting the new models present, are paid by the Fiat Group. In fact, to the EU, in addition to the already known for the moment, only 1,060 out of the Punto that the Serbian citizens can buy for 2,600 total staff are paid by the Turin 6,000 Euros benefiting from Government Company, while the remaining ones will incentives reaching 1,000 Euros for car be on the payroll of the Serbian scrapping as well as from low interest rate Government until the development of the loans granted for purchasing. Kragujevac factory allows new recruitment However, the joint venture between the for which, on the other hand, the “Lingotto Fiat Group and the Serbian Government factory” will be granted a loan of 10,000 IJER | JUL - AUG 2011 154 Available [email protected] Francesco Scalera, Int. J. Eco. Res., 2011 2(4), 153-161 ISSN: 2229-6158 Euros for each new employee by the link for the E75 aimed at improving the Serbian Government. road network of the area. In addition, the Italian motor company will Concerning the main disadvantages of the be allowed remarkable tax reduction; in agreement, they are mostly of a social fact, it is not going to pay taxes either to nature. Belgrade Government or to Kragujevac The above agreement has, in fact, brought municipality for ten years. about tension both in Serbia and in Italy. The strategic importance of such an Indeed, in the Balkan country, following investment in the heart of the Balkan area the production of the new Fiat Punto at the is even linked to the fact that Fiat can use end of 2009, a fire was deliberately set to Serbia as a launching pad to market the the factory in Kragujevac, destroying the product in Russia on highly competitive conveyer belt between the painting line conditions, thanks to a free trade and the assembly line; the management agreement involving also the motor considered this event as a warning sign industry. In fact, through the elimination aimed at urging more care in employing of customs duties and with a view to the staff. achieving the ambitious goal of 200,000 In Italy, instead, there was much tension cars exported per year, the above between the Turin firm and the unions agreement will allow the Turin firm to concerning the Mirafiori factory that, as a earn 2,000 Euros more, on average, on matter of fact, lost the “LO” production. each motor vehicle, for a total amount of However, in the above factory, a 400 million Euros. referendum was held by the owners at the Moreover, the workers quitting the Zastava beginning of the year, concerning the company of their own will benefit from a acceptance or not of the new labour gratuity of 300 Euros for each year’s agreement, in exchange for considerable service completed, while those employees production investment reaching 1 billion that are not going to take legal proceedings Euros to produce new “luxury” models against the firm to assert their own rights (like Jeep and Giulietta).