Layoffs at the "Gruner" factory: The defeat of the business model of cheap labor

"Thank you dear friends. I wish you all the best and long may the company 'Gruner' of the Spreitzer family stay here. Long live Vlasotince, the south of Serbia and our whole Serbia!"

This is how the President of Serbia is Aleksandar Vučić in October 2022, greeted those gathered at the ceremonial opening of the fourth production plant of the company "Gruner Serbia" in Vlasotinac. It was promised at that time that due to the new facility, an additional 200 workers will be employed in this factory, which will make a total of 750 workers in "Gruner".

In addition, Vučić also hinted at employment for some of the students of the Technical School in Vlasotinac, saying that "they can count on a job as soon as they finish school."

Less than three years after the grand opening of the newest facility and the promise of a bright future and stable employment, the situation has turned around. "Gruner Serbia" announced that due to the unfavorable situation in the automotive industry market, which resulted in a decrease in the volume of work, the company was "forced to reduce the number of workers at the plant in Vlasotinac".

As "Južne vesti" writes, while some workers testify that in one day about seventy of them were declared redundant, "Gruner" does not want to specify the number of those fired, nor whether they are planning additional layoffs.

It's not the first time

This is not the first time that "Gruner" has reduced the number of employees. Something similar happened back in May 2023, when the company stated that "due to the reduction in the number of workers, it will return part of the money from subsidies for new jobs to the budget of Serbia, in accordance with the contract and according to the law, as it has been operating all these years".

Then the factory announced that twenty workers had lost their jobs. A little more than a month later, a new wave of layoffs followed, and the factory said goodbye to around 70 more workers, the German company confirmed at the time.

By the way, "Gruner" has been operating in Vlasotinac since 2007, and in the meantime received subsidies of 3,2 million euros from the Serbian state.

The specter of unemployment

"Gruner" is not the only factory that is laying off workers due to the crisis in the automotive industry. Johnson Electric and Leoni have done the same in the last few months.

In February, "Johnson Electric" from Niš laid off about 350 employees, and also due to the reduction in the number of employees, it had to return part of the subsidies it received from the state. Namely, according to the contract from 2013, this company was supposed to receive a total of 19,2 million euros in incentives from Serbia, paid in four equal installments. After several annexes to the contract, "Johnson Electric" fulfilled the condition for only the first two installments until 2025, and committed to return almost one million euros to the Serbian state no later than December 31, 2024.

An even more recent example is the "Leoni" factory from the same city. A few days ago, it was announced that, due to the closure of the Leoni factory branch in Malošishte, a total of 1900 people will lose their jobs by the end of the year. The mayor of Niš, Dragoslav Pavlović, said at the time that the city's leadership was talking to companies in Niš and the surrounding area that could take over some of the workers.

Although the south of Serbia, where the state pompously opened various factories in previous years, as if on a conveyor belt, the most affected by the epidemic of plant failures and shutdowns, the plague is not limited to this part of the country. At the beginning of the year, it was announced that the German company Drexlmeier, which has been operating in Zrenjanin for 17 years, will close its doors next year.

Due to the closure of this factory, around 2000 workers will lose their jobs.

While in Serbia the problem with factories that produce parts for cars can be partly explained by the crisis that exists in this industry on a global level, the crisis is not limited to this area only.

Several factories have decided in the last few years that it is more profitable for them to move their work elsewhere, so they have picked up the machines and shut down the plants. For example, this decision was made at the beginning of the year by the Italian "Benneton", which until now employed around 900 workers. Two years earlier, Leskovac left "Jeans".

Why are workers being laid off and factories closing, and can the state do anything to stop it?

Unsustainable business model

Economist Goran Radosavljević he spoke earlier for "Vreme" that such a scenario could be expected because Serbia almost 20 years ago set up a business model that was based on subsidies and cheap labor that attracted foreign direct investments.

That business model, however, is exhausted because there is generally a shortage of labor, so even Serbia has started importing it, and the one available on the domestic market is no longer cheap.

"It was logical to expect that when the subsidy cycle, which lasted for about 10 years, ended, companies would start looking for other countries. Meanwhile, Serbia failed to attract enough industry with a larger, high added value, because foreign direct investments were mostly in so-called traditional sectors, and when they were in high-tech sectors, they were low-level processing and manual work. In Serbia, even programmers are 'modern cable winders', because they do some small code in to a large software chain that is made in Silicon Valley or somewhere else," said Radosavljević.

He pointed out that it is currently very difficult to say what the state can do, but that it should definitely try to attract some different foreign direct investments, but also to encourage the growth of domestic investments because they are completely neglected "since we gave everything to foreigners and very selectively to domestic entrepreneurs".

"When you look at the decomposition of economic growth into the effect of labor, the effect of capital and the effect of technological progress, the latter, which contributed to economic growth in Serbia in the previous 15 or so years, is significantly lower than in the countries of Central and Eastern Europe. This means that we did not attract companies that pushed economic growth through technological development, but only through employment. Serbia did have a high unemployment rate, but it is no longer there, now it is in single digits, and one could say that it is at an approximately natural level," added the interviewee. "Time".

Economist Milan Kovačević also reminded that the policy of attracting foreign investments was based on the principle that Serbia will accept investments that nobody wants.

"The president said: 'Whatever someone offers you, we will give you more'. This means that we measured foreign investments mostly by the value of the investment, which is wrong. For us, the best foreign investments were those that did not have subsidies. The whole approach to foreign investments in Serbia was completely wrong," Kovačević concluded.