The news from Coventry last week that Peugeot has decided to close its operations in Ryton came as a further bitter blow to what remains of the car manufacturing sector and its suppliers in this region.

A number of different factors were cited and different interest groups inevitably had different views as to why it had happened.

One of the themes being put forward was that jobs were being lost to France and that essentially a French business had looked after their own. Well they have, but in my view that doesn't tell the complete story.

As I understand it, the decision not to invest in a new model range at Ryton was made some time ago. With the enlargement of the European Union the owners have looked East in the past few years and built up a sizeable manufacturing capability in the former eastern block.

Everyone knows it is cheaper to employ labour in Eastern Europe, which is readily available and sufficiently skilled.

It also has little in the way of Maastricht driven employment rights. It is located in an area where home demand is set to increase in the next few years as the Eastern economies grow and new businesses opening there will find special incentives and deals available to them, both from local or regional centres of government and the EU itself.

So was the decision about protecting the (French) home market? And was it because French employment law makes it harder to sack French workers than British workers?

My understanding is no extra jobs will be created in France - but a flagship French brand will be protected at 'home'.

The decision to close Ryton was not in my opinion down to the fact that it is easier or cheaper to make people redundant in the UK, but that it will be easier still to make them redundant in Eastern Europe in the future. This is rather euphemistically referred to as the "flexibility" of labour. Along the way the workers will cost less to employ and there will be financial incentives to employ them in the first place.

Turning it on its head, was it the fact that UK employment law has become more restrictive in recent years that contributed to the decision of the French to look East? In my view, yes.

Big international businesses play a global game and they take into account this type of factor in choosing the destination for their next factory.

Government figures show that the rate of foreign investment in the UK has slowed. I wonder whether they have taken sufficient account of the legal changes which have affected our local "flexibility" of labour.

* Nigel Wood is senior partner at Birmingham law firm The Wilkes Partnership