Re-relocation from Far East – Back to the origin

Rising wages, escalating transport charges and an appreciation of the currency. The production in China gets more and more expensive for western companies. As a consequence more and more companies retrieve their outsourced parts of the production back to the origin.

As an example we can capture the French presidential campaign in 2012. The candidates were touting with arguments like “sell more home-produced products” and “retrieve the production back in our country”. Furthermore there is the claim for warranty certificates, which attest the origin of production in France. However, companies have begun to relocate their production several times before politics took possession of this topic for their purposes. This means that globalisation partly begins to stuck.

One example for this issue is the French toy manufacturer “Meccano”. The owners Michael und Alain Ingberg followed the outsourcing-boom. They relocated their production to China in the previous ten years. The main factory at the French city Calais was already written off. But two years ago the Ingberg brothers have brought 20% of their production back to France. Meanwhile roughly 50% of the outsourced production is back in Calais. “China is changing”, was the comment of Michael Ingberg. Wages are rising, the currency is appreciating and the costs for transportation from China are rising and rising over time. Another point for the re-relocation is the gain in flexibility. The workers in China become scarce and as a consequence the delivery times increase.

Even other companies have decided to come back with their production. Another example from France is “Genevieve Lethu”, a producer for high quality kitchen accessories, table ware and pots. The reason was that China wasn’t able to fulfil the necessary quality claims of the company.

There are many other companies which are following this trend. “Kapsch”, the Austrian producer for radio technology brought the production from the Chinese city Foshan back to the 8,600km dislodged Austria. The radio stations which were produced by 500 Chinese workers are now produced by 50 domestic workers. Despite of the productivity-advantage, the production costs are +5% compared with China, but considering the raising minimum wages of annually 20% in China and the appreciation of the currency, the 5% more are acceptable, a fortiori regarding the additional flexibility. Kapsch can react notably faster on changes or adjustments from their customers what consequently improves the service quality of the company as a supplier. This argument runs like a golden thread through the explanation of the returnees.

Also in Germany we can find such companies. One example is the producer for high quality pans “Berndes” from Arnsberg. Their explanation is that the production of low quantities is more expensive. Further reasons are the same as already mentioned in the examples of Kapsch and Genevieve Lethu.

“Back to the roots” is also a project from Apple, which also produces in China. The Mac- Book production will be returned to the USA.  Tim Cook, the director of Apple said that they want to invest 100 Million US Dollar in this project. It could be a beginning of a revolution; the industrial jobs are coming back to their origin.

This trend isn’t new, but amplifying. The main reasons are the continuous crisis in the world and the reorientation of the companies. Costs aren’t any longer the key factor. Based on the financial crisis, plantare declining. For companies it becomes more and more important to use their own capacities, to have a higher level of utilization, what would lead to lower production costs.

Another important point is the short lifespan of products nowadays. The products cycles are always faster and the availability is a crucial factor for companies.

A little comparison shows, that for three relocations from Germany to Far East, one company comes back. Every seventh company from United Kingdom also returns from Far East after a period of two years. The British chief economist Lee Hopley says also: “The key factors in the global competition are quality, customer service and delivery times.” This led to a revaluation of the production in emergent countries like China, Vietnam or Korea.

It could be an interesting investigation, if countries from Far East like China etc. already observe this trend in their export statistics. But probably it needs more time to see in which direction this progress will turn. But it’s a first shift in the big world of the GLOBALISATION.

written by Matthias Lerch, Nicolas Lauer, Timo Bug

Sources:

http://www.manager-magazin.de/politik/weltwirtschaft/0,2828,807918,00.html

http://www.sueddeutsche.de/wirtschaft/industriejobs-apple-holt-jobs-zurueck-1.1545038

4 thoughts on “Re-relocation from Far East – Back to the origin

  1. Interesting! And maybe there is one more fact. People do not trust the products made in China more and more – it is somehow connected to the opinion of the low quality producing. So they would probably likely buy the products made in their own country. And the bad working conditions for workers in China could play some role, too – some people don’t want to support such a misuse of people.

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  2. I think another reason might be that China is becoming a market itself for these premium goods that were being produced there for cheap by international companies. There is still majority of poverty in China, but new segments arose in few last years thanks to those huge foreign investments. China can buy more and more of these premium goods and is slowly but steadily becoming able to buy the production they make. So companies needs make more plants in home countries to supply domestic demand.

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  3. I totally agree with the quote “The key factors in the global competition are quality, customer service and delivery times.” of the British chief economist Lee Hopley. Through the development to a more sustainable world, the requirements of customers regarding quality increases constantly. Therefore it is important for companies to sell high-quality products with a long life-time combined with a good customer service. Moreover, high-quality products reduce the demand of customer services which helps the companies to reduce their service costs permanently.

    Independent from the quality, customer service and delivery times, I think that especially engineering companies afraid of loosing their generated know-how through researches to chinese companies.

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  4. I also totally agree with critisim about quality, customer service and delivery time problems of China, I do not believe that production in China would be left to die by European and American companies. I believe that China has transformed its economy system into a “some-kind-of” capitalism and created a middle class in China that contains almost 300 million population-which is more crowded than all population of the USA- and this middle class is getting more eager to spend more money. As Chinese culture and business have a nature that require to be close contact with China, I believe that most of the companies will not be so willful to leave China.

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