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



The influence of product piracy in the Global Labour Market

It sounds paradoxical: China’s economy is increasingly suffering among the big amount of product piracy even in its own country – and Western companies earn well in protecting against counterfeiting Chinese companies. The success of Wibu system can be imagined how rapidly changes the second-largest economy in the world. Wibu system specifically provides to other companies to protect their digital products from counterfeiting and counterfeiters. For nine years Wibu system is also active in Shanghai, Beijing and in 2010, opened the second establishment.

Although China is still the stronghold of the pirates, according to a recent study by the VDMA industry association shows.


Thus, almost three-quarters of the fakes that cost the German engineers per year, eight billion euros, come from the People’s Republic. However, the copier are no longer satisfied to plagiarize foreign inventions, one to one.

Increasingly, Chinese companies are now working out by itself to develop technologies and meet the needs of their compatriots. Even more, China’s economy increasingly brings  its own high-tech products, innovative businesses are heavily subsidized by the state.

Dola Zhou directs the Office of Wibu system in Shanghai. She says that lucrative products such as slot machines or medical are copied. “The Companys working on a product for two to three years and then within two weeks bring a cheap copy on the market.” Especially in the slot machine industry a fierce battle raging between the manufacturer and the inventor of it was “very profitable to sell their ideas twice or three times.”

Dola Zhou and her team advise companies how they can protect their products. If you are interested, they provide tailor-made encryption software that can be integrated into the device – for example in an MRI scanner or a slot machine.

The technical development of China is often underestimated. The country develops from a pure producers at a place where complex technologies and developed are invented.

Fact is: Every year hundred thousands of engineers are leaving the university. So there is a huge potential for innovation, while German companies complain about the shortage of skilled workers. For German industrial companies, it is certainly not easy to defend themselves from Chinese competition.

Even in his own industry, meanwhile, Wibu system feels competition from Chinese competitors. So far, the Chinese competitors are developing especially security software for home computers while the Germans and their competitors in the U.S. for instance, supplying machinery builders in the whole world. But that could change – the Chinese are learning very quickly.