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

Advertisements

Hungary struggles to rein in runaway pension costs

 

Hungary struggles to rein in runaway pension costs
Buzz up!
Digg it
Reuters, Wednesday June 3 2009
* Steps taken to remedy pension problems but more needed
* Demographics problems similar as elsewhere in EU
* High debt, taxes, and system anomalies root of problem
By Balazs Koranyi
BUDAPEST, June 3 (Reuters) – Hungary may emerge healthier from reforms forced on it by its economic crisis but its politicians have not done enough to defuse the ticking timebomb that is one of Europe’s weakest pension systems.
The country’s poor demographics, failed reform, heavy and ineffective taxation, a skewed labour market and heavy debt burden all threaten the system with collapse and require quick action, analysts say.
They got some of that from a caretaker technocrat government appointed, after last year’s IMF bailout, to hold the fort and implement painful reforms before elections in 2010.
The new administration has slashed pensions, which account for about 20 percent of total budget spending, and scrapped the indexing system that made pension hikes, even in a time of economic recession, mandatory.
But analysts say there is still much to do — and little sign conservatives Fidesz will implement further reforms if, as expected, they take power at elections in 2010.
“The private pillar is (still) uncompetitive, lacks transparency, it’s expensive and makes poor returns … (and) the public system is bleeding from a thousand wounds,” said Peter Holczer, who heads the Pension Roundtable, an advisory board set up by the government.
Budapest’s finances are now being kept afloat by the $25.1 billion IMF-led rescue package. But it still faces a 6.7 percent contraction in its economy and expects its public debt level to hit 80.2 percent of GDP this year.
Consulting firm Deloitte last year estimated that unless the system is changed, the public pension system’s deficit will go from 0.8 percent of GDP in 2007 to 3.7 percent by 2050.
FEW WORKING
Pension problems are a familiar theme across Europe, where ageing populations and the falling percentage of the population working have prompted many governments to implement politically painful reforms.
But Hungary’s high public debt, high budget deficit and widespread tax evasion make the problem more acute than elsewhere. Unemployment is far from eastern Europe’s highest at 9.9 percent, but, at 54 percent, it has one of the lowest employment rates in the 27-nation European Union.
Disability pensions are perhaps the biggest anomaly in the system and successive governments have failed to address it. Critics say the system is both corrupt and inept.
Over 800,000 people, or more than 10 percent of the adult population receive disability pension and nearly a third of all pensioners are below the retirement age.
“Disability pensions are not a pension issue but a social and labour market issue,” Holczer said. “The state has used pensions to solve social tensions and to keep unemployment down.”
Tamas, 37, who asked not to be named, is nearly completely blind and receives a full disability pension because of that. He is also the CFO of a large international firm’s Hungarian unit with a salary in the top 10 percent of the population.
He tried to get his pension cancelled but simply could not.
“I was sent from one office clerk to another and I was told it couldn’t be done. Once you get it, you get if for life. And I was told that instead of complaining, I should be thankful I’m getting help,” Tamas said.
“It’s idiotic. I earn around 20 times the minimum wage but nobody cares, they keep sending me the money. Fine, it’s free money, I’ll take it.”
BOTCHED REFORM
Hungary has launched pension reform before. In 1997 it put in place an internationally acclaimed system that relied on setting up the “second pillar”, or private funds next to the pay as you go system.
But mediocre fund regulation, poor state administration and frequent regulatory changes resulted in a poor operating figures for the private funds and failed to encourage people to take part.
“Young people today lack any trust in the system and are convinced they’ll never get their money back so they’re not willing to take part in the system,” Holczer said.
Pensioners make up more than 25 percent of the population now but Deloitte estimates that this rate will rise to 35.5 percent by 2050 if the system is not overhauled.
As such, touching pensions is also politically sensitive and government after government avoids the issue to maintain the favour of a key voting block.
Little is known about what Fidesz will do, as polls show, it wins by a landslide in elections due early next year, but analysts say Hungary now has no fiscal room for manoeuvre — at least making any retreat on reforms unlikely.
“It’s pretty clear to people (politicians) that a reversal of reforms would be counterproductive,” said HSBC analyst Juliet Sampson.
“Politicians in Hungary had a lot of leverage for years and they have no leverage now, they can only walk on one path.”

* Steps taken to remedy pension problems but more needed

* Demographics problems similar as elsewhere in EU

* High debt, taxes, and system anomalies root of problem

 

BUDAPEST – Hungary may emerge healthier from reforms forced on it by its economic crisis but its politicians have not done enough to defuse the ticking timebomb that is one of Europe’s weakest pension systems.

The country’s poor demographics, failed reform, heavy and ineffective taxation, a skewed labour market and heavy debt burden all threaten the system with collapse and require quick action, analysts say.

They got some of that from a caretaker technocrat government appointed, after last year’s IMF bailout, to hold the fort and implement painful reforms before elections in 2010.

The new administration has slashed pensions, which account for about 20 percent of total budget spending, and scrapped the indexing system that made pension hikes, even in a time of economic recession, mandatory.

But analysts say there is still much to do — and little sign conservatives Fidesz will implement further reforms if, as expected, they take power at elections in 2010.

“The private pillar is (still) uncompetitive, lacks transparency, it’s expensive and makes poor returns … (and) the public system is bleeding from a thousand wounds,” said Peter Holczer, who heads the Pension Roundtable, an advisory board set up by the government.

Budapest’s finances are now being kept afloat by the $25.1 billion IMF-led rescue package. But it still faces a 6.7 percent contraction in its economy and expects its public debt level to hit 80.2 percent of GDP this year.

Consulting firm Deloitte last year estimated that unless the system is changed, the public pension system’s deficit will go from 0.8 percent of GDP in 2007 to 3.7 percent by 2050.

FEW WORKING

Pension problems are a familiar theme across Europe, where ageing populations and the falling percentage of the population working have prompted many governments to implement politically painful reforms.

But Hungary’s high public debt, high budget deficit and widespread tax evasion make the problem more acute than elsewhere. Unemployment is far from eastern Europe’s highest at 9.9 percent, but, at 54 percent, it has one of the lowest employment rates in the 27-nation European Union.

Disability pensions are perhaps the biggest anomaly in the system and successive governments have failed to address it. Critics say the system is both corrupt and inept.

Over 800,000 people, or more than 10 percent of the adult population receive disability pension and nearly a third of all pensioners are below the retirement age.

“Disability pensions are not a pension issue but a social and labour market issue,” Holczer said. “The state has used pensions to solve social tensions and to keep unemployment down.”

Tamas, 37, who asked not to be named, is nearly completely blind and receives a full disability pension because of that. He is also the CFO of a large international firm’s Hungarian unit with a salary in the top 10 percent of the population.

He tried to get his pension cancelled but simply could not.

“I was sent from one office clerk to another and I was told it couldn’t be done. Once you get it, you get if for life. And I was told that instead of complaining, I should be thankful I’m getting help,” Tamas said.

“It’s idiotic. I earn around 20 times the minimum wage but nobody cares, they keep sending me the money. Fine, it’s free money, I’ll take it.”

BOTCHED REFORM

Hungary has launched pension reform before. In 1997 it put in place an internationally acclaimed system that relied on setting up the “second pillar”, or private funds next to the pay as you go system.

But mediocre fund regulation, poor state administration and frequent regulatory changes resulted in a poor operating figures for the private funds and failed to encourage people to take part.

“Young people today lack any trust in the system and are convinced they’ll never get their money back so they’re not willing to take part in the system,” Holczer said.

Pensioners make up more than 25 percent of the population now but Deloitte estimates that this rate will rise to 35.5 percent by 2050 if the system is not overhauled.

As such, touching pensions is also politically sensitive and government after government avoids the issue to maintain the favour of a key voting block.

Little is known about what Fidesz will do, as polls show, it wins by a landslide in elections due early next year, but analysts say Hungary now has no fiscal room for manoeuvre — at least making any retreat on reforms unlikely.

“It’s pretty clear to people (politicians) that a reversal of reforms would be counterproductive,” said HSBC analyst Juliet Sampson.

“Politicians in Hungary had a lot of leverage for years and they have no leverage now, they can only walk on one path.”