China’s rising costs sending European manufacturers home - Greg Knowler, Senior Asia Editor | Jan 04, 2015 10:38PM EST HONG KONG — The growing cost of production in China is forcing some European companies to take their outsourced manufacturing back home after years spent in the region as the profit margins that lured them to Asia are steadily eroded. And it is not only the makers of toys or other low cost items that are throwing in the China towel. Italian leather goods brand Piquadro SpA and battery maker FIAMM SpA are two companies that have decided to boost production at home, according to a report by Reuters. They are weighing the climbing manufacturing costs abroad against the difficulty of overseeing production far from home, plus the cost and time taken to get goods to Western markets. Excess shipping capacity on the Asia-Europe route has seen weak freight rates and plunging service levels that frustrated shippers during the peak season late last year. This has combined with a reversal of the offshoring phenomenon that has shaped global business for two decades as Europe’s economic crisis has driven down wage levels, reviving the “Made in Europe” label. Leading the shift are clothing, footwear and electronics companies In Spain, for example, depressed wage levels since the Euro zone crisis have also attracted foreign car firms to open production lines there, Reuters reported. A PricewaterhouseCoopers survey of 384 euro zone non-financial companies in November found 60 percent had “reshored some operations, mainly production, over the past year, against 55 percent that had done the opposite. Italy topped the reshoring list with 44 companies, while Ireland, Germany and Spain also featured prominently. Professor of management and engineering at Italys LAquila University, Luciano Fratocchi, told the news agency that reshoring has become part of companies survival strategies since the economic crisis. Many Italian firms have reduced or overhauled their production lines because of falling demand, concentrating their remaining manufacturing closer to target markets. In Spain, trade unions have accepted flexible working practices and salary freezes due to high unemployment, encouraging companies such as Ford Motor Co. and PSA Peugeot Citroen to open assembly lines. The trend has affected even countries which weathered the crisis relatively well. German mid-sized companies like household goods brand Fackelmann and chainsaw maker Stihl have also reshored production. High-end teddy bear maker Steiff announced in 2008 that it was returning production from China because it had quality problems and transport took too long. Often, however, rising wages in Asia was the main factor. According to consulting firm AlixPartners, official data show Chinas average wages in manufacturing rose 364 percent between 2004 and 2014, albeit from a far lower base than in Europe. Piquadro chief executive Marco Palmieri told Reuters the average monthly salary of the firms Italian factory workers is five times the Chinese level. But this gap was around 16 times in 2008, while executive pay is now the same in both countries. Piquadros Italian production is about a third more costly than at its Chinese factories. But Palmieri says this is partly offset by high transport costs from Asia and import duties. Shipping from China also takes more time, a handicap for fashion companies whose customers want the latest products fast. Piquadro therefore decided 18-months ago to make its Sartoria line of bags near Pisa, close to its leather suppliers. Chinese factories are designed to handle large volumes: we increasingly need smaller volumes of a much larger variety of products. And were also under pressure to reduce the time-to-market of our products, Palmieri said, adding the Made in Italy label is a plus for his higher-end bags.
Posted on: Mon, 05 Jan 2015 05:45:02 +0000
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