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Production industry moves back home

March 23, 2018

The trend of moving production away from the previously low cost countries, back to Europe and the US is growing stronger. It is now up to our local businessmen and politicians to make sure that the conditions are right.

There are several factors that motivates the strategic decision makers to consider relocating all, or part, of their production back to their home countries, or neighbouring countries in their home region.

The high speed of automation means that factories now need access to highly qualified technical staff. Countries where many factories are located today like Mexico, South-East Asia and China are not particularly suited for this. Trained engineers, that can speak fluent english and travel freely to Europe and US on their passports, are difficult to find in these regions. Moving European engineers to for example Vietnam for longterm employment is close to impossible.

The infrastructure is poor in these regions. The roads and trains are less reliable, making staff movements and shipping more expensive, as time is money. Electricity is expensive and unreliable leading to the need of expensive backup power needs to keep production flowing.

In countries like Sweden, Estonia and Germany engineers and skilled staff are available. The loss of the European mobile phone industry and the quick automation of the car industry have resulted in a surplus. EU citizens do not need to be relocated and hold powerful passports. Electricity is cheap and reliable. Transportation is state of the art.

The geographical location means that produced goods can reach their destinations faster, cheaper and more reliably.

The accelerating introduction of tariffs and other protectionist taxation changes means that profits from lower labour costs abroad can be wiped out overnight. Simply put, owning a factory abroad has become a much more dangerous game.

When moving a factory, companies take the opportunity to automate, further increasing the competitive advantage of moving the factory home.

The speed and predictability of getting environmental permits and building permits are deciding factors when the selection of country and location of new factory is being considered. The politicians need to dramatically improve these permit processes.

The total taxation on production, like income tax, profit tax and the potential introduction of tax on robots is crucial when selecting what country to open a factory in. The lower the taxes, the more likely a country is to be selected.

For businesses the speed with which they can lower their production costs by relocating, will determine their competitiveness. The faster they move, the more marketshare they can gain. The slow ones will be losers.

The challenge is clear:
It is now that the locations of the future factories are being selected. Businessmen and politicians are literally deciding the future of their countries.