[050115.EN.BIZ] Rising Costs in Asia Lead to Exodus of European Manufacturers

AFTER years of moving production to Asia, some European companies are tiptoeing back to their home regions, driven by rising salaries in China that are eating away at the profit margins that once lured them abroad.

The likes of Italian leather goods brand Piquadro SpA and battery maker FIAMM SpA have decided to boost production at home.

They are weighing the still lower but 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, reports Reuters.

In a reversal of the offshoring" phenomenon that has shaped global business for two decades "reshoring" is being led by clothing, footwear and electronics companies, partly because they are rediscovering the cachet of the "Made in Europe" label.

But in Spain, for example, depressed wage levels since the euro zone crisis have also prompted foreign car firms to open production lines there.

A PricewaterhouseCoopers survey of 384 euro zone non-financial companies in November found 60 per cent had reshored some operations, mainly production, over the past year, against 55 per cent which 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 Italy's L'Aquila University, Luciano Fratocchi, said 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 SA 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 China's average wages in manufacturing rose 364 per cent between 2004 and 2014, albeit from a far lower base than in Europe.

Piquadro chief executive Marco Palmieri says the average monthly salary of the firm's 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.

Piquadro's 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 1-1/2 years 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 we're also under pressure to reduce the time-to-market of our products," Mr Palmieri said, adding the "Made in Italy" label is a plus for his higher-end bags.

Source : HKSG.