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PEOPLE & SKILLS |

DECEMBER/JANUARY

A number of factors have impacted global
sourcing from the Far East in recent
months which Mark Morley suggests
could lead to Eastern Europe becoming a
major manufacturing hub for the high tech industry
Written by: Mark Morley, Director of Industry Marketing for Manufacturing, GXS
32
| www.manufacturingdigital.com

MANUFACTURING
A HIGH TECH
‘PERFECT STORM’
IN EASTERN
EUROPE
or the past twenty
years most consumer
electronics goods have
been manufactured in the
Far East, the traditional
‘manufacturing hub’ of the global
high tech industry. However,
disruptions are quickly changing
the dynamics and structure of
high tech supply chains. Low cost

F

will continue to have a high focus
for many companies, however
protecting production capacity and
ensuring quick delivery of goods
to end markets has now become
the strategic focus for many
associated companies.
Although many high tech
companies will continue to have
head offices located in the Far East,
Dec/Jan 2013

33
High tech ‘perfect storm’

production locations are going to
have to change in order to protect
both the supply chain and the high
tech industry in general. We’ve
already started to see the shift
from East to West with Foxconn
establishing numerous plants in
Brazil, recently announcing that
they would be building a fifth
plant there in order to serve the
exponential growth in the mobile
device market in North America.
In a similar manner, Mexico is
also seeing significant inward
investment as companies look to
take advantage of lower labour
costs and more importantly its close
proximity to the lucrative North
American market.
So, we have a significant
manufacturing hub in the Far East,
we have a growing presence in
Mexico and South America, but
what about the other major region in
the world, Europe?
Many high tech companies have
established a presence in Europe,
both in terms of regional sales
offices and production plants.
However, the relative high costs
of producing goods in the main
European countries of Germany,
France and the UK have kept
inward manufacturing-related
investment to a minimum. Though
Sony thought it was financially
34

viable to build a TV manufacturing
plant in the UK, it’s now starting to
outsource the production of flatscreen TVs, putting the plants future
in jeopardy.
In a surprise turnaround it was
recently announced that the low
cost PC, the Raspberry Pi would
now be made at Sony’s plant in the
UK, rather than in China. Increasing
wage costs and other macroeconomic factors are starting to
impact high tech investment in
China and the Raspberry Pi is an
excellent example of near-shore
manufacturing - a trend that is likely
to continue.
So this begs the question; if
it’s possible to manufacture the
world’s cheapest PC in the UK, a
PC that is not much bigger than
a business card, why doesn’t the
high tech industry consider further
investments in the Europeanregion, especially in Eastern Europe
where labour costs are still relatively
low and the countries border onto
Western Europe?
The Eastern European picture
Recently, I conducted a research
study looking at the B2B adoption
levels and key industries of the
countries making up Eastern
Europe. The Czech Republic,
Slovakia and Slovenia came out
| www.manufacturingdigital.com

Natural disasters, high
wage demands and strikes
in China, rare earth export
restrictions from China, not
to mention the high value
of the Japanese Yen are all
contributing (factors).”

The Oriental
Pearl TV Tower in
Shanghai, China
Dec/Jan 2013

35
High tech ‘perfect storm’

fairly well in my analysis, with
Slovenia being highlighted as
a key investment hub for the
manufacturing sector. There
were various reasons why these
countries were favoured as
strategic manufacturing locations:
They all border Western Europe,
which means that goods could be
manufactured and shipped across
the borders by train or lorry-based
3PL providers
They have a low cost base and
a very skilled workforce that have
been able to adapt their skills very
quickly to the companies and
industries that have invested in the
region so far
As well as transport, they have
good communications and utilitye a ed
as uc u es
related infrastructures

36

Many of the high
tech suppliers who have
established a plant in
Hungary are supporting
their automotive customers
across the border in
Slovakia, which is the main
automotive manufacturing
hub in Eastern Europe.”
The port of Koper in Slovenia
provides the gateway, via the
Adriatic Sea, into Eastern Europe
for many companies, especially
S C co pa es oo
ASPAC companies looking to get
suppl
their products or supplies into the
Slov
European market. Slovenia has
loc
become a strategic location for not
only distributing parts, components
or products to en
end
destinations but also to
destinations,
service th many high
the
tech ma
manufacturers,
such a Dell who
as
have plants in the
coun
country.
The local
gove
governments also
offer sig
significant tax
incentives an heavily
and
| www.manufacturingdigital.com
m
c

PLAY

Hungary has seen significant investment from the manufacturing sector

subsidised land prices to encourage
companies to setup in the region.
In addition, countries such as
Hungary and Poland have seen
significant investment from the
manufacturing sector. A 2010
report estimated that up to 30
percent of consumer electronics
devices manufactured in the
Eastern European region came out
of Hungary. Many of the high tech
suppliers who have established a
plant in Hungary are supporting
their automotive customers across
the border in Slovakia, which is the
main automotive manufacturing

hub in Eastern Europe.
The Perfect Storm
Over the past 18 months there have
been a number of factors that have
impacted global sourcing from
the Far East, developing into the
‘perfect storm’ when it comes to
deciding future sourcing strategies.
Natural disasters, high wage
demands and strikes in China,
rare earth export restrictions from
China, not to mention the high
value of the Japanese Yen are all
contributing. This combination
of factors could lead to many
Dec/Jan 2013

37
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| www.manufacturingdigital.com
m
c

High tech ‘perfect storm’

domestic market, a trend currently
being seen in Brazil.
Many governments in Europe
have identified economic growth
as a key way to reduce European
debt levels and to help countries
emerge from recession. The EU
needs to classify key Eastern
European countries as regional
development locations which will
get further significant tax breaks
and other incentivized options for
companies looking to build plants
or expand existing operations in
these locations.

Eastern Europe a big asset

manufacturers changing the
structure and dynamics of their
global supply chains and ultimately
benefit the countries that make up
the Eastern European region.
North American and European
companies are also starting to
near-shore production back
to their home markets. In Asia,
Japanese companies are looking
for new manufacturing locations
to minimise future supply chain
disruptions and due to on-going
wage strikes, Chinese-based
companies are also now looking for
growth opportunities outside their

Will Eastern Europe become a
major high tech manufacturing
hub?
The European Commission needs
to develop a more all encompassing
business and investment plan
for the region - one of Europe’s
biggest assets. With more and more
companies deciding to source parts
and products from the Far East over
the past decade, this has partly
reduced the investment in Eastern
European countries. However the
Japanese earthquake has changed
sourcing dynamics forever, meaning
that Eastern Europe could start
to see further significant inward
manufacturing investment once
again.
www.gxs.com
Dec/Jan 2013

39

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Manufacturing Digital Magazine - High Tech Industry Perfect Storm Article

  • 1. PEOPLE & SKILLS | DECEMBER/JANUARY A number of factors have impacted global sourcing from the Far East in recent months which Mark Morley suggests could lead to Eastern Europe becoming a major manufacturing hub for the high tech industry Written by: Mark Morley, Director of Industry Marketing for Manufacturing, GXS 32
  • 2. | www.manufacturingdigital.com MANUFACTURING A HIGH TECH ‘PERFECT STORM’ IN EASTERN EUROPE or the past twenty years most consumer electronics goods have been manufactured in the Far East, the traditional ‘manufacturing hub’ of the global high tech industry. However, disruptions are quickly changing the dynamics and structure of high tech supply chains. Low cost F will continue to have a high focus for many companies, however protecting production capacity and ensuring quick delivery of goods to end markets has now become the strategic focus for many associated companies. Although many high tech companies will continue to have head offices located in the Far East, Dec/Jan 2013 33
  • 3. High tech ‘perfect storm’ production locations are going to have to change in order to protect both the supply chain and the high tech industry in general. We’ve already started to see the shift from East to West with Foxconn establishing numerous plants in Brazil, recently announcing that they would be building a fifth plant there in order to serve the exponential growth in the mobile device market in North America. In a similar manner, Mexico is also seeing significant inward investment as companies look to take advantage of lower labour costs and more importantly its close proximity to the lucrative North American market. So, we have a significant manufacturing hub in the Far East, we have a growing presence in Mexico and South America, but what about the other major region in the world, Europe? Many high tech companies have established a presence in Europe, both in terms of regional sales offices and production plants. However, the relative high costs of producing goods in the main European countries of Germany, France and the UK have kept inward manufacturing-related investment to a minimum. Though Sony thought it was financially 34 viable to build a TV manufacturing plant in the UK, it’s now starting to outsource the production of flatscreen TVs, putting the plants future in jeopardy. In a surprise turnaround it was recently announced that the low cost PC, the Raspberry Pi would now be made at Sony’s plant in the UK, rather than in China. Increasing wage costs and other macroeconomic factors are starting to impact high tech investment in China and the Raspberry Pi is an excellent example of near-shore manufacturing - a trend that is likely to continue. So this begs the question; if it’s possible to manufacture the world’s cheapest PC in the UK, a PC that is not much bigger than a business card, why doesn’t the high tech industry consider further investments in the Europeanregion, especially in Eastern Europe where labour costs are still relatively low and the countries border onto Western Europe? The Eastern European picture Recently, I conducted a research study looking at the B2B adoption levels and key industries of the countries making up Eastern Europe. The Czech Republic, Slovakia and Slovenia came out
  • 4. | www.manufacturingdigital.com Natural disasters, high wage demands and strikes in China, rare earth export restrictions from China, not to mention the high value of the Japanese Yen are all contributing (factors).” The Oriental Pearl TV Tower in Shanghai, China Dec/Jan 2013 35
  • 5. High tech ‘perfect storm’ fairly well in my analysis, with Slovenia being highlighted as a key investment hub for the manufacturing sector. There were various reasons why these countries were favoured as strategic manufacturing locations: They all border Western Europe, which means that goods could be manufactured and shipped across the borders by train or lorry-based 3PL providers They have a low cost base and a very skilled workforce that have been able to adapt their skills very quickly to the companies and industries that have invested in the region so far As well as transport, they have good communications and utilitye a ed as uc u es related infrastructures 36 Many of the high tech suppliers who have established a plant in Hungary are supporting their automotive customers across the border in Slovakia, which is the main automotive manufacturing hub in Eastern Europe.” The port of Koper in Slovenia provides the gateway, via the Adriatic Sea, into Eastern Europe for many companies, especially S C co pa es oo ASPAC companies looking to get suppl their products or supplies into the Slov European market. Slovenia has loc become a strategic location for not only distributing parts, components or products to en end destinations but also to destinations, service th many high the tech ma manufacturers, such a Dell who as have plants in the coun country. The local gove governments also offer sig significant tax incentives an heavily and
  • 6. | www.manufacturingdigital.com m c PLAY Hungary has seen significant investment from the manufacturing sector subsidised land prices to encourage companies to setup in the region. In addition, countries such as Hungary and Poland have seen significant investment from the manufacturing sector. A 2010 report estimated that up to 30 percent of consumer electronics devices manufactured in the Eastern European region came out of Hungary. Many of the high tech suppliers who have established a plant in Hungary are supporting their automotive customers across the border in Slovakia, which is the main automotive manufacturing hub in Eastern Europe. The Perfect Storm Over the past 18 months there have been a number of factors that have impacted global sourcing from the Far East, developing into the ‘perfect storm’ when it comes to deciding future sourcing strategies. Natural disasters, high wage demands and strikes in China, rare earth export restrictions from China, not to mention the high value of the Japanese Yen are all contributing. This combination of factors could lead to many Dec/Jan 2013 37
  • 7. ww w.m N LEA APP NE IPHO N’S LEA UTO N: A MEA AND w .man ww ufact urin gdig ov | N om ital.c HAND T THE BU LT THE BO ILT RS & WILK WERS INS IN N NAUTILU S LOUDSP S EAKER EAKE A ER 2011 anufac turingd igital.c om | Jun e 2011 THE RI SE THE DRO OF NES TOP BUSINES TEN S JETS ww w. URT FONCEPTS K RTANOW C R SH FO O 1 201 M manu fac tur ingdig ital.co m | July 2011 011 ISLE OF MAN TT Z ERO GOC YCLE ECOFR PERF IENDLY ORM COM ANCE MUT ING LE OTT LY ND ANTB IP -FRIELA PL DERSH ii U ECO A-CO LEA C O W S? CO MA SIG END ION SIX INT TAT MAN INHI UFA BITE LEAN TRAN N EC THE EXP CAN UP TO LIVE : CTU D BY RIN G: TRAD ITIO N SFO IT’S R AL LEAD L ABOU MATIO NS: T ERSH IP TOP TEN PR PRO RODU FAIL FAIL AILU CT U UR TECH ES AN TECH RES A D ECHN FL P N L FLOPS OLOGY LO S Y MAKE AN EXECUTIVE DECISION MANUFACTURING DIGITAL’S UNIQUE & INNOVATIVE DESIGN DELIVERS HIGH QUALITY CONTENT THROUGH THE USE OF THE LATEST DEVELOPMENTS IN DIGITAL MEDIA. REACH 97% EXECUTIVES WITH THOUSANDS OF LOYAL READERS ALL OVER THE WORLD. ACCESS ANYTIME, ANYWHERE, AND ON AN ARRAY OF PLATFORMS. REACH AN AUDIENCE OF DECISION MAKERS... CONTACT US TODAY 38 ENTE N INN RPRISE N , C EO CLEA VATION N TE CHNAND OLO GY
  • 8. | www.manufacturingdigital.com m c High tech ‘perfect storm’ domestic market, a trend currently being seen in Brazil. Many governments in Europe have identified economic growth as a key way to reduce European debt levels and to help countries emerge from recession. The EU needs to classify key Eastern European countries as regional development locations which will get further significant tax breaks and other incentivized options for companies looking to build plants or expand existing operations in these locations. Eastern Europe a big asset manufacturers changing the structure and dynamics of their global supply chains and ultimately benefit the countries that make up the Eastern European region. North American and European companies are also starting to near-shore production back to their home markets. In Asia, Japanese companies are looking for new manufacturing locations to minimise future supply chain disruptions and due to on-going wage strikes, Chinese-based companies are also now looking for growth opportunities outside their Will Eastern Europe become a major high tech manufacturing hub? The European Commission needs to develop a more all encompassing business and investment plan for the region - one of Europe’s biggest assets. With more and more companies deciding to source parts and products from the Far East over the past decade, this has partly reduced the investment in Eastern European countries. However the Japanese earthquake has changed sourcing dynamics forever, meaning that Eastern Europe could start to see further significant inward manufacturing investment once again. www.gxs.com Dec/Jan 2013 39