20 April 2019
A Piquadro handbag boasts a 'Made in Italy' tag. Photo: Reuters
A Piquadro handbag boasts a 'Made in Italy' tag. Photo: Reuters

European firms moving home as wages in China rise

After years of moving production to Asia, some European companies are shifting it home, Reuters reported.

But while firms like Italian leather goods maker Piquadro SpA have boosted production at home, the two-decade-long trend of “offshoring” hasn’t entirely reversed.

Still, some 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.

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 needed to transport goods to western markets.

“Reshoring” is being led by clothing, footwear and electronics companies, partly because they are rediscovering the appeal 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 last month found almost 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.

Luciano Fratocchi, a professor of management and engineering at Italy’s L’Aquila University, told Reuters 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 that weathered the crisis relatively well.

Mid-sized German 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 are the main factor. Official figures show China’s average wages in manufacturing rose 364 percent between 2004 and this year, although from a far lower base than in Europe, consulting firm AlixPartners said.

Boston Consulting Group said manufacturing costs in China are only 4 percent below those in the United States, compared with 14 percent in 2004.

Piquadro’s production in Italy is about a third more costly than at its Chinese factories. But chief executive Marco 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. 

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