Manufacturing a High Tech 'Perfect Storm' in Eastern Europe

8/22/2019 Manufacturing a High Tech 'Perfect Storm' in Eastern Europe

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A number of factors have impacted globalsourcing from the Far East in recentmonths which Mark Morley suggestscould 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

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PEOPLE & SKILLS | DECEMBER/JANUARY


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MANUFACTURINGA HIGH TECH

PERFECT STORMIN EASTERNEUROPE

33Dec/Jan 2013

| www.manufacturingdigital.com

For 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 changingthe dynamics and structure of

high tech supply chains. Low cost

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 techcompanies will continue to have

head offices located in the Far East,


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production locations are going tohave to change in order to protect

both the supply chain and the high

tech industry in general. Weve

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 NorthAmerican 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 haveestablished 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-relatedinvestment to a minimum. Though

Sony thought it was financially

viable to build a TV manufacturingplant in the UK, its now starting to

outsource the production of flat-

screen 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 Sonys plant in the

UK, rather than in China. Increasing

wage costs and other macro-

economic 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; ifits possible to manufacture the

worlds cheapest PC in the UK, a

PC that is not much bigger than

a business card, why doesnt the

high tech industry consider further

investments in the European-

region, especially in Eastern Europe

where labour costs are still relativelylow 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 EasternEurope. The Czech Republic,

Slovakia and Slovenia came out

High tech perfect storm


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The OrientalPearl TV Tower in

Shanghai, China

Dec/Jan 2013 35

| www.manufacturingdigital.com

Natural disasters, highwage demands and strikesin China, rare earth export

restrictions from China, not

to mention the high value

of the Japanese Yen are allcontributing (factors).


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36

fairly well in my analysis, withSlovenia 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 farAs well as transport, they have

good communications and utility-

related infrastructures


Many of the hightech suppliers who haveestablished a plant in

Hungary are supporting

their automotive customers

across the border inSlovakia, which is the main

automotive manufacturing

hub in Eastern Europe.

The port of Koper in Slovenia

provides the gateway, via theAdriatic Sea, into Eastern Europe

for many companies, especially

ASPAC companies looking to get

their products or supplies into the

European market. Slovenia has

become a strategic location for not

only distributing parts, components

or products to enddestinations, but also to

service the many high

tech manufacturers,

such as Dell who

have plants in the

country.

The local

governments alsooffer significant tax

incentives and heavily

36

their products or suppl

European market. Slov

become a strategic loc

only distributing parts,

or products to edestinations

service th

tech m

such a

have

coun

Th

goveoffer si

incentives a


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37Dec/Jan 2013

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 2010report 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 acrossthe 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 fromthe 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 allcontributing. This combination

of factors could lead to many

Hungary has seen significant investment from the manufacturing sector

. n t t l.

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Eastern Europe a big asset


. n t t l.

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 Europeancompanies 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-basedcompanies are also now looking for

growth opportunities outside their

domestic market, a trend currentlybeing 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.

Will Eastern Europe become a

major high tech manufacturinghub?

The European Commission needs

to develop a more all encompassing

business and investment plan

for the region - one of Europes

biggest assets. With more and more

companies deciding to source parts

and products from the Far East overthe 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 onceagain.

www.gxs.com

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Manufacturing a High Tech 'Perfect Storm' in Eastern Europe

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