Decisions by the likes of Italian leather goods brand Piquadro SpA
and battery maker FIAMM SpA to boost production at home do not mark
a reversal of the "off-shoring" phenomenon that has shaped global
business for two decades.
But 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 taken to
get goods to Western markets.
"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 last month found almost 60 percent had reshored some
operations, mainly production, over the past year, against 55
percent which had done the opposite. Italy topped the reshoring list
with 44 companies, while Ireland, Germany and Spain also featured
Luciano Fratocchi, a professor of management and engineering at
Italy's L'Aquila University, 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.
Of the around 450 relocations analysed by Fratocchi since 2007,
Italy has accounted for roughly a fifth, second only to the United
States which had the lion's share with nearly half.
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 are the main factor. According
to consulting firm AlixPartners, official data show China's average
wages in manufacturing rose 364 percent between 2004 and 2014,
albeit from a far lower base than in Europe.
The biggest narrowing of the wage gap is in the United States.
Boston Consulting Group (BCG) said manufacturing costs in China are
only 4 percent below those in the United States, compared with 14
percent in 2004.
TIMING AND BRANDING
Italian wages have risen steadily over the past decade, despite
periodic recessions, and overall manufacturing costs remain almost
30 percent higher than in China, according to BCG.
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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.
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," Palmieri says, adding that the "Made in Italy"
label is a plus for his higher-end bags.
While fashion companies form the bulk of those that have reshored to
Italy, other producers are changing strategy too.
Car battery maker FIAMM shut one of its two plants in the Czech
Republic five years ago and decided to keep open a factory in
Avezzano, in Italy's central Abruzzo region hit by an earthquake in
2009, investing 30 million euros to upgrade it.
FIAMM Chief Executive Stefano Dolcetta said high staff turnover was
a problem in the Czech Republic. Productivity was low and the number
of defective items high.
In Avezzano, even after a 20 percent cut agreed with trade unions,
hourly labor costs are 19 euros ($24), compared with 5 euros in the
Czech Republic. Still, Dolcetta says higher productivity and fewer
discarded items make up half the gap.
"Many have offshored production only to discover how difficult it
can be to run a plant that's far away," he said.
(Additional reporting by Maria Sheahan in Frankfurt, Gavin Jones in
Rome, Silvia Ognibene in Florence, editing by Alessandra Galloni and
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