The pendulum swings back – The Post

The pendulum swings back

(photo: istock)
August 14th, 2015 6:55 pm| by Ejvind Sandal
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For a decade the gospel according to Dansk Industri was that high cost levels force companies to outsource manufacturing from Denmark to countries with cheap labour.

The obvious choice
Eastern Europe was nearby, with Poland and Hungary being obvious choices. Both were EU members and close to the German market, which consumes a major share of Danish industrial exports.

And the next stop would be Turkey – almost European and industrially developed – with China, of course, the automatic choice for overseas establishments.

Closing the gap
But what we are seeing now is a confirmation of the laws of gravity. The pendulum is swinging back.

Danish industry has gained a lot from the financial crisis in terms of the fine-tuning of its cost structure. Lean spending and robotisation combined with very low interest rates are beginning to close the gap between local cost development and alternatives.

The labour market has realised that exorbitant wage increases were counterproductive, and it has stopped the widening of unit cost differences between here and there.

The money talks
Recent euro/dollar currency fluctuation has helped – there has been a 25 percent improvement stateside this year alone. And the Chinese renminbi is following suit.

There is a lot of sense in producing in China if it is for the Chinese market, but for services catering to the European market, it is now clear that a number of companies are retracting their outsourced production and rebuilding and increasing their local capacity.

Greener no longer
Turkey, meanwhile, is experiencing uncertainty due to its political stability caused by the government’s recent decision to deal with Kurdish separatists and Muslim hardliners. Here too the currency has now played its card and Turkey is no longer an optimal location to produce cheap yet sophisticated products such as automotive parts and components.

Poland is becoming a good place to work, although wages are increasing above inflation. They have passed the balancing point and are catching up.

Still a shortage
What we now have to cope with is our shortage of skilled labour – particularly technicians to advise us and install robots. Domestic costs are not expected to go down anytime soon, and alternatives are now catching up so Denmark can enjoy its traditional mantra. There are no natural resources – even the oil and gas is running dry – but it has a population with a uniform culture and an educational standard that endorses productivity.

Yes, we have to integrate a number of refugees and legitimate immigrants and not least embrace those already here – especially the second generation Middle East offspring – but they are few in number and the females are showing their men the way (fuelled by gender liberation, no doubt).

All in all, we can return to our jobs after the summer break with our country’s prospects looking the most rosy they have for some time. The pendulum has turned clockwise and is stable.