04 Europe


Reshoring of businesses and the effect on job creation in the European Union

Lena Raps

As nearly graduates, we all come across this topic at one point or another – the difficult job situation in Europe. The unemployment rate in Spain of 25,6 % in February this year speaks for itself. Of course, the recession in 2008-09 followed by the Euro Crisis played it’s part in recent years and was responsible for many companies closing down or laying off employees in order to cut costs, but there are further reasons behind this development. Let’s take the manufacturing industry as an example. Since the year 2000 the share of the manufacturing industry lost importance in nearly all countries of Western Europe. Whereas some countries such as Czech Republic, Ireland, Hungary and Germany still ensure industrial shares of 22-25 % of total GDP, Spain and Italy account for 13-15 %, while Greek, France and the UK only report 10 % of remaining production inside their home country. The majority of our daily consumer products come from countries such as China, India or Vietnam. It was impossible for European companies to ignore the financial benefits of producing in Asia or other Least Developed Countries when wages were about a tenth of the ones in their home countries. The offshore job market has simply eliminated many of the jobs that used to exist in Europe.

What has been stated as “the IPhone and the end of American jobs” in the American press has also made it’s round in Europe. The concern envisioned that only jobs with intellectual, cognitive and sophisticated (so called “heuristic”) skills remain in the developed world, whereas rudimentary, mechanical jobs will be entirely outsourced to cheap third world countries or have become replaceable with technology.

This movement can be perfectly observed in my home country Germany where simple tasks such as supporting activities in production, cleaning, hospitality, warehousing, transportation, simple office work, sales aids etc. have decreased by 40 % in the last 30 years. On the other hand higher qualified, knowledge-centric tasks such as executive functions, organizational and management tasks, R&D and consulting jobs have increased of about the same amount. Since the scope of simple gainful employment decreased, there will be far too few job opportunities for low-skill workers left. Accordingly, there will be a great shortage of high-skill workers in upcoming years. This development is not sustainable for an economy if it would continue as it has in the past because job opportunities for less qualified people will shrink leading to a great imbalance of labour demand and supply. We have developed into a society of engineer’s, technicians, researchers and academics.

But a shift is under way and today many reasons speak for the aim of a renaissance of the industry and industrial companies “re-industrialising” Europe. Today, European companies, that drastically reduced procurement costs five years ago by moving production to the Far East, are now doing what is called “reverse offshoring”- the interest to bring parts of operations back to Europe. The movement can be especially observed in the former Eastern Bloc countries.

There are various reasons for this movement, one of them being the demand for improved quality level of the products. Likewise, the demand for shorter lead times combined with a faster reaction to the market and higher value added products, services and processes. Factors such as speed, value and performance have become more important than pure costs. Everyone involved in sourcing and Supply Chain Management is talking about “streamlining of the supply chain” and “stockless supply dynamics”, meaning the extinction of warehouses by just-in-time production. This can be positively influenced by a closer proximity to the sales markets. Furthermore, it is estimated that within the next five years, the cost savings gap between producing in China and Europe will diminish due to rising wages (7,5% annually in China over the last years), rising shipping costs and a higher productivity in Europe. Besides, companies producing on European soil are less subject to the criticism of exploiting low-cost labour in emerging economies and are more likely to secure their corporate image. Naturally, the factor of escalating shipping costs are not an issue in the service sector such as IT services. The South Indian city Bangalore still embraces one of the biggest IT service and call centre hubs, but even this business sector shows trends of relocating to Europe due to increasingly complicated customer interactions.

The homecoming of manufacturing will have a direct impact on the employment situation and lead to the creation of mechanistic jobs, supporting the combat against the growing unemployment in Europe and crisis-ridden countries such as Spain. However, policy makers and businesses will need to work on multiple fronts supporting the outward-look and global-thinking of the European Union. Especially, the reduction of EU regulatory burden on business, a more flexible European labour market and the demand to grow a better balance between regulation at the EU and the member state level are key factors for companies considering the partly onshoring of their business. In conclusion, bringing back labour-intense activities that have been previously outsourced are a positive trend and are going to improve the employment situation in Europe.

This is one side of the coin. The other side is that we need to become global thinkers as well. As labour markets have evolved along with the global economy shifting jobs abroad, the competition for highly skilled college graduates inside the Union will intensify. Mobility and the look outside of our home base are key for more chances and bigger career opportunities.

Lena Raps

Lena Raps

Talent Scholarship-holder, Master of Science in International Business, UPF Barcelona School of Management

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