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23rd June 2017
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Business leader warns companies about investing outside established markets
The head of Europe's leading employers' body has called for companies that have their principal markets in Europe to reassess the risks and opportunities of concentrating their production and service centres at locations far removed from their customers.
At a talk delivered to major international companies yesterday, the Secretary-General of the Federation of European Employers (FedEE), Robin Chater made a powerful case for companies to review their current offshoring policies and adopt the mantra 'capital close to markets'.
Robin believes that the benefits of globalisation are "a myth thought up by top executives of a few multinational companies back in the 70s and 80s who based their decisions on a new philosophical commitment to shareholders rather than to customers or employees." At the time it seemed logical for companies operating on a global basis to cut costs by manufacturing in third world or emerging countries and exporting to wealthier markets in Europe and North America... and consumers responded by buying more cheap clothing and computer chips.
But a simple law of economics - too simple even to appear in textbooks - is if you want to sell your goods and services then you must give your consumers the means to purchase those goods and services. By offshoring, companies have siphoned off their capital to locations outside their established markets and then wondered why they have had to dilute the quality of their products to meet a downward spiral in consumer spending power. They have also found that those locations where labour costs and overheads were cheap when they began their operations are suddenly not so cheap after all.
There is, pointed out Robin Chater, a "much neglected fact that we must all face up to. Manufacturing goods in Asia and transporting them by container-ship over vast distances used to be less problematic when transportation costs were low and only a few pioneering companies were offshoring. But now fuel costs are becoming an important factor and there are huge risks in moving goods between Asia and Europe. The shipping lanes entering the Red Sea present the ever pressing possibility of piracy, the Suez canal itself is running at well above its capacity limits and the strategic importance of imports from Asia means that any security incident endangering the continued passage through the canal could have disastrous consequences for individual companies and the European economy."
Since 2000 alone the relocation of manufacturing from Europe to China has led to the loss of over 6 million jobs in the European Union. As a consequence, unemployment is growing in all principal EU countries other than Germany. The impact has been greatest on young people - with more than 50% of those under the age of 25 out of work in Spain and Greece and 35% in Italy. Generations are growing up in Europe for whom work is a distant prospect and who are denied the opportunity to develop the key vocational skills that will be needed in the future. The European Union's working population is also being increasingly burdened by the taxes required to fund expanding welfare demands and this is further hitting the spending power multinational companies depend upon to sustain their market positions.
Robin Chater believes that companies must wake up to these disturbing trends now because "governments seem either oblivious, too weak, or helpless to take the steps that are necessary to prevent advanced economies from imploding"... for ..." it will only take a small eurozone country such as Greece or Portugal to default on IMF/EU loans for the European Monetary System to collapse and consequent shock waves to hit the global economy - from which it will take decades to recover."
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5th October 2012