Those who want to save money in production are currently looking to Eastern Europe. In addition to offshoring, the relocation of business processes to Asian countries, nearshore outsourcing has developed into a real alternative, especially for European companies.
Various studies show that European employers are increasingly opting for nearshoring in the countries of Eastern Europe. However, this is not surprising, especially since there are many good reasons for outsourcing business activities to these countries.
Increased production costs have an enormous impact on competitiveness. This forces many European companies to outsource their own manufacturing activities. In this context, the next step is to find the right country. Nearshoring to Eastern Europe is becoming increasingly popular, as these regions offer numerous advantages over developing countries such as India and China.
The advantages of the oustourcing location Eastern Europe at a glance
1. Low labour costs
One of the main reasons for European companies to relocate to Eastern Europe is of course the comparatively low cost of labour. By outsourcing work to these nearshore regions, cost savings of 30 to 50 percent are sometimes envisaged. The view of some human resources managers that people in these countries lack the necessary training and skills is increasingly being disproved. In the meantime, several Eastern European countries have already established themselves as outstanding production locations.
2. No major cultural hurdles
Since the political changes in 1989, cultures in Europe have become increasingly similar. Today, there is very little difference in values, the relationship to hierarchies, reliability and manners. This is a major advantage over production in Asia, where cultural differences can lead to complications and higher project costs.
3. Good language skills
Language difficulties can put a strain on a business relationship and are associated with expensive misunderstandings and longer project durations. From this point of view, Eastern Europe can play out further advantages, especially since it has been proven that almost 40 percent of all pupils in the new EU member states learn the German language. Furthermore, more than 70 percent learn English at an internationally competitive level. It is precisely the language of the employees that is an important basis for efficient communication.
4. Availability and qualification of personnel
Every year a large number of students graduate in Eastern Europe. As a result, the supply of qualified specialists is very large. Because the requirement profile with regard to the quality of education has increased noticeably, university graduates and young professionals have a profound know-how.
5. Travel and time zone
Another positive aspect of nearshoring are the easy visa and entry requirements for citizens of Eastern European countries. In addition, it is easier to avoid risks in terms of data protection guidelines. Last but not least, engineers from Eastern Europe, for example, are more familiar with EU laws (e.g. regarding intellectual property) than a specialist from Asia. However, the short travel distance and small to non-existent time differences also speak in favour of Eastern Europe. Between Germany and China, on the other hand, the time difference is 6 to 7 hours, depending on summer or winter time. Geographic proximity is therefore a decisive competitive advantage. Moreover, many problems can only be solved face to face in personal contact.
Conclusion Location Eastern Europe
Calculations on Eastern Europe’s share of the global outsourcing market are based on 43 percent, which puts it in second place immediately behind Asia. Experts assume that this share will increase in the coming years in view of the above-mentioned arguments. The cost advantages, geographical proximity, rising levels of education and comparatively low cultural differences alone point to a growing interest on the part of European companies in offshoring in favour of Eastern European countries.
The disadvantages of industrial outsourcing to China
No matter what kind of company you have, it is always advisable to analyse the advantages and disadvantages. Here are some of the problems that can arise when outsourcing to China.
Quality
A major problem for companies considering outsourcing their production to China is quality control. China can appear very impressive on the surface, many products can look good, but the many standards and regulations differ from European regulations.
Low quality material
In order to save production costs, inferior materials may be used. The resulting risk to your reputation as a company should not be underestimated.
Copyright
If you have your production base in China, you must be very careful about copyrights, trademarks and plagiarism. IP law is very different in Asia, and as a company you can hardly protect yourself against this.
The language
Most Chinese understand little or no English. This can lead to business processes not running smoothly and serious problems in communication and coordination. Working with a translator is therefore essential in most cases in China.
Staff turnover
The success of a company depends largely on its ability to attract the best employees and – even more importantly – to retain them in the long term. This task is often already a challenge in a company’s home country, where the company is very familiar with the culture and economic conditions. In developing countries with a foreign culture and different, sometimes rapidly changing economic conditions, the phenomenon of high (voluntary) fluctuation represents a seemingly insurmountable hurdle to long-term success for many European companies. Nowhere in the world is the war for talents being fought as relentlessly as in China. This is why the problem of high fluctuation in China is symptomatic of the problems in other Asian countries.
Conclusion Location China
Manufacturing in China is challenging! If you want to invest in China in the long term, your business strategy must adapt to the special conditions of this challenging market – which means above all not just focusing on low production costs.
Fotocredits: Nikolaj Potanin & Nicola
