There has been a lot of hoo-ha in the press recently about US manufacturers returning production from China to domestic factories (for example Apple, Google, General Electric, Caterpillar and Ford), mainly as a result of the increasing costs of manufacturing in China (pay and wages for factory workers in China rose by 10% a year on average from 2000 to 2005 and by 19% a year from 2005 to 2010) plus the currency (the Renminbi) has appreciated 40% against the dollar since 2005. A lot of US firms have worked out that once customs duties and transport costs are taken into account, it may just work out around 10% cheaper to make stuff at home than in China; once you then take into account the supply-chain risk, cultural/linguistic issues, the 6 week shipping time and other inconveniencies it is easy to see why it makes sense for a lot of companies to start making the products back home again.
Northern European manufacturers have never outsourced to China to the same extent that Americans have, partly because European labour laws make it relatively difficult/expensive to close down local production, but also because there is a high concentration of family owned companies, which tend to be more faithful to their local communities. In Europe, near-shoring has been more popular, using for example Eastern European countries to make labour intensive goods. Portugal has to some extent missed out on a lot of this business, because although it has a relatively low-cost and skilled workforce, it has restricted by inflexible labour markets and a weak judicial system. Over the last couple of years, there have been profound reforms in Portugal at various levels, reducing red tape, making labour markets more flexible and now there is talk of a dramatic reduction in corporation tax to attract foreign investment. So over the medium term, there are some reasons for optimism that Portugal will attract business from northern European companies who want to ‘near-shore’.
Our company makes club cycling and triathlon clothing to export mainly to northern Europe and the brand has grown rapidly, because it is just so much cheaper for us to make kit in Portugal than our main competitors who still make it in northern Europe (we also do not use national distributors, to save on costs). One major competitor has emerged from China however, called Champion Systems. They are a well-organized company that makes cheap and cheerful kit and have made a big impact on the northern European and US custom sports clothing markets, because they are generally the cheapest option available. Also, because they are a well-run company, they actually often deliver on time (unlike so many other manufacturers in our industry!) although they do have the problem that they have a distribution company in each country that they operate, which adds an extra layer of cost and they will typically have to pay over 3 euros per garment for air freight (although they charge a lot less), whilst to send kit from southern Europe on 4 day delivery by truck to northern Europe will typically cost less than one euro per garment. The point is that costs can easily mount up.
The current Portuguese Government talks a lot about how the country needs to focus on producing higher value goods and not try and compete with the Far East directly at the low cost end of the market and this makes a lot of sense; it remains to be seen if Portugal can become a power-house of high quality manufacturing to service the outsourcing needs of our rich northern European neighbours.