Low-cost strategy call

18 July 2007
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19 July 2007 | Paul Snell

Manufacturers will get the maximum benefits from low-cost countries only if they have a long-term strategy.

This is the view of Lee Hopley, senior economist at manufacturers' organisation EEF. It follows the publication of a report by the group and accountancy firm BDO Stoy Hayward into potential low-cost manufacturing locations.

Hopley told SM it would take time for economies in Vietnam, Indonesia and Thailand to develop, and for firms to take advantage of new relationships.

She also said low-cost markets would only remain competitive if people invested in developing and servicing the markets, rather than just sourcing from them. "If it is just about cost-cutting, there will always be another lower-cost location coming up," she said.

The report, Global Challenge - Opportunities and threats for UK manufacturers, said other low-cost locations in south-east Asia are looking to emulate the success of China.

Vietnam, whose economy is growing by around 7.5 per cent per year, recently joined the World Trade Organisation and has low labour costs. Intel, Canon and Nike all manufacture there. But the report said smaller suppliers are finding it difficult to expand.

Thailand was praised for the quality of its supply chains and economic stability. It is popular with automotive firms such as Toyota and Honda, but higher labour costs make it difficult to compete on price.

Indonesia benefits from a huge labour force, but suffers from corruption, low skill levels and underdeveloped infrastructure.

The report added moving to low-cost countries is not a "silver bullet" and that manufacturers can only achieve lasting improvements through sustained innovation and effort.

SMjul2007

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