Some Norwegian companies have moved industrial production home from low-cost countries. Could reshoring become a trend?
High wages and high costs in Norway are the reasons industries give for moving production to low-cost countries. The manufacturing industry currently accounts for only eleven per cent of the total value creation in Norway, distinctly less than the average in Europe.
But what happens when technological developments result in decreased demand for human labour in manufacturing jobs?
“A foreign manufacturer of car parts found that production could happen both faster and more cheaply through robotization in Norway than in a Chinese factory.”
Some people believe that outsourced companies are thinking of buying a return ticket.
In his doctoral thesis in economic geography at NTNU, Henrik Brynthe Lund has looked at what commodity-producing companies in Norway are doing to stay competitive.
His dissertation work was conducted in the Department of Geography and is part of the activity at the Norwegian Manufacturing Research Centre.
“The global trend is still for goods production to be outsourced from high-cost countries to low-cost countries. But we’re seeing a lot of examples of companies returning home, or reshoring, as it’s called. There’s a growing awareness among Norwegian business leaders that this is actually possible,” says Lund.
No good overview of companies returning home exists yet, but according to EU Eurofound, fifteen Norwegian companies have moved production home since 1 January 2014.
“Automation and robotization are key to reshoring.”
Statistics Norway is working on creating an updated overview of Norwegian companies’ organization of business activities abroad during the period 2014-2016.
Something is lost
No matter how efficient or automated production is, Lund doesn’t believe that all the industry that has been lost can be revived. He doesn’t envision a mass-production textile industry on Norwegian soil, because raw materials and production costs are simply much lower elsewhere for the foreseeable future.
Lund believes opportunities are greatest in areas where Norway has a competitive industry.
- Offshoring – moving production and jobs abroad
- Reshoring – relocating assignments and jobs from abroad to the home country
- Outsourcing – moving tasks and jobs out of the company or abroad
- Insourcing – returning jobs and tasks to the business from a third party
- Homeshoring – moving work tasks from the workplace to the employee’s home. Also used to move tasks and jobs to regions in the same country with lower wage costs.
Reasons for moving home
In his study, Lund investigated nine companies that have moved production home from low-cost countries in Eastern Europe and the Far East.
Several of them consider automation and robotization the key to reshoring, enabling them to produce goods with fewer workers and save on production costs. Hiring the same number of workers in Norway as abroad would make a return home impossible.
“Lund notes that climate policy could also affect global transport.”
A foreign manufacturer of car parts found that production could happen both faster and more cheaply through robotization in Norway than in a factory in China.
A market leader in winches for the offshore industry moved production back home after the oil and gas industry crisis led to unmet production capacity. The company also emphasized that opportunities to make changes and develop new products were weakened when the production apparatus was not in house.
Many of the large factories in the Far East and Eastern Europe produce goods for several companies and have less flexibility to adjust their production to test new solutions.
Lund emphasizes that figuring out where best to locate production is a major and difficult calculation for companies.
“There’s a lot to consider: controlling production, quality, delivery times and delivery security. The time it takes to get the product from production to the end consumer has to be as short as possible.
Lund doesn’t rule out that climate policy may also affect global transport. Bringing production closer to consumer markets could make sense if customers begin to attribute more importance to the environmental footprint or transport fees are imposed. It may not be profitable to send Norwegian fish to China to be processed for sale on the Norwegian market if transportation is taxed – or the customer no longer accepts it.
“We don’t know how far climate policy will go when it comes to transportation. In Norway we’re seeing how sustainability has become an important factor in the construction industry,” says Lund.
No support for reshoring
One of the companies studied by Lund believes other businesses had received support to establish themselves in the Baltic states, but none of the nine had received incentives to bring production home to Norway.
“Funding agencies don’t support reshoring. ‘Lots of big talk, and not much money,’ is what one of the business leaders said. One challenge is that support for reshoring industry can quickly come into conflict with competition rules. Public authorities are also limited in what they can do to help private companies, other than to strengthen education and general innovation capacity,” Lund says.
Everyone wants a job, but how do companies benefit from reshoring production?
“Norway’s major competitive advantage is the level of education and technological competence. As production becomes more automated, robotized and autonomous, employees require different expertise. Work tasks involve monitoring, problem solving and maintenance. That’s where Norwegian employees excel,” says Lund.
But we have to strike while the iron is hot. Low-cost countries are also focusing on education and technology.
The outlook for Industry 4.0, the fourth industrial revolution, is positive as the machines along the value chain start communicating. The Internet of Things (IoT), autonomy and artificial intelligence will change a lot of things. Lund believes their development will give Norway an advantage.
“By increasing technology expertise and the level of innovation, I believe Norway can become an attractive host country for future industrial production,” Lund says.