North Going South?

High taxes and over sized social system in Northern European countries are some of the contributing factors to the exodus of manufacturing from Northern Europe.

According to Boston Consulting Group the Nordic region has lost 40% of its production jobs since 1980.

All of the Nordic countries, Denmark, Finland, Norway and Sweden, have their individual economical and industrial strengths. However, the long and Northern EU wide adopted social welfare state system seems to not encourage new manufacturing entrepreneurs.

Despite of all official studies trying to prove the opposite, the social–market approach reduces the incentives to be an entrepreneur. Citizens, in all aspects of life, fairly quickly expect the state to throw out the safety net.

This development continues unabatedly, because many government officials and ministers in the Nordic regions have never worked in real life jobs. Holding only a political position does not enhance the development of a good understanding of real life challenges in manufacturing industry.

One additional contributing factor to the exodus is the prevailing mentality among Nordic manufacturers. As soon as the volumes are high enough Nordic SMEs opt for low cost country manufacturing.

This mentality is the total opposite what I encounter among Italian, Swiss or German manufacturing SMEs. In the central European countries SMEs hesitate fairly long before the take the LCC sourcing step.

The experience of Bellevue SME Advisors  shows for instance that Finland is a fairly attractive place to have manufacturing operations, because:

  • EU wide very competitive cost level
  • Good education system
  • For greenfield investments land prices are fairly reasonable
  • Good infrastructure
  • Employees have generally good knowledge in English language

As an SME you should keep in mind though:

  • Stay away from very remote areas, because if new employees, are needed it is very difficult to attract from other regions
  • Generally Nordic SME managers are not very export oriented. Do not rely on the local management only, if your intention is to export from your Nordic manufacturing base. Instead try to get expat managers on board
  • Even if local managers acknowledge the fact that for instance the Finnish and Swedish markets are very limited in size, they do not proactively seek sales growth through export
  • Bank managers are not internationally oriented in Nordic countries so quite often they want to talk to native manager, not to an expat
  • Try to get some other employees to move to your new Nordic location, it facilitates “mentality cross-breeding”

The combination of urgent need for more manufacturing jobs, competitive cost level (with some regional exceptions), good education and local municipalities keen to support new manufacturing jobs, makes the Nordic region a fairly attractive SME manufacturing location for North American SMEs planning for an EU entry.

Without foreign manufacturing investments North keeps going South!

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