Aug, 26, 2019

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Diversifying in Europe. Core or periphery?

Diversifying your supply chain and finding value suppliers or services in Europe can be a tricky proposition nowadays. Either they're not competitive with other emerging markets due to labor costs and exchange rates, or the governance or skills you require is non-existent or is severely inefficient.

To truly find value, you're forced to move your search to the periphery of Europe - which can be to your advantage. Typically, high-end industrial manufacturing, technology, and services are found in the core countries with the stronger economies, and natural products, handcrafting items, and tourism are found in the periphery. While this still prevails, it's no longer the full story.

A new landscape

While work ethic still varies greatly across Europe and financial industries are generally still located in the core countries, when it comes to technology and skills there's a much more level playing field. In fact, you may often find better communications infrastructure, development and R&D, and a skilled workforce in the periphery. Global (and core) companies are taking note and leveraging this new landscape.

Labor costs and culture

Countries typically associated with having a work-culture focused society are still reaping the benefits economically, as you may image. But they also commandeer the highest labor costs, causing a shipping of manufacturing and technology operations to the Asian region, for the most part. But they also leverage markets in the periphery countries as well, nowadays.

Countries with a more relaxed life-work cultural attitude, less developed economies, and lower labor costs are adapting and benefiting from the new norm. It's not just about tourism anymore. You can find qualified and technologically advanced manufacturing and technology service providers in the periphery.

Countries with the lowest labor costs like Bulgaria and Lithuania are popular choices for business process outsourcing inside Europe, and are in direct competition with Asian markets in this regard.

But if your business requirements call for a more elevated degree of skill and governance, but still want the benefit of accessibility to European markets (and to your headquarters), you need to look closer to the core of the EU.

Labor Cost Comparison in the EU (in Euros/hourly)

Labor Costs in the EU

Click image for full-size. View original World Economic Forum article

We'll let you in on a secret...

Since we're a service based in Portugal and due to our experience in the American market, we are going to focus on the western side of Europe as we move closer to its core. If the cultural aspect is important in your business, it's also a good match for its western culture values and time zone. This is already leveraged not only by American companies, but also countries at Europe's economic core.

Here's the secret: a lot of what you buy from companies in top European markets (think shoes and apparel from Italy, produce from Spain, renewable energy infrastructure from Germany, etc.) is already manufactured or produced in Portugal. It's not uncommon for items to be manufactured in Portugal and sold (and even exported) from the core European markets. The business benefits for companies are clear: go straight to the source while retaining quality and oversight with services like our Provider Management service.

Some of the World's top companies know this, and now you do too.



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