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Johannes Paloheimo: There is virtue in moderation

The outsourcing of manufacturing to low-cost production countries is no longer a trend, but more of a practice. Increasingly intensive price wars force manufacturers to find more cost-efficient alternatives. As the amount of know-how in low-cost production countries increases, more and more companies relocate their production there, particularly to China at the moment. How can Nordic companies continue to be competitive in the existing world economy?

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The outsourcing of manufacturing to low-cost production countries is no longer a trend, but more of a practice. Increasingly intensive price wars force manufacturers to find more cost-efficient alternatives. As the amount of know-how in low-cost production countries increases, more and more companies relocate their production there, particularly to China at the moment.

How can Nordic companies continue to be competitive in the existing world economy? Their main competitors are no longer situated in machine shops in neighbouring villages but on the other side of the world, where wages are a fraction of those in Western countries. If a Finnish subcontractor is now asked why they should be chosen as the provider to purchase from, in most cases there is a brief silence and then the response “well, we do have the best quality”, spoken in a humble tone. This was sufficient grounds a decade ago, but is “the best quality” really a competitive edge today, for which customers are willing to pay more?

The financial crisis has revealed the vulnerability of Finnish subcontractors. The management of many SMEs are stressed out due to the rapid slowdown in the exports of major Finnish industry groups. What should be done? When Swedish buyers are asked to give their views on Finnish companies, the standard answer is that Finnish companies know what they are doing, but they are way too expensive. The Swedish find that Finnish companies may easily provide the best quality but if sufficient is good enough, why should one provide higher quality at a too expensive price?

Many find the better price/quality ratio in the low-cost production countries as a crucial competitive edge. Many times, I have heard Swedish buyers say that they do not want to pay more for products that are of an excessively high quality. Therefore, your sheet metal shining more than that of your competitors is not an actual competitive edge. This clearly makes you wonder whether Finnish companies manufacture export products of an excessively high quality, at the cost of competitiveness? Perhaps the Swedish buyers would be happy with the Swedish proverb: “there is virtue in moderation”. A sufficiently good product is acceptable as long as the price is right.

You can also compete with something else than quality. Listen to your customers, show interest and be flexible. Briefly put, listen and provide what the customer wants.

Johannes Paloheimo

Senior Consultant Johannes Paloheimo has worked for the Finnish-Swedish Chamber of Commerce (FINSVE) since 2007. He carries out assignments related to mechanical engineering, electronics and IT as well as the process, construction and chemical industries, among others.

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